Embattled social-game publisher Zynga reported better-than-expected earnings for the first quarter ended March 31 and managed to stay profitable. Zynga’s results are closely watched as a bellwether for digital gaming, since Zynga is a huge player in social games on Facebook and it has a big — and growing — presence in mobile games.

Zynga said it had GAAP net income of $4.1 million, or break-even results per share, compared to a loss of $85 million, or 12 cents a share a year ago. Non GAAP net income was $9.1 million, or 1 cent a share, compared with non-GAAP net income of $47 million, or 6 cents a share, a year ago. Revenues were $263.5 million, compared with $320.9 million on a GAAP basis a year ago. Non-GAAP bookings were $229.8 million, compared with $329.1 million a year ago.

Analysts were expecting the company to report a loss of 7 cents a share on bookings of $209 million. Still, Zynga’s stock is tanking in after-hours trading, down 11 percent at the moment, erasing much of the run-up the stock had in the closing of today’s trading. The stock may be down since all of Zynga’s core metrics are down in the first quarter compared to the fourth quarter.

“We are encouraged by the strong execution from our teams and the breakout hit performance of FarmVille 2, which captures the imagination of nearly 40 million players every month,” said Mark Pincus, the CEO and founder of Zynga, in a statement. “2013 will continue to be a transition year as we face the challenging environment on the web and invest in developing the leading franchises and network across web and mobile platforms and offer our 253 million monthly players a connected experience that can follow them from work to school to home and anywhere in between.”

For the full fiscal year, analysts expect a loss of 17 cents a share on revenue of $949.7 million. In the previous quarter ended Dec. 31, Zynga reported a profit of 1 cent a share on revenues of $311 million and bookings of $261 million, down 15 percent from a year ago.

Worth noting: Zynga repaid its long-term debt of $100 million in April and it currently has no debt outstanding.

Zynga grew dramatically on Facebook from 2008 to 2012, and it raised a billion dollars in an initial public offering in late 2011. But the stock cratered in August after the company reported weaker-than-expected earnings and a slowdown in casual simulation games on Facebook. Zynga has been struggling to come back ever since.

For the past six months or so, Zynga’s world seemed to fall apart. Zynga’s No. 2 executive John Schappert, the former No. 2 executive at Electronic Arts, resigned on Aug. 8, and a bunch of other executives followed, including chief marketing officer Jeff Karp, chief creative officer Mike Verdu, chief security officer Nils Puhlmann, chief technical officer of infrastructure Allan Leinwand, OMGPOP chief revenue officer Wilson Griegel, Words With Friends co-creators David and Paul Bettner, and Zynga chief financial officer David Wehner. And in February, Zynga’s chief game designer, Brian Reynolds, also left the company.

In the meantime, chief executive Mark Pincus reorganized the management team and laid off employees. David Ko, chief operations officer, has stepped up to fill the management gap. It shut down “nonperforming” games and cut about 5 percent of the company’s staff, which is still about 3,000 employees. Starting in January, Ko said that the majority of Zynga’s teams are focused on mobile gaming. Ko said in an interview in February that the company had put up more “guard rails” to keep costs under control and to cut weaker games earlier. Among the casualties so far are studios in Austin, Japan, and Boston as well as games like CityVille 2, The Friend Game, and Party Place.

Zynga’s rival, Electronic Arts, recently shuttered three of its once-big social games: The Sims Social, SimCity Social, and Pet Society. It cited a declining interest in those games, and this is a sign to analysts such as Arvind Bhatia of Sterne Agee of across-the-board weakness.

One big hope is Zynga’s move into real-money gambling in the United Kingdom. The company has partnered with Bwin.Party to launch online gambling games in the U.K. market, and it is hopeful that regulators in the U.S. will permit similar online gambling at some point in the future. But the legalization of online gambling is expected to take a long time.

Zynga’s stock price rose in the latter half of trading today before the sell-off. Zynga said that combined bookings for FarmVille and FarmVille 2 grew compared to a year ago. FarmVille 2 is a “breakout hit,” and its daily audience engagement and bookings are exceeding expectations. Zynga’s cross-promotion is working well for its third-party developer, Playdemic, whose Village Life game has grown to 6.5 million monthly active users.

During the quarter, daily active users were 52 million, down from 65 million a year ago and down 8 percent from 56 million in the fourth quarter. Monthly active users were 253 million, down 13 percent from 292 million a year ago and down 15 percent from 298 million in Q4.

Daily average books per average DAU were $0.049, compared with $0.055 a year ago and $0.051 in the fourth quarter. Zynga’s monthly unique payers were 2.5 million, down 30 percent from 3.5 million a year earlier and down 14 percent from 2.9 million in Q4.

For the second quarter, Zynga projects revenues will be $225 million to $235 million. Net loss is expected to be $36.5 million to $26.5 million. Loss per share is expected to be 5 cents to 3 cents a share. Bookings are expected to be $180 million to $190 million. Non-GAAP loss per share are expected to be 4 cents to 3 cents.

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Mobile gaming is perhaps the most strategic market in gaming now, and David Ko, chief operations officer of Zynga and No. 2 in command next to chief executive Mark Pincus, knows it. Ko recently made the tough calls of shutting down Zynga’s social games on Facebook such as CityVille 2, The Friend Game, and Party Place. And he is throwing a lot more of the company’s 3,000 employees into mobile development. If the company succeeds in this market, it could turn itself around, rescue its stock price, and deliver a big jolt of confidence for the struggling game industry.

For 2013, Zynga’s focus is on growing new franchises, building its network, shifting into mobile, and making money. That’s not going to be easy, given the sea of competitors in mobile. But fast-growing segments exist within the space, such as games played on mobile messaging services like Kakao Talk, Line, and We Chat in Asia. Ko is optimistic that Zynga will succeed in mobile with titles like Draw Something 2 (which Ryan Seacrest outed) coming this year. We interviewed Ko on stage at Business Insider’s Ignition Mobile technology event this week in San Francisco. Here’s an edited transcript of the conversation.

GamesBeat: So how is Zynga’s transition to mobile games going?

David Ko: About 297 million people come to us every month on our overall network, and of that, about 72 million are mobile. While the numbers may appear larger to some, what we’ve said is that it’s still very early for us in mobile. We’ve been proud of how quickly the team has been focusing on the shift to mobile. The shift has come because of our players. So many of our players are telling us — we’re seeing it in their usage patterns and their play habits — that they want to play more on mobile and across tablets. That’s not to say they don’t play on PC, but those usage patterns and play habits are changing. We want to make sure we continue to deliver games where our players are.

GamesBeat: Few people would dispute that Zynga won on social. What does it mean to win in mobile?

Ko: The core part of it for us today as far as winning on mobile has been around the company mission, which has been connecting the world through games. While people may focus on mobile today, what it’s really about is, we deliver content. We’re creating fun social experiences for our players. That shift, when we first started a couple of years ago, was on the PC. Today we’re seeing more of that shift on mobile. But we’re not stopping there. We’re thinking about other options in the future. That’s why we’ve done things around the television — Google TV and others — because we want to work across different platforms.

What we said today about what it would mean to succeed in mobile, it’s around delivering what we call core franchises. They may start with mobile-first experiences, and that may lead to experiences on the web or other platforms. But it’s about creating these leading franchises that are potentially mobile first.

GamesBeat: The mobile landscape keeps changing. I didn’t even know about some of the big things that are happening until more recently, like in Korea with Kakao, the messenger service there. It’s becoming a really big games platform. Some of these games are showing up in the top-10 list worldwide on Google Play. December had maybe four Kakao games. It seems to have come out of almost nowhere. Line also seems very big as a messenger service in Japan. WeChat is an option in China. A velocity of change seems apparent here. How do you look at that?

Ko: It’s something we follow very closely. My parents live in Korea, and Kakao is how I’ve been communicating with them for the past year. One of the things that we saw and got excited about with Kakao was just watching how they’ve taken an existing channel around communications — it’s not different from what’s been around for a very long time — and what we saw is that there’s an appetite for gaming on that platform. The gaming you see today on that platform is a very light touch. It’s a bit of a curated type of experience. A lot of it’s around virals.

Some of those games that they’re launching, as you just mentioned, are in the top 10 grossing on Android, and that hit people by surprise. What you find, though, is that it really shouldn’t have surprised us. When people are on that network, they’re looking for other things to potentially go and do. A natural median, if you’re being social with friends, is to say, “Hey, is there a quick game I could go try,” and potentially send virals and invites back and forth. That’s what you see in Kakao.

The numbers have been interesting to watch there from not only a revenue perspective but also the number of people who have registered for the service. I’ve heard people say, “Oh, that’s just a service for Korea.” The reality is that more people have registered than there are in Korea today. You can see it starting to extend out. It’s no different from what you’re seeing with Line or WeChat in other places. There’s a lot we can learn from that here and potentially test out or launch.

GamesBeat: I’ve heard that some of the games are doing a million bucks a day in revenue. It almost reminds me of the craze around Draw Something. How does a big company absorb that kind of suddenness?

Ko: With every new platform that emerges, what you find is that initially there will be a couple of people on the platform. They’ll be the ones trendsetting. You’ll see a number of game apps start to appear across some of those platforms. You’ll figure out what works and what doesn’t work for those players. You’ll start to see that smooth out over time. But I do think there’s going to be a big rush to go onto some of those platforms and try to see if you can deliver and get some of those results.

GamesBeat: What does your pipeline look like for 2013?

Ko: I’m excited. We’re very focused on our franchise model. That’s creating hit games. There are three that I can specifically talk about now. One you may have seen tweeted out by Ryan Seacrest earlier in the week. He talked about Draw Something 2 coming, which I’m personally excited about. When Draw Something came out last year, it was one of the biggest games to hit mobile. It’s had more than 100 million downloads to date. I think we’ve had 10 billion drawings or more. It’s been number one in 84 countries, I think.

We’ve been saying that we want to build on that franchise. We took a lot of player feedback as far as what they liked or wanted us to improve in the game, and we’ve incorporated that into DS2, which is coming out soon.

GamesBeat: Who got Ryan to tweet that?

Ko: He tweeted that on his own. He’s been a huge fan of Draw Something. He’s had a pretty big following on there. The second game, which is currently launched in Canada, is Running With Friends. It’s in the running genre. Very casual, social. We got excited about it because when we company playtested it, it had the best response of anything we’ve been testing to date. Finally, in our last earnings call we talked about FarmVille 2 for mobile. FarmVille 2 on the Web and the original FarmVille have been the epitome of a franchise for us in the company. We just celebrated the six-month anniversary of FarmVille 2. It’s really held its peak daily active user base since it launched. We’re finding a huge appetite for that type of game.

Building franchises is hard. We’ve found that a lot of people who came back and said, “You took that next step in pushing social, making it fun, and differentiating the games between 3D and 2D.” Now, they’re asking for that mobile version of the game. We’re working hard to deliver it. That will come out later this year.

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Zynga is pulling the trigger faster on weak games. Today, the company announced it would close down its CityVille 2, The Friend Game, and Party Place, even as it praised the success of FarmVille 2 and moved to launch its real-money gambling games.

Chief operations officer David Ko said in an analyst conference call that Zynga is closing down games that don’t meet expectations, such as CityVille 2, which failed to match the audience of its record-breaking CityVille game.

The move shows that Zynga is willing to take swift action that may upset some customers, if it means that it can put more effort behind games that are getting traction. That’s important as the company tries to hit its goal of becoming consistently profitable in 2013.

A bellwether for social and mobile gaming, Zynga fell in hard times last year as growth slowed for its Facebook games. Now the company is showing no mercy. It has closed its Boston and Japan studios and is trying to reduce operating expenses further. Ko described the company as setting up “guard rails” where it requires managers to shut down unprofitable games earlier than in the past.

During the fourth quarter, CityVille 2 failed to get a huge audience. But FarmVille 2 exceeded expectations by 100 percent and was the company’s best launch in two years. It’s no surprise that Brian Reynolds, chief game designer and the lead on CityVille 2, resigned from the company last week.

Chief exec Mark Pincus said during the call that Zynga took a bunch of actions to realign around its core goals. It shut studios and laid off staff. It realigned its teams for mobile first, so that it now has more teams on mobile games than it does for the web or Facebook. It promoted four leaders — Ko, Steve Chiang, Barry Cottle, and Mark Vranesh — into key management roles. And it realigned its studios around social casino games, casual, midcore, and “invest and express,” or its simulation games like FarmVille 2.

Pincus said that Zynga “leveled up,” or promoted, 550 people in the quarter. Zynga closed the quarter with 3,050 employees.

“We’ve always been a learning company, learning from our successes and our failures,” Pincus said.

Pincus said that new mobile games are on the way. Zynga has 298 million monthly active users, including 72 million on mobile.

Zynga is amid a “platform transition” toward mobile, said Vranesh, the chief financial officer of Zynga.

Pincus said the company’s three goals this year are to expand the company’s franchises and launch new ones, improve the reach of the Zynga network, and improve profits.

He said that FarmVille revenues (not counting Facebook’s 30 percent partner fees) have exceeded $1 billion life to date, across both FarmVille and FarmVille 2. Zynga also said that the FarmVille franchise has generated $100 million in gross bookings for six quarters now.

Zynga Poker grew its audience to 37 million monthly active users in the fourth quarter, up 8 percent for the year. In 2013, Zynga will introduce its Elite Slots game, which is currently in testing.

Pincus also said that Zynga is looking forward to entering real-money gambling in the United Kingdom as part of its previously announced partnership with Bwin.party.

FarmVille 2 and CityVille 2 were launched two months apart. An analyst asked if FarmVille 2′s success cannibalized the audience for CityVille 2. Ko said the company is learning from every launch and is focused on franchises. It will also launch fewer titles and space its games further apart.

“It’s hard to say,” Ko said. “We had a longer lead cycle where we tested. We didn’t have that for CityVille 2.”

Words With Friends continued to generate a huge audience on mobile, with 7.5 billion minutes of use in December alone.

Ko said that midcore gaming is getting Zynga’s development teams excited, and the pipeline of new games is heavily weighted toward midcore games (which are hardcore in nature but can be played for five minutes at a stretch) in 2013.

To reduce its costs, Zynga is adding to its low-cost development centers in India and China.

“2013 is a pivotal year for us at Zynga,” Pincus said. “We are realigning for $9 billion in socail gaming. Our goal is to make it easier and better to play across mobile and social.”