When it comes to earnings, Zynga (ZNGA) can be a big-time gamble. But as for the latest quarter, the company showed growth that left Wall Street mildly encouraged. Zynga stock shot up 4% in early trading Friday, and the stock is up about 2% as of this writing.
OK, so here’s a run-down on Zynga earnings: In its second quarter, the company posted revenues of $199.9 million, a 30% jump on a year-over-year basis. On an adjusted basis, however, ZNGA saw a net loss of a penny per share of Zynga stock.
Wall Street was looking for revenues of $158.7 million and a loss of 2 cents per share. So yes, it was a nice beat for Zynga stock.
But that momentum may not have staying power.
Zynga Stock Faces Headwinds
For the current quarter, ZNGA expects bookings to range from $155 million to $170 million, below the Street’s estimate of $180.1 million.
It’s also concerning for ZNGA that the company remains dependent on just a few games that have been around for some time, such as FarmVille, Slots, Poker and Words With Friends. The point being, ZNGA has suffered a major dry spell in terms of breakout titles for the past few years.
Even worse, Zynga’s user base continues to deteriorate: Monthly active users fell a grueling 32% to 83 million, while daily active users dropped 23% to 21 million.
Much of this can be blamed by Zynga’s transition from social to mobile, effectively killing off its desktop users as gaming activity on Facebook (FB) falls to the wayside.
But still, CEO Mark Pincus isn’t doing half-bad steering the ship he originally helped build back on course. Pincus has restructured the organization by streamlining teams and cutting costs, aiming to hit about $100 million in savings by the end of Q3 2016.
Pincus is focusing on creating proven franchise brands for Zynga, rather than fly-by-night fads. After all, this is the strategy successful developers like Activision (ATVI) and Electronic Arts (EA) abide by, right?
And most of all, it works.
To that tune, Zynga is releasing Dawn of Titans and CSR2 this year, and has signed a multi-year licensing deal with Warner Bros for Willy Wonka and the Chocolate Factory to release in 2016.
Granted, all this does make sense. But it’s troubling that ZNGA will launch a mere two games for the rest of 2015.
In other words, if these titles fail to get much traction, there will be little to spark Zynga stock.
And because Zynga’s track record has been pretty spotty when it comes to product development, betting on Zynga stock right now is risky business.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
