) is scheduled to release its fiscal first-quarter 2012 results
after market closes today. In the run up to the earnings results,
no substantial movement in analysts' estimates for the quarter was
Prior Quarter Recap
Zynga reported dismal fourth quarter loss of 56 cents per share
(including stock-based compensation expense), which were miles
short of the Zacks Consensus earnings estimate of 3 cents per
share. Earnings (excluding stock-based compensation) declined 44.4%
year over year to 5 cents per share in the reported quarter. The
year-over-year decline was primarily on account of higher operating
expenses, which fully offset a healthy growth in the top line
during the quarter.
Revenues increased 59.0% year over year to $311.2 million,
primarily driven by strong growth in advertising and online gaming
For further details please read:
Zynga Reports Disappointing 4Q
For fiscal 2012, Zynga expects earnings in the range of 24 cents
to 28 cents per share. Stock-based compensation expense is
projected to be in the range of $400 million to $425 million for
the year. Currently, the Zacks Consensus Estimate stands at 27
Bookings are projected in the range of $1.35 billion to $1.45
billion. Adjusted EBITDA is estimated in the range of $390 million
to $440 million for the full year. Capital expenditures are
projected in the range of $140 million to $160 million for full
Estimates Trend Revision
Over the past 30 days, none of the 17 analysts covering the
stock revised their estimates for the quarter. Thus, the Zacks
Consensus Estimate for the first quarter is pinned at 5 cents per
For fiscal 2012, 3 of the 17 analysts covering the stock revised
their estimates upward, while one analyst made a downward revision
to the estimates. Yet, over the last 30 days, the Zacks Consensus
Estimate for fiscal 2012 is pinned at 27 cents per share.
Analysts covering the stock expect the company to perform better
on the back of its popular titles like like FarmVille and
CityVille. Moreover, analysts believe that strategic acquisitions
and new game releases will be the growth catalysts for 2012.
Additionally, growth in the mobile gaming segment is expected to
offset the decline in Facebook revenue in the short run.
We believe that Zynga is well positioned to grow over the long
term due to the staggering growth outlook for the social gaming
sector over the next couple of years. According to one of the
studies conducted by Strategy Analytics, the global online games'
market, which includes social and mobile games, is currently worth
$4.0 billion and is expected to triple in the next five years.
We believe that an increase in the number of social gamers will
further boost spending on virtual goods, lead-generation offerings
and advertising over the long term. These trends will likely boost
Zynga's growth over the long term. Moreover, the upcoming IPO of
Facebook also bodes well for Zynga. Much of Zynga's success is
attributed to the huge popularity of Facebook, which contributes a
major portion of Zynga's gross revenues.
Additionally, the recent acquisition of rival social game
developer OMGPOP will not only expand Zynga's mobile gaming
portfolio, but will also lower its dependency on Facebook. Zynga
expanded its presence in the mobile gaming sector by acquiring a
number of companies including Newtoy in 2010 and Five Mobile in
2011. We believe that Zynga will continue to pursue acquisitions in
the mobile gaming segment going forward.
However, higher spending on research and development, and
technology and game development are expected to hurt profitability
going forward. Moreover, Zynga faces significant competition from
other established players such as
Electronic Arts Inc
). We also note that barriers to entry are low in the social gaming
market, and this will attract new entrants, thereby further
increasing competition for Zynga over the long term.
We have a Neutral recommendation on Zynga over the long term.
Currently, Zynga has a Zacks #3 Rank, which implies a Hold rating
in the short term.
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