Life and the stock market are all about managing expectations, and investors are rewarding social-gaming giant Zynga for surpassing its guidance for its fiscal third quarter.
Zynga’s share price is up more than 10 percent to $3.90 (NASDAQ:ZNGA) today following its quarterly financial results it revealed yesterday. The company reported a moderate loss on a GAAP (generally accepted accounting practices) basis of $68,000. Revenue was down 36 percent year-over-year to $203 million. Zynga did say that it expects to bring in a profit next year, and the company also hired DeNA’s Clive Downie to take over the chief operating officer position.
The better-than-expected bad news coupled with the positive outlook and new hire was enough to give Zynga’s stock a jolt on the NASDAQ stock exchange this morning. That said, some analysts want Zynga to start laying out its plans for the future. Specifically, investors want to know how the publisher plans to transition from shriveling social-gaming powerhouse to a competitive mobile-gaming outfit.
“We believe mobile continues to be a compelling growth opportunity,” R.W. Baird analyst Colin Sebastian wrote in a note to investors. “There also remains a sizable opportunity in midcore games, and [Zynga] management indicated there are early signs of success in this market segment.”
In a conference call with investors yesterday, Zynga chief executive officer Don Mattrick emphasized the importance of mobile as part of the company’s five-point plan to return to profitability. That plan also includes focusing on Zynga’s core franchise, producing new hits, shoring up Zynga.com’s network, and cutting down on operating costs.
“Importantly, however, a return to growth will require improved product execution — especially in mobile,” said Sebastian. “And at this point, neither mobile nor the emerging mid-core products are generating adequate volumes.”
In a separate note, Cowen and Company analyst Doug Creutz came to a similar conclusion.
“[While] it appears that Zynga is getting a handle on its cost structure, ultimately we believe teh company needs to resume revenue growth to be a viable investment,” wrote Creutz. “[Zynga] management said that it expects to return to growth in 2014, but there is a lot of wiggle room around that statement, and any growth will be dependent on the launch of new hit titles.”
It comes down to the games. If Zynga can start producing winners on mobile, the doubts expressed by these analysts will begin to evaporate.
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