Zynga profits drop sharply, IPO seems even less desirable now

By on September 23, 2011, 7:30 PM

Zynga has reported a 90 percent drop in second quarter net income compared to the same period a year ago. The social network game developer made roughly $14 million for the three months ending in July last year but that number dropped to $1.4 million for 2011, as reported by develop.

The headline is slightly misleading as revenue grew 115 percent in the same period, up to $279 million. The discrepancy between income and revenue is likely a result of expansion and hiring of more staff. A note from Wedbush Morgan analyst Michael Pachter indicates that development and marketing of two major games, Empires & Allies and Adventure World, factor into the decreased income. Earnings from these titles won’t hit the books until next quarter.

Zynga was planning an initial public offering (IPO) earlier this year before the hot tech IPO climate cooled down. It was believed at the time that Zynga was uneasy about jumping into the rollercoaster that the market had become in addition to concerns with their SEC filing.

According to CNET, the SEC told Zynga to stop using certain non-traditional accounting practices in its filings. The commission also found issue with the fact that Zynga relies on a small number of paying customers for the majority of sales. In an amended filing, Zynga claims that less than 5% of users pay for virtual products in-game.

There’s still no word on when Zynga plans to go public but in light of the latest income report, it seems that delaying the deal was a bad move.

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