What Lies in Store for Zynga (ZNGA) this Earnings Season?

Zynga Inc. (ZNGA) is set to report fourth-quarter 2016 results on Feb 9. Last quarter, the company posted a 50.00% negative earnings surprise. However, the company delivered an average positive earnings surprise of 10.00% in the trailing four quarters.

Moreover, we note that Zynga has underperformed the Zacks categorized Gaming industry in the last one year. The company's shares have increased 26.11% compared with the industry's gain of 42.93% during the period.

Factors at Play

Zynga is one of the leading game developers and has been seeing strength in the mobile game market. In addition, its cost cutting initiatives are a positive. We expect the top line to be driven by its franchises like Words With Friends and Zynga Poker as well as new games like and even CSR Racing 2, which was released at the end of the second quarter. However, management stated that Dawn of Titans will be a "positive contributor" to the fourth quarter but impact will be "minimal" due to release over the holidays.

However, the company has been seeing a slowdown in its user growth for a while, which remains a major concern. Moreover, a slowing web business along with intensifying competition from the likes of Glu Mobile GLUU , Electronic Arts EA and Nintendo remain concerns.

For the fourth quarter of 2016, the company expects GAAP revenues in a range of $180 million to $190 million.

Zynga Inc. Price and EPS Surprise

Zynga Inc. Price and EPS Surprise | Zynga Inc. Quote

Earnings Whispers

Our proven model does not conclusively show that Zynga is likely to beat earnings estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. This is not the case here as you will see below:

Zacks ESP: Earnings ESP for Zynga is 0.00%. This is because the Most Accurate estimate and Zacks Consensus Estimate are both pegged at loss of 3 cents. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Zacks Rank: Zynga has a Zacks Rank #4 (Sell). We caution against stocks with a Zacks Rank #4 or 5 (Strong Sell) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

A Stock That Warrants a Look

Here is a company that you may want to consider as our model shows that these have the right combination of elements to post an earnings beat in their upcoming release:

Pandora Media Inc. (P) with an Earnings ESP of +10.81% and a Zacks Rank #3. You can see the complete list of today's Zacks #1 Rank stocks here.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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