Zynga Inc. shares dropped Thursday as the videogame publisher’s outlook overshadowed results that topped Wall Street estimates, amid continued M&A momentum and a move to reduce its physical presence in San Francisco.
Zynga
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shares plummeted 16% after hours, following a 1.3% decline to close at $9.77. Zynga shares closed at their highest level in nine years on Feb. 19 at $12.18.
Zynga forecast revenue of about $665 million and bookings of $660 million for the third quarter, and revenue of $2.73 billion and bookings of $2.8 billion for bookings.
Analysts surveyed by FactSet had estimated revenue of $679.9 million and bookings of $718.1 for the third quarter, and revenue of $2.73 billion and bookings of $2.94 billion for the year.
For the second quarter, the company reported net income of $27.8 million, or 2 cents a share, compared with a loss of $150.3 million, or 16 cents a share, in the year-ago period.
Revenue rose to a record $720 million from $451.7 million in the year-ago quarter, and bookings rose to $711.9 million from $518.1 million a year ago.
Analysts surveyed by FactSet had forecast a loss of 2 cents a share on revenue of $679.9 million and bookings of $718.1 million.
Meanwhile, average mobile daily active users surged 87% to 41 million from a year ago, Zynga reported, while analysts expected 37.2 million.
While online gaming revenue surged a respectable 51% to $587 million, Zynga’s fastest-growing segment was built-in game ad revenue, which jumped 109% to a record $133 million.
Ads in most Zynga games are “watch to earn” ads, where a player receives in-game currency if they watch an ad instead of skipping it, Zynga Chief Executive Frank Gibeau told MarketWatch in an interview.
“As an ad product they’re pretty successful,” Gibeau said. “It’s what’s driving a lot of the growth inside of the overall gaming ecosystem, and it’s certainly something we’ve been a pioneer of.”
That surge in ad revenue was helped by Rollic, the Instanbul-based hyper-casual games publisher it acquired 80% of for $168 million, with plans to acquire the rest in a few years. Rollic passed the 1 billion-download mark over the quarter, the company said.
Zynga’s M&A momentum isn’t showing signs of slowing down. On Wednesday, Zynga closed its $250 million acquisition of mobile advertising and monetization platform Chartboost, adding a global audience of more than 700 million monthly users as well as “a broad network of advertising and publishing partners.”
The company said it had agreed to buy Beijing-based StarLark, which makes the mobile game “Golf Rival,” for $525 million in cash and stock, from Betta Games.
The company’s outlook includes Chartboost, but does not include the StarLark deal, which is expected to close in the fourth quarter.
Additionally, the company said it would book a charge of about $82 million in the third quarter, as it plans to “exit and sublease” its existing office space in San Francisco because of the “ongoing evolution of our workplace model.”
With a majority of staff working abroad and remotely outside of San Francisco and only about 30% of staff living in the city, Gibeau said Zynga has come to adopt a hybrid workplace model that has made its San Francisco office space obsolete.
“It’s just really overkill for what we need,” Gibeau told MarketWatch.
Zynga is moving to office space in San Mateo, Calif., that’s more central to its employees, while maintaining a smaller presence in San Francisco.
Gibeau said the company has not publicly released how much money the change will save the company but said the savings will justifies the charge going forward.
Back in 2019, Zynga sold its San Francisco building to Beacon Capital for about $600 million and leased it back, a move that some on Wall Street said would provide money for acquisitions.