Zynga Inc. Earnings: Game Over or New Life?

On Wednesday, Zynga (ZNGA) will release its quarterly report, and investors are finally starting to see a light at the end of the tunnel for the much-criticized social-gaming giant. King Digital Entertainment (KING.DL) erupted onto the scene with its Candy Crush Saga-inspired IPO, but Zynga has still been working to figure out its strategy without Facebook (META -0.52%) in its corner.

Zynga has fallen from grace since its own late-2011 initial public offering, with interest in the company's social games having hit a ceiling and given way to new offerings from King Digital Entertainment and other competitors. Yet even after seeing its shares plunge over the past few years, many investors now believe that Zynga can mount a credible comeback strategy. Will Zynga's strategic moves pay off? Let's take an early look at what's been happening with Zynga over the past quarter and what we're likely to see in its report.

Source: Zynga.

Stats on Zynga

Source: Yahoo! Finance.

Can Zynga earnings get back into the black?
In recent months analysts have raised their views on Zynga earnings, trimming first-quarter loss estimates by half and reversing initial calls for losses in 2014 and 2015 to modest gains. The stock has managed to climb by 6% since mid-January.

Zynga came into 2014 on a high note, as its fourth-quarter results were much better than investors had expected. That might come as a shock given Zynga's 43% drop in revenue from the year-ago quarter, but expectations were incredibly low for the company, and guidance for revenue to come in 5% to 12% higher in the first quarter than analysts had projected also bolstered confidence.

Moreover, investors celebrated the acquisition of NaturalMotion, a mobile-game developer that could help improve Zynga's penetration in the mobile realm. Zynga paid more than $525 million for the company, with the hopes that it will prove to be a better buy than its OMGPOP acquisition two years ago. Given the need for Zynga to be less dependent on Facebook and move toward its own mobile platform, Zynga's acquisition is consistent with its longer-term strategy.

Zynga's most important task, though, is to recapture some of its lost customers. Redesigning of games to make them more mobile-friendly is a big part of Zynga's strategy to fight back against King Digital Entertainment and regain supremacy in the industry. Zynga launched FarmVille 2: Country Escape last week directly to mobile-device users, no longer relying on Facebook and demonstrating its potential independence despite also offering compatibility to Facebook users.

On a positive note, Zynga has inspired well-known investor George Soros with its strategic moves, as Soros Fund Management announced a new position in Zynga as of Dec. 31. The position that Soros took is extremely small compared to his overall holdings, but it nevertheless represents implicit support for the path that Zynga is taking toward a recovery.

In the Zynga earnings report, watch for further signs of forward progress on its evolution toward mobile reliance. With mobile gaming seeming like the clear direction of the overall market, Zynga needs to execute on its strategy if it doesn't want to squander yet another chance at recapturing its past glory.

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