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Fewer paying players on FarmVille
Zynga offers its games for free and makes money when players buy those virtual goods to enhance game play (AP)
Zynga lost money and received less revenue than anticipated in the second quarter because CityVille, FarmVille and other games are not attracting as many paying players as they should.
Its stock tanked in after-hours trading and dragged down Facebook's shares as well because the social networking icon relies on Zynga for a good chunk of its revenue - 12% last year. The news comes as Facebook prepares to report quarterly earnings on Thursday, its first as a public company.
Though Zynga's revenue grew, Wall Street wanted more. The number of players increased, but only because it got more players from its acquisition of OMGPop, the maker of the mobile game Draw Something. Expenses grew, too.
Faced with a dismal quarter, Zynga lowered its outlook for the year on Wednesday, citing game delays, reduced expectations for Draw Something and what it called a "more challenging environment on the Facebook web platform".
"The largest reason for us decreasing our guidance has to do with the performance of our existing games," chief financial officer David Wehner said in a conference call with analysts.
It is not clear if this means people are growing tired of Zynga's games, of Facebook games in general, or if they are just not paying as much for virtual cows and poker chips as they used to. Zynga offers its games for free and makes money when players buy those virtual goods to enhance game play.
The game delay, the weak Draw Something performance and changes Facebook made to its website - which can make older games such as FarmVille more difficult to discover - helped explain why Zynga did badly in the second quarter.
The company said it now expects adjusted earnings of 4 cents to 9 cents per share for all of 2012. In April, it had forecast adjusted earnings between 23 cents and 29 cents per share. Analysts were expecting 26 cents.
Zynga derives nearly all of its revenue from games played on Facebook. A growing number of Facebook users are accessing the social network using mobile devices rather than computers, which hurts web-based games such as Zynga's.