Zynga’s Profit Drops 95%, But Not To Worry

Zynga’s profits over the last year have dropped about 95% – from $27.2M to a grumpy $1.3M. Before you double over in a schadenfreude induced fit of laughter,  this isn’t the entire story.

As much as every self respecting gamer might want to watch the world of Zynga burn, and all of the many ‘Villes crumble into ashes – I wouldn’t jump on the doomsday train just yet. While these profit losses are considerable, they come with apparent caveats.

Contrary to the substantial profit loss, the company’s revenue continued to grow by the end of the quarter on June 30th. Reaching revenue numbers of $279.1M, the quarter ending in June met a 15% revenue increase over the previous quarter ending in March. This is a respective slow down from the 25% increase the previous quarter saw as it was wrapping up with an impressive $242.9M by March.  

Naturally, these numbers may hint towards a decline, but Zynga attributes these numbers to the heavy commitment into the development of their most recent game, Empires and Allies – which released in March. During this time, the social-gaming juggernaut states that it focused on internal growth, hiring, and acquisitions.

Now, if you aren’t familiar with the way Zynga generates revenue: the company employs a virtual goods system in the form of “bookings” that expresses the revenues from advertisements and the purchase of multitudes of microtransaction items. These numbers are counted before any sales adjustments are made, or immediately at the time of purchase.

This means, in terms of profit losses, the new Facebook Credits system that takes 30% of the credits has apparently struck the heart of the mighty social gaming colossus.

Despite the loss of profits, the company is still valued at a staggering $14.05B, an increase over the previous $13.98B due to third party analysis that pinned the probability of the company’s Initial Public Offering at 75% – a drop of 5%.

So yeah, Zynga’s still smelling the sweet FarmVille super roses.

[Source - Wall Street Journal
VIA – Gamasutra]