Zynga revenues fly, but costs pull profits

Zynga revenues fly, but costs pull profits

By Rob Crossley

November 7th 2011 at 12:03PM

Social games titan absorbs huge chunk of expenses before going public

Zynga’s revenue for the third calendar quarter nearly doubled to reach a new record, but the firm’s exorbitant investments continue to squeeze profits.

For the three months that ended on September 30th, Zynga made $307 million, driven by in-game advertising and virtual goods purchases. That represents year-on-year revenue increase of about 80 per cent for the quarter.

Yet a fourfold surge in development outlay, along with costs related to Zynga’s significant workforce expansion, has hampered profits. Net income fell 54 per cent to $12.5 million, down from $27.2 million last year. That follows a Q2 net profit drop of 90 per cent.

Zynga, which is the biggest western social games company in terms of workforce, revenue and player numbers, is hoping to launch its IPO before Christmas.

The firm initially had many Wall Street investors in a craze when its IPO intentions were announced, though wider market turmoil across the US and Europe has clouded the bid. Many investors are only making the safest bets, particularly in bullion.

Zynga recently went on the offensive by showcasing no less than ten social and mobile game projects – a broad project unveiling that it hopes will validate its investment drive. The firm, perhaps intentionally, is absorbing a large chunk of expenses before it goes public.

Yet Zynga's daily active users fell by around five million since Q2. Monthly active users trimmed 1 million to 227 million.

In a matter of weeks, Zynga will launch CastleVille – a game that will be seen as a pivotal test of endurance for the ‘Ville’ brand. Cityville and Farmville are two of the most popular Facebook games of all time.

The cost of spreading its bets amounted to $114.8 million in the third quarter, treble the amount spent in Q310. Zynga's payroll has also become a significant factor. By the end of 2009, it had around 600 employees, which jumped to about 1500 a year later. Today the firm employs 2,800 staff across more than a dozen studios around the world.

[Pictured: Zynga CEO Mark Pincus, courtesy of Venturebeat]