The social-gaming giant keeps getting bigger: Zynga
Zynga remains the undisputed champ of the social-gaming universe. It watched over eight of the 10 most popular games on Facebook as of the end of last month, based on daily active users.
It was easy to see a strong quarter coming when Facebook filed its quarterly results through an SEC filing earlier this week. The report revealed that Zynga accounted for 15% of Facebook's revenue through the first three months of the year.
This quarter alone found Zynga hitting it out with Boggle clone Scramble With Friends, hidden-object casual game Hidden Chronicles, and the long overdue revival of early dot-com classic Slingo. Zynga also picked up the wildly popular Pictionary board-game knockoff Draw Something when it acquired OMGPOP in an estimated $200 million deal back in March.
There's no denying that social gaming is huge. It's coming at the expense of traditional gaming companies as Activision Blizzard
Despite being an obvious play on next month's Facebook IPO, investors are still leery of Zynga. The shares are trading below the company's December IPO price of $10. At first glance this comes off as a big surprise. Zynga was accounting for only 12% of Facebook's revenue when the social-networking giant filed last year's financials, so the bump to 15% suggests that Zynga as a coattail play may be even smarter than Facebook itself.
However, the challenge for Zynga to remain relevant will continue. It had to acquire the developers behind Words With Friends and Draw Something, and it will have to keep buying the hot app makers in this fickle niche.
Daily active users have only grown from 62 million a year ago to 65 million today, though monthly active users are climbing at a healthier 24% pace.
Zynga's crime -- the reason it's imprisoned as a busted IPO -- is that it simply came to market at an outlandish valuation. Underwriters may have jumped the gun in tagging this company with a $7 billion valuation in a booming yet fickle industry.
Zynga's now looking at $1.425 billion to $1.5 billion in bookings this year, and its adjusted profit range of $0.23 to $0.29 a share is in line with the $0.27 the pros were targeting before the report. It's not a bad performance, but when the market says you're worth more than EA and roughly half as much as Activision Blizzard, it's hard to live up to the hype.
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Longtime Fool contributor Rick Munarriz calls them as he sees them. He owns no shares in any of the stocks in this story and is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.