Trouble in Farmville: Zynga's Business Is Shrinking

Yesterday after market close, Zynga reported preliminary results for the quarter that ended September 30. After a disappointing second quarter, investors were hoping for some good news from the social gaming pioneer. Unfortunately, the numbers reported were everything but positive: Zynga failed to meet expectations on every key metric and lowered its outlook for the full year 2012 significantly. The company also announced a $95 million write-down on its acquisition of OMGPOP, admitting that it overpaid for the maker of Draw Something.

Most worrisome though, is the fact that Zynga’s business appears to be shrinking: in Q3 2012, Zynga expects to collect $250 to $255 million from its users, a 13 percent decline over last year’s third quarter. Even in terms of revenue (which is smoothed by Zynga’s way of recognizing bookings as revenue over time), Zynga’s business shrank two percent compared to last year and almost ten percent compared to the June quarter.

Investors reacted promptly: In pre-market trading Zynga’s stock is down more than 20 percent from yesterday’s close.