Zynga Fourth Quarter Earnings Preview

| About: Zynga (ZNGA)

Zynga, (NASDAQ:ZNGA) the world's leading provider of social game services will report its fourth quarter earning results on February 5, 2013. Following the results, a conference call will take place to discuss the financial results of its fiscal quarter at 5:00 p.m. ET / 2:00 p.m. PT.

What Wall Street Expects:

  • Revenue: $212 Million
  • EPS: -0.03
  • Q1 Revenue Guidance: $240 Million

Now lets take a look at some of Zynga's past earnings performances.

Earnings History February 2012 April 2012 July 2012 October 2012
EPS Estimates 0.03 0.05 0.06 0.00
EPS Actual 0.05 0.06 0.01 0.00
Surprise % 66.70% 20.00% -83.30% N/A

*Chart taken from Yahoo!Finance

Is Facebook (NASDAQ:FB) Losing Its Members To Zynga?

Facebook lost over 1.4 million users in December 2012. So what does this have to do with Zynga? Does November 29, 2012 ring a bell to anyone? That was the day Zynga and Facebook loosened its terms of its longstanding alliance. Zynga no longer has the special treatment from Facebook. Zynga is now able to market its games to the world outside of Facebook, opening up more revenue opportunities and venturing into higher margin markets.

Some analysts that cover Zynga said that after the initial shock of the new Facebook terms wears off, the company might actually be in a better position to build up its gaming business.

"Zynga now has an incentive to expand the reach of its most-popular social games beyond Facebook and Zynga.com, and be able to offer additional payment options," Wedbush Securities analyst Michael Pachter wrote in a research note. "While Zynga's popularity arose in part from Facebook's expansion, it was at the mercy of Facebook during [business] negotiations."

So does this mean that Facebook users have left Facebook and joined Zynga's gaming platform? While I'm not 100% sure about that, it looks as though it is. Now that Zynga's platform is in place for mobile and online, users can now enjoy the games without the need of going through Facebook.

Zynga's Real Money Gaming

A new partnership with British company bwin.party to offer online real-money gambling was announced last October. Zynga's users will be watching closely to see how well real money gaming goes in the United Kingdom. Then last month, Zynga started a preliminary application to run real-money gambling games in Nevada.

Cost Reduction Plan

Zynga has been implementing a cost reduction plan which it expects to save close to $15- $20 million in the fourth quarter. As part of the plan, Zynga expects to complete a reduction in force of approximately 150 employees or approximately 5% of its current workforce, and implement additional cost reduction measures. Although its great thing to save millions of dollars, its also a bad sign for Zynga in that it failed on some levels or else it wouldn't be cutting its costs.

Zynga's Highlights

*Zynga's daily active users (DAUs) increased to 60 million in the third quarter of 2012, up 10% year-over-year. Zynga's monthly active users (MAUs) increased to 311 million in the third quarter of 2012, up 37% year-over-year. Zynga's monthly unique users (MUUs) increased to 177 million in the third quarter of 2012, up 17% year-over-year.

*Zynga has cash and cash equivalents of marketable securities worth approximately $1.6 billion or $2.05 per share.

*Last quarter Zynga authorized a share repurchase program in which its authorized to repurchase up to $200 million of its outstanding common stock. With Zynga trading around the $2.60 range, this adds up to over 10% of the total float of shares.

Zynga's Lowlights

*One of the major measures that investors should be paying close attention to are Zynga's bookings. So what exactly are "bookings"? Bookings represent the dollar amount of virtual goods Zynga sold to its game players. Unlike its revenue, bookings provide a real measure of the direction that Zynga is headed. If Zynga cannot monetize its games and its users, then Zynga's problems will be big. Bookings for the third quarter of 2012 were $255.6 million, a decrease of 15% compared to the second quarter of 2012.

*Zynga has lost more than a dozen top managers. Why is this so? This is part of Zynga's cost reduction plan in which they will trim 5 percent of its workforce, close the company's Boston office and end more than a dozen gaming titles. This move will save Zynga approximately $15 million - $20 million in the fourth quarter alone.

Analyst Recommendations

Of Wall Street recommendations the average opinion on Zynga is hold, with a price target average of $3.50.

Strong Buy (1), Buy (1), Hold (18), Underperform (3)

Disclosure: I am long ZNGA. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Investors are always reminded that before making any investment, you should do your own proper diligence on any name directly or indirectly mentioned in this article. Any material in this article should be considered general information, and not relied on as a formal investment recommendation.