Please ensure Javascript is enabled for purposes of website accessibility

Will Zynga Post an Earnings Win?

By Dan Caplinger - Apr 22, 2013 at 6:00PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The social-gaming company reports earnings on Wednesday.

On Wednesday, Zynga (ZNGA -1.30%) will release its latest quarterly results. The key to making smart investment decisions on stocks reporting earnings is to anticipate how they'll do before they announce results, leaving you fully prepared to respond quickly to whatever inevitable surprises arise. 

Zynga captured the attention of investors when it went public back in late 2011, as the popularity of social gaming led many to see great things for the company. Since the IPO, though, the game maker's shares have plunged, leaving many to wonder whether the company really has an edge over its rising competitors in the social-gaming space. 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.

Stats on Zynga

Analyst EPS Estimate

($0.04)

Year-Ago EPS

$0.06

Revenue Estimate

$209.8 million

Change From Year-Ago Revenue

(36%)

Earnings Beats in Past 4 Quarters

2

Source: Yahoo! Finance.

Will Zynga score higher this quarter?
In recent months, analysts have registered their skepticism about Zynga's earnings prospects, quadrupling their loss estimates for the just-ended quarter and going from an expected profit to a larger loss for the full 2013 year. The stock has bounced off much more severe lows, however, jumping nearly 25% since mid-January.

Zynga has been undergoing a huge transformation since it changed its partnership with Facebook (FB -0.49%). What Zynga found is that even though its casual games built up a big mass of players, it was hard to make money from them. Moreover, Facebook had huge leverage over Zynga, as Facebook generated just over 10% of its revenue from Zynga early last year, while Zynga relied on Facebook for over 90% of its sales before beginning its transition.

The big news for Zynga recently was the culmination of its long-term vision to offer real-money games. Yet the full impact of the move will have to wait until the legalization of online gambling in the U.S. gains more clarity. As Fool contributor Michael Lewis estimated recently, even 10% penetration of their current Zynga Poker users into real-money gaming could produce $300 million in annual revenue -- a big bump in pushing the company toward profitability.

The real question is whether Zynga can hold off experienced casino operators if online gambling becomes a reality. Already, alliances are forming, with Boyd Gaming (BYD 0.80%) and MGM Resorts (MGM 1.97%) having linked up with bwin.party -- the same company Zynga tapped for its real-money Zynga Poker -- to help Boyd take advantage of newly legal online gambling in New Jersey. Zynga has the obvious edge with its social savvy, but established casino companies will have huge incentives to defend their turf if Zynga starts to make a serious dent in the industry.

In Zynga's quarterly report, watch especially for the impact of its new What's the Phrase knockoff of Wheel of Fortune. The hit should give some insight into Zynga's ability to keep profiting from free games. If it can't monetize even popular new games, then the company may make even more dramatic strategic shifts in the future.

Click here to add Zynga to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Zynga Inc. Stock Quote
Zynga Inc.
ZNGA
$8.35 (-1.30%) $0.11
Meta Platforms, Inc. Stock Quote
Meta Platforms, Inc.
FB
$191.29 (-0.49%) $0.95
MGM Resorts International Stock Quote
MGM Resorts International
MGM
$33.65 (1.97%) $0.65
Boyd Gaming Corporation Stock Quote
Boyd Gaming Corporation
BYD
$54.50 (0.80%) $0.43

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
327%
 
S&P 500 Returns
116%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/19/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.