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Zynga's 90% drop in second quarter profits unlikely to derail IPO

September 22, 2011 |  5:06 pm

Zynga Logo When Zynga Inc. quietly released its second quarter earnings late Wednesday, some seized on the 90% drop in the social game publisher's second quarter net income.

One news outlet, Reuters, questioned "whether the company can sustain its growth ahead of its much-anticipated" initial public stock offering.

Zynga's profit fell to $1.4 million in the quarter ended June 30, from $14 million a year earlier, according to the San Francisco developer's most recent filings with the Securities and Exchange Commission.

The company did not respond to a message seeking comment.

Analysts, however, say the alarms are unwarranted, pointing to the company's revenue, which grew 115% in the same period to $279.1 million, up from $130.1 million last year.

Rather, Zynga's expenses were partly to blame for the profit dip, said Michael Pachter, analyst with Wedbush Securities.

The company booked development and marketing costs for two major games, Empires & Allies and Adventure World, in the second quarter, with little in the way of revenue from those releases in the period. Empires launched in June, and Adventure World was released earlier this month. Those two titles were among Zynga's most ambitious and costly to build.

Those expenses caused "lumps" in Zynga's second quarter income, Pachter said. 

Zynga's IPO is more likely to be affected by the roiling stock market, analysts said. The company in June declared its intent to publicly sell shares to the public, but has yet to pull the trigger on a date to begin trading. Some market observers speculate that Zynga and others are waiting for the turbulence in the stock markets to abate before diving in.

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-- Alex Pham

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