Is Zynga Going Belly Up?

Zynga (NASDAQ:ZNGA) cut its 2012 outlook for the second time on Thursday, sending shares tumbling on concerns that the social games maker will be unable to halt a steep decline in earnings.

Zynga shares hit a record low on Thursday after the company acknowledged that it is still struggling to hold on to users for once-popular game titles like “CityVille” and “FarmVille” that drove revenue growth in the past. Zynga owed its rise to fame to Facebook (NASDAQ:FB), which hosted Zynga’s online games, but even now, as the social network reaches the one billion-user mark, Zynga is hurting.

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Zynga has lost three-quarters of its market value since going public in December, hit by delays in its game pipeline as older titles declined in popularity.

CEO Mark Pincus is disappointed by the results, of course, but is trying to focus on the long term. In a memo to employees, he said, “We’re addressing these near-term challenges by targeted cost reductions and focusing our new game pipeline to reflect our strategic priorities. At the same time, we are continuing to invest in our mobile business.”

Zynga is due to report third-quarter results in three weeks. The company is estimating a loss of 12 cents to 14 cents per share. Zynga cut its 2012 adjusted earnings before interest, tax, depreciation, and amortization (EBITDA) to between $147 million and $162 million, from a previous outlook of $180 million to $250 million.

Meanwhile, Zynga has also lowered its projections for bookings, an indicator of future sales. Zynga is now projecting $1.085 billion to $1.1 billion in bookings, down from a previous projection of $1.15 billion to $1.225 billion.

The company already cut its 2012 earnings-per-share forecast during its earnings call in late July, after which shares plunged 40 percent. Shares have continued to decline since then, and at a record low of $2.82 on Thursday, were trading at just a fraction of a high of $14.69, set in March of this year. Shares are down another 20 percent this morning.

Declining shares, and a number of executive departures, have likely taken their toll on employee morale, and at a company that relies on creativity and innovation, that can have a devastating effect. Zynga’s early hits have faded, and the company needs new games to win back users. In his memo to employees, Pincus highlighted the company’s efforts to invest further in mobile and competitive games like “Mafia Wars,” while asking them not to lose sight of the “bigger picture.”

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