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.