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Zynga posts Q3 loss of $41m but beats guidance

Social publisher happy with "over-delivery" on NaturalMotion's CSR2 and growth of live mobile franchises

Zynga today released its third-quarter earnings report, revealing a net loss of $41.7 million compared to a profit of over $3 million a year earlier. Revenue came in at $182.4 million, which was down down 7% year-over-year and flat sequentially, but above the publisher's high end of its guidance. Similarly, bookings came in at $196.7 million (up 12% year-over-year and up 13% sequentially), above the high end of the guidance range.

Zynga's transition into becoming a mobile publisher is ongoing, and in fact 80% of total revenues came from mobile titles, which at $145.9 million is up 16% year-over-year and up 6% sequentially. Likewise, mobile bookings were $162.3 million, which was 83% of overall bookings and up 34% year-over-year and up 19% sequentially. Average Mobile Daily Active Users were up one percent to 16 million (up 7% sequentially).

The big title for Zynga during the quarter was NaturalMotion's CSR2, which CEO Frank Gibeau lavished with praise in his quarterly company letter: "We're proud of our NaturalMotion studio for their recent launch of CSR2 where the team delivered a high quality game to racing fans. We heard from players that they love CSR2's authenticity, compelling PVP racing and stunning visuals. We're seeing a high demand for more content as players look to further engage with the game. We're currently investing in new features and events to increase long term retention and improve repeat payer monetization. We expect the impact of this work to materialize over the next few quarters."

He added in a press release, "In Q3, we executed well on our core business and our new launches. Our outperformance in the quarter was due to our over-delivery on CSR2 and advertising. We successfully launched two new, high quality mobile games, and our focus on our key live mobile franchises is paying off as demonstrated by the strong year-over-year growth of Zynga Poker, Social Slots and Words With Friends. As a team, we have shown good momentum in our turnaround in a number of key areas including (1) delivering new, high quality mobile games, (2) growing our existing, live mobile franchises, and (3) unlocking more operating leverage. Looking forward, we are focused on delivering mass market, high quality social games that drive long term engagement and audience growth."

Ger Griffin, newly appointed Chief Financial Officer of Zynga. said, "We are making steady progress, and as we look for opportunities to create shareholder value we continue to assess our capital allocation strategy. As part of that effort, we are announcing a two-year, $200 million share repurchase program. This is an initial step in our capital allocation strategy as we look for opportunities to deliver long term shareholder value."

Looking ahead to the fourth quarter, Zynga anticipates revenue in the range of $180 million to $190 million and a net loss between $25 million and $27 million. The big focus for the publisher will be on launching Dawn of Titans, which Frank Gibeau said "will be the last of our committed 10-game slate for the year."

"Our NaturalMotion studio is known for pushing the creative and technical boundaries of what's possible on mobile devices. Our goal is to create a new franchise with Dawn of Titans and we're continuing to iterate the game as we conclude soft launch testing prior to worldwide launch," Gibeau said.

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