Zynga CEO Mark Pincus (DPA /Landov)
That popping sound is the air going out of Zynga’s stock.
Shares of the social-gaming firm plunged almost 20 percent to $2.82 last night after the company cut its full-year forecast for a second time and said it would write down its purchase of startup game-maker OMGPop by a whopping $95 million.
The maker of “Farmville,” “CityVille” and “The Ville” said it was also planning to cut costs after warning that it would report a loss in the third quarter after the write-off.
The company, run by CEO Mark Pincus, was looking to soften the impact before it officially reports Oct. 24, but instead investors hit the panic button.
“This is kind of amateur hour, pre-announcing this and getting burned anyway,” said a source close to Zynga. “There’s no rationale for gently walking people down and saying you expect the third quarter to be weak. It was expected anyway.”
Zynga expects revenue of between $300 million and $305 million, which actually topped analyst expectations for closer to $290 million.
However, the company said its quarterly loss would be as much as $105 million. It also lowered its yearly revenue projection to $1.1 billion, when analysts expected about $1.2 billion.
“The third quarter of 2012 continued to be challenging and, while many of our games performed to plan, as a whole we did not execute to our satisfaction,” Pincus said in a statement.
“We’re addressing these near-term challenges by implementing targeted cost reductions in the fourth quarter and rationalizing our product R&D pipeline to reflect our strategic priorities.”
The reductions could come from cuts to Zynga’s 2,500-strong work force. Some workers are already looking for new jobs as their pay packages tank along with the stock price, said the source close to Zynga.
The company will likely also curb its free-spending ways, exemplified by its hasty purchase of OMGPop, the New York company that developed hit game “Draw Something.”
In March, Zynga threw $200 million at OMGPop, which had struggled to come up with its lone hit game. Just a few months later, Zynga is writing down nearly half its value.
Zynga also bought its $228 million San Francisco headquarters around the same time it sprang for OMGPop.
“It’s time for adult supervision,” the source said.
Even the surprise pre-announcement of earnings was a mess. Zynga was trying to manage expectations in a way it had not during last quarter’s results period.
In the second quarter, earnings missed so badly the stock tanked 40 percent.