Zynga earnings tumble on soaring costs


In Zynga's (ZNGA) first earnings report since going public in December, the social-gaming company beat analyst expectations with revenue of $311.2 million in the fourth quarter of 2011, up 59 percent year-over-year. But its profitability took a nosedive, with a loss of $435 million, or $1.40 per share.

Analysts expected Zynga to generate earnings per share of 3 cents on sales of $302.4 million. In last year's third quarter, the company had net income of $12.5 million on revenue of $306.8 million. It had sales of $195.8 million in the year-ago period and $43 million in 2010.

Zynga's net loss for all of 2011 was $404.3 million. That included $510 million in stock-based compensation that was unrecognized until the company went public, although analysts typically account for such factors.

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Zynga hadn't suffered an operating loss in nearly two years, but last quarter it hit $486.6 million. Hurting the company was an enormous increase in expenses, as the table below shows:

Research and development costs saw the biggest jump, soaring from 37 percent of revenue in the third quarter to 143 percent in the next period. But expenses as a percentage of revenue grew significantly in every category.

Zynga's sharp increase in spending raises important questions for the company: Is the game maker's push for growth driving up costs, and does it signify a slowdown in acquiring new users? The number of daily average users for Zynga's games, such as "FarmVille" -- including all paying and non-paying customers -- was 54 million. That figure is essentially flat compared with the third quarter and a drop from the second quarter. The number of average monthly unique users was up slightly, from 152 million to 153 million.

Zynga shares fell nearly 8 percent after the market closed.

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    Erik Sherman is a widely published writer and editor who also does select ghosting and corporate work. The views expressed in this column belong to Sherman and do not represent the views of CBS Interactive. Follow him on Twitter at @ErikSherman or on Facebook.