Zynga Inc. ended 2018 with faster growing sales and orders, expecting the trend to increase in 2019, but profits could be a problem.
On Wednesday, the mobile video player reported revenue growth in the fourth quarter higher than a forecast that had already been raised, and predicted that orders – a calculation reflecting total contract revenue – would grow faster than expected in the new year. Zynga shares received more than 5% in immediate after-sales after the release of the results.
"Zynga turn is now complete and we are well positioned for significant growth in 2019 and beyond," CEO Frank Gibeau and CFO Ger Griffin said in a letter to shareholders released Wednesday afternoon.
However, earnings came in as expected in the fourth quarter, and Zynga
warned about margin pressure in the coming year. The company steered for lower earnings than expected in the first quarter, while projecting much higher orders than analysts projected. Zynga explained that orders will grow much faster than sales as deferred revenue accrues.
"We expect our growth in the order in 2019 to exceed revenue as we basically postpone orders from our recent acquisition of Empires & Puzzles, as well as new game launches in the second half of the year," said the leaders. "We expect this to result in a net increase in deferred income of $ 200 million, which represents our biggest build in this GAAP metric metric since 2010," though Zynga admitted that it would mean $ 200 million in revenue, net revenue and adjusted Ebitda in 2019.
Zynga said his margins would be affected by a new pressure in licensed content that resulted in games based on popular content such as "Star Wars" and "Harry Potter", as well as a huge focus on revenue from users instead of advertising. The company also expects to spend heavily on development and marketing for new games scheduled in the second half.
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"These investments will modestly weigh on our overall operating margins in 2019, but deliver returns over the coming years," Zynga says. . They also pledged "low double-digit revenue and order growth, with greater operational utilization" by 2020.
Zynga's big-name gaming plans based on licensed content and increased mobile revenues have contributed to pushing stocks higher after many years of struggle. Stocks have increased 25.2% over the past year, as the S&P 500 index
has grown by 1.6%.
Zynga reported net revenues of $ 559,000 in the fourth quarter, less than a $ 248.7 million in revenue on revenue of $ 267.3 million. On average, analysts expected a rough quarterly quarterly result on a GAAP basis, with sales of $ 244.1 million and a $ 259.6 million order, according to FactSet. The company claimed adjusted EBITDA earnings of $ 37.1 million, lower than the average analyst's estimate of $ 50.8 million, according to FactSet; Zynga did not provide an income-adjusted earnings per share.
For the first quarter, Zynga predicted a net loss of $ 59 million, or 6 cents per share, on sales of $ 240 million and $ 325 million orders, with an adjusted Ebidta loss of $ 29 million. Analysts modeled on average an adjusted EBITDA gain of $ 48.8 million, with sales of $ 265.5 million and an order of $ 294 million, according to FactSet.
For the whole year, Zynga predicts $ 1.15 billion in revenue, which will be the first billion dollar revenue since 2012 and represents an increase of 27% from 2018. The order is expected to be $ 1.35 billion, up 39% from 2018. On average, analysts predicted annual adjusted earnings of 19 cents a revenue share of $ 1.18 billion and $ 1.25 billion orders, according to FactSet. Beyond admitting margin squeeze and saying that operational cash flow is expected to grow "excluding the effect of tenant improvements," Zynga did not provide a full-year forecast for earnings.