‘Draw Something’ erasing Zynga profits
ynga’s shares plummeted 19% in after-hours trading after the troubled social gaming company cut its financial projections for the year and announced it would write down nearly $100 million from its recent acquisition of OMGPOP, the maker of “Draw Something.”
In March, San Francisco-based Zynga paid $180 million for OMGPOP based primarily on the value of “Draw Something,” which was at the time hugely popular on mobile devices and the top-selling game on Apple’s iTunes Store.
However, it soon became clear that Zynga bought OMGPOP at the peak of the game’s popularity, because its usage rapidly declined in the following months. Zynga said Thursday that it would take an impairment charge of between $85 million and $95 million on OMGPOP in the quarter ended Sept. 30, essentially admitting that the social and mobile games maker is worth half of its original purchase price just six months later.
In addition, Zynga said that its bookings — the value of products it sells in a given period of time, which is different than the revenue it recognizes — would be between $1.085 billion and $1.1 billion for the full year, down from a previous estimate of $1.15 billion to $1.225 billion.
Adjusted earnings after certain costs are deducted will be between $147 million and $162 million, down from previous expectations of $180 million to $250 million.
The company said the disappointing estimates were in part because of to a weaker-than-expected performance of several of its games and lower expectations for upcoming titles, including “The Ville.”
In a post on Zynga’s corporate blog, chief executive Mark Pincus said players appear to be losing interest in so-called invest and express games, like “Farmville” and “Cityville,” whereby customers “invest” time or money in earning items that they can show off to “express” their achievements.
He said the company will now invest more resources in casino gaming titles, like its popular poker, and competitive “player vs. player” titles such as “Mafia Wars.”
“We’re addressing these near-term challenges by targeted cost reductions and focusing our new game pipeline to reflect our strategic priorities,” Pincus added. “At the same time, we are continuing to invest in our mobile business where we have one of the strongest positions in the industry. These actions support our strategy to transition from being a first-party web game developer to a multi-platform game network.”
Zynga has been under pressure all year with disappointing financial results and the departure of several top executives including chief marketing officer Jeff Karp and chief operating officer John Schappert.
The company will announce its third-quarter results this month.
Zynga’s stock closed up 1% at $2.82 before the preliminary financial results were released. In March, it reached a high of $14.69.
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