Bad sign for Zynga ahead of its planned IPO: The company’s profits were decimated in the June quarter, according to an amended S1 filing.
Net income for the three months ended in June was $1.4 million, which is down 90% from $14 million for same period, a year prior.
And while revenue for the June quarter was up 114% year over year, Zynga’s “bookings” were down 4% on a quarter over quarter basis for the first time in the company’s history.
Bookings are Zynga’s virtual good sales combined with ad revenue. Zynga doesn’t recognise all of its virtual goods sales revenue immediately. So, “bookings” is used a shorthand way to look at what Zynga pulled in for the quarter in total.
Zynga calls bookings, “the fundamental top-line metric we use to manage our business, as it reflects the sales activity in a given period.”
What caused a drag on bookings? It blamed a drop in daily active users. It also says it didn’t release any new games to materially impact the first half bookings of 2011.
As for the profits decimation … Zynga attributed that to a number of things: R&D costs are up due to headcount increases. General and administrative costs are also well up. They seem like potential one time items.
- General and administrative expenses increased by $27.1 million from the three months ended March 31, 2011 to the three months ended June 30, 2011 due to $10.6 million in stock-based compensation expense related to a common stock warrant granted in June 2011, a $10 million sign-on bonus in connection with an employment agreement with a new member of senior management and other headcount-related expenses.
- Research and development expenses increased in absolute terms during every quarter presented, primarily due to headcount-related expenses from continued hiring to develop and enhance our games and consulting costs related to game design and content creation. The increase in the three months ended March 31, 2011 reflects increased resources devoted to existing and new game development. This is a key area of investment for us and core to the long-term success of our business. The increase in the three months ended June 30, 2011 includes $4.0 million related to payments to a former employee and $4.8 million of stock compensation expense related to the acceleration of vesting of stock options held by this former employee.
But, the company’s operating income was flat on a year over year basis at $13 million. That’s not good.
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