Zynga Scales Back Outlook, Cites ‘Challenging Environment’ On Facebook Platform

By Justin Lafferty 

The stock of popular Facebook application developer Zynga has dropped despite growing revenue, which the company reported Wednesday in its second-quarter financial results. Zynga noted that it is scaling back its outlook for the rest of 2012, citing a challenging environment on Facebook’s platform.

Zynga, which has been trying to find some way to cut dependence on Facebook, lost $22.8 million in the second quarter. The company is most famous for games developed on the Facebook platform, such as FarmVille and Words with Friends.

Mark Pincus, Zynga’s CEO and founder, commented on what his company went through in the most recent quarter:

The company achieved some significant milestones in the quarter, including the launch of Bubble Safari, which is now the No. 1 arcade game on Facebook, and the launch of The Ville, now the No. 2 game behind Zynga Poker. Our advertising business continued to show strong growth, with revenue up 170 percent year-over-year. Our games reached record audiences, achieving more than 300 million monthly active users. We grew our mobile footprint fivefold in the year, to 33 million daily active users, making Zynga the largest mobile gaming network. We also faced new short-term challenges that led to a sequential decline in bookings. Despite this, we’re optimistic about the long-term growth prospects on mobile where we have a window of opportunity to drive the same kind of social gaming revolution that we enabled on the web.

Pincus also mentioned Facebook when he discussed plans for Zynga’s future. The company said that in addition to having to delay the release of new games, there has been a decline in the playing of existing Web games, fueled in part by a “more challenging environment,” on the Facebook Web platform.

The poor showing by Zynga in the second quarter has many anxious for tomorrow’s Facebook earnings call — the company’s first since going public. Facebook’s stock has already taken a 7 percent hit in after-hours trading after the figures from Zynga were released.

CNBC’s Fast Money feels that this doesn’t bode well for Facebook:

Not only do the results suggest that traffic on Facebook may be slowing, but Zynga’s results may hit the bottom line directly. Facebook relies on Zynga for 15 percent of its revenue, according to Reuters.

Readers: What effect will Zynga’s second quarter have on Facebook?