The Q3 2014 earnings report for small cap social media gaming stock Zynga Inc (NASDAQ: ZNGA), a potential peer of mobile gaming stock Glu Mobile Inc (NASDAQ: GLUU) and interactive entertainment stock King Digital Entertainment PLC (NYSE: KING), is scheduled for after the market closes on Thursday (November 6th). Aside from the Zynga Inc earnings report, it should be said that Glu Mobile Inc reported Q3 2014 earnings on October 29th (shares fell on profit expectations and missed revenue forecasts) while King Digital Entertainment PLC will also report Q3 2014 earnings after the market closes on Thursday. However, Zynga Inc has long struggled and has worked hard to come out from under the shadow of Facebook Inc (NASDAQ: FB) but Wall Street and investor patience may be running out.
What Should You Watch Out for With the Zynga Inc Earnings Report?First, here is a quick recap of Zynga Inc's recent earnings history along with EPS estimate trends from the Yahoo! Finance analyst estimates page:
| EPS Est | -0.04 | -0.04 | -0.01 | 0.00 |
| EPS Actual | -0.02 | -0.03 | -0.01 | 0.00 |
| Difference | 0.02 | 0.01 | 0.00 | 0.00 |
| Surprise % | 50.00% | 25.00% | 0.00% | N/A |
| Current Estimate | -0.01 | 0.00 | -0.01 | 0.04 |
| 7 Days Ago | -0.01 | 0.00 | -0.01 | 0.04 |
| 30 Days Ago | -0.01 | 0.01 | -0.01 | 0.04 |
| 60 Days Ago | -0.01 | 0.01 | -0.01 | 0.04 |
| 90 Days Ago | 0.01 | 0.02 | 0.02 | 0.06 |
Back in early August, Zynga Inc reported a 34% year over year revenue decrease (plus a decrease of 9% from Q1 2014) to $153 million as online game revenue fell 36% (plus a decrease of 1% from Q1 2014) to $131 million and advertising and other revenue fell 19% (plus a decrease of 38% from Q1 2014) to $22 million. FarmVille 2 and Zynga Poker accounted for 32% and 24% of online game revenue, respectively, for the second quarter of 2014 verses to 30% and 24%, respectively, for the first quarter of 2014 but as of June 30, 2014, cash, cash equivalents and marketable securities were approximately $1.15 billion verses $1.14 billion as of March 31, 2014. The net loss was $63 million for the second quarter of 2014 verses a net loss of $16 million for the second quarter of 2013 and compared to net loss of $61 million for the first quarter of 2014. The CEO commented:
"We continue to make significant investments in the highest potential areas of our future pipeline. By Q4 of this year, approximately half of our game-related research and development will be allocated to new and recently launched games -- this represents about a 45% increase year over year. We currently have capabilities and brands in content genres with Farm, Words, Casino, Racing and People and we are further diversifying our product portfolio in order to reach more consumers and widen our demographic across more entertainment genres."
And:
"Today we are announcing that we are expanding our game development efforts in two new additional categories: Sports and Runner. Our Sports effort introduces a new franchise brand for us -- Zynga Sports 365 -- and with it, new mobile games in football with the NFL and NFL Players Inc. and in golf with one of the most iconic athletes in the world, Tiger Woods. Our Runner expansion features a new partnership with Warner Bros. Interactive Entertainment to bring to life their beloved Looney Tunes brand for mobile consumers. We are pleased to launch the geo-lock for our new football game -- NFL Showdown -- today and look forward to making it, along with our Tiger Woods golf game and Looney Tunes runner game available globally to fans around the world."
However, Zynga Inc has delayed the launch of new versions of several titles, including "Zynga Poker" and "Words with Friends" as well as mobile games from Natural Motion, a studio it bought in January for $527 million.
Hence, analysts and investors alike were not enthused with the former slashing price targets with Macquarie's Benjamin Schachter cutting his target 25% to $3, saying: "So far, Zynga has failed to deliver." And given recently delayed products, he commented "investors will have to wait at least another quarter to find out if Zynga can grow profitably."
What do the Zynga Inc Charts Say?The latest technical chart for small cap Zynga Inc shows shares have steadily trended downward since a spring time jump:
A long term performance chart shows that investors and traders alike who have a stomach for risk have come out as big winners with Glu Mobile Inc and losers if they were in Zynga Inc and King Digital Entertainment PLC:
A technical chart for Glu Mobile Inc shows volatility above a $3.80 level floor while King Digital Entertainment PLC did have a summer time surge before sinking back into a downtrend:
As investor and Wall Street patience grows thin, small cap Zynga Inc will need to demonstrate some sort of progress in the coming earnings report. Otherwise, the CEO's head could be the first thing on the chopping block after earnings.
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