Zynga posts loss on pricey stock compensation costs

@CNNMoneyTech February 14, 2012: 6:25 PM ET

NEW YORK (CNNMoney) -- In its first financial report as a public company, Zynga edged past analysts' expectations but posted a loss thanks to its large stock-based compensation expenses.

The casual gaming pioneer, best known for its -Ville franchises like FarmVille, reported sales of $311 million for the quarter ended Dec. 31. Excluding stock compensation costs, Zynga had net income for the quarter of $37 million, or 5 cents per share. That topped the 3 cents per share consensus forecast of analysts polled by Thomson Reuters.

But Zynga's compensation expenses ate through its profit. For the full 2011 fiscal year, Zynga posted a net loss of $404 million on sales of $1.2 billion. Zynga's stock-based compensation expenses for the year totaled $510 million.

Without those expenses, Zynga's net income for the year would have been $182 million. That's a 24% decline from 2010, a drop Zynga attributed to its increased investment in developing new games.

Zynga's (ZNGA) share price fell 9% in after-hours trading immediately following its financial report, but quickly bounced back to trade essentially flat with Tuesday's $14.35 per share closing price.

Zynga's 2011 sales rose 38% compared to 2010, topping $1 billion for the first time.

The company's "monthly active users," a closely watched metric tracking how many people are playing Zynga's games, reached 240 million in the fourth quarter -- up 23% compared to a year earlier.

Zynga went public in December, raising $1 billion in an offering that valued the company at around $7 billion. Zynga competes in a fast-growing market with with rivals including Electronic Arts (ERTS) and Disney (DIS, Fortune 500)-owned Playdom and PopCap Games.

On his conference call with analysts, CEO Mark Pincus fielded questions about his management style. Some news stories have drawn attention to Zynga's intensely competitive and occasionally workaholic corporate culture.

When asked directly about how he describes his leadership style, the CEO quipped: "I don't know if I can answer that in one sentence." He called the quiet period around Zynga's offering -- a time when companies can't easily respond to critics -- a "difficult" stretch.

"My values, Zynga's values are on the wall here," Pincus said. "If you read those values, that's my management style."

Pincus meant that literally. Zynga has its "6 core values" painted on its office walls. The list includes "level up" and "move at Zynga speed."

Zynga's ability to keep rolling out hit games is critical to its future revenue streams. The company keeps improving its game testing and analytics, Pincus said.

"We're constantly learning and improving the process that we use to bring new games to market," he said. "Were continuously adding more early check points to test what we call 'the very fun rating' of our games against our target audiences."

Pincus also said that Facebook's latest changes to boost content sharing across the site have been positive for Zynga.

"In recent quarters they've focused and partnered with us to innovate around the type of social gaming experience their user base can enjoy," he said. "You're starting to see some of the benefits, in terms of increasing user engagement." To top of page

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