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Zynga, Inc. (ZNGA) Q1 Earnings Preview: Enough Room To Hurdle Low Expectations?

 April 23, 2013 01:29 PM


(By Rich Bieglmeier) Zynga, Inc. (ZNGA) will hold a conference call to discuss financial results for its first quarter on Wednesday, April 24, 2013, at 2:00 p.m. Pacific Time (5:00 p.m. Eastern Time), following the release of its financial results after the close of market.

Wall Street anticipates that ZNGA will lose $0.04 for the quarter. iStock expects the online gamer to report earnings that will hit Wall Street's consensus number. The iEstimate is -$0.04, too.

Zynga Inc. develops, markets, and operates online social games as live services on the Internet, social networking sites, and mobile platforms in the United States and internationally.

[Related -Zynga Inc. (ZNGA) Q2 Earnings Preview: Shareholders Hoping for Bad Data]

Depending on whose data is used, Zynga has either topped Wall Street's view four of its five quarters as a public company or missed expectations three out of five. What's not in doubt for the handful of quarterly checkups is the stock's performance. Shares turned red in the days surrounding earnings in four of the five EPS announcements.

Normally, the losses were small dropping -6.00%, -3.80% and -2.40%, but three quarters ago and agreed earnings miss by data providers, ZNGA got smacked, losing more than 37% in the earnings zone. Last time out, shareholders were rewarded with a gain of 26.60% in the three days before and after EPS.

In the shorter term, Zynga popped the morning after earnings three of the five eps announcements gaining 5.84%, 15.02%, and 3.18% form pre-earnings close to post-earrings open. Each time, the gains stuck with green expanding twice. However, when the reaction from Wall Street stinks, it downright stinks. The stock got hammered from pre-EPS close to post-EPS close, shares tanked 37.40% and 17.77% (see table).

[Related -Candy Crush: About to Crush Investors?]

Fortunately, Zynga fortunes depend on website traffic, which is easy to monitor. In this regard, traffic sticks, falling 10.28% in the last three months and nearly 40% in the last year for Zynga.com, according to Alexa.com.

Not surprisingly, if traffic equals revenue for the social game company, analysts expect revenue to fall 36.30% in Q1 2013 versus Q1 2012, dropping from $329.16 million to $209.79 million. Last year, the company earned $0.06 cents for the quarter.

On the other hand, if Google Trends are indicative of user interest as measured by Google searches for "Zynga" are up more than 100% year-over-year (YoY). Meanwhile, queries for ZNGA's strongest brands "Zynga Poker" and "Farmville" are slightly lower YoY, which suggest the quarter might be a little stronger than anticipated.

Finally, iStock will be interested in hearing how well the "real money" casino games and poker are doing in the U.K. There is little doubt in our mind that legal, real money gambling in the form of poker and casino games is coming to a state near you sometime in 2013 or early 2014.  If Zynga has success in the competitive U.K. online gaming space, it could be a good indication of what is to come.

Overall: There are a few reasons to believe that Zynga, Inc. (ZNGA) might do a little better than expected, despite falling well below last year's first quarter profits and revenues. If Wall Street likes what they hear, then shares could move aggressively with 17.50% of the float (shares available for trading) sold short. On the other hand,  miss already low expectations and history suggest that investors will get hurt.



Pre-EPS ClosePost-EPS Open% ChangePost-EPS Close% Change
2/5/2013$2.74$2.905.84%2.999.12%
10/24/2012$2.13$2.4515.02%2.3912.21%
7/25/2012$5.08$3.06-39.76%3.18-37.40%
4/26/2012$9.11$9.403.18%9.423.40%
2/14/2012$14.35$12.95-9.76%11.8-17.77%
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