With shares of Zynga (ZNGA) trading down over 10% after reporting their first-ever earnings results since going public in December, investors are clearly using the opportunity to book gains and head for the hills. The California-based internet game-maker, with hits including Farmville and Words With Friends has seen shares jump 80% since troughing at $8 about a month ago.
Zynga reported a net loss of $435 million as it had cover the $510 million dollars worth of stock-based compensation issued to its employees. If you back that out, as well as some other noise, the company posted a non-GAAP profit of $0.05 per share, topping estimates of $0.03.
On the revenue front, Zynga's sales rose 59% to a better-than-expected $311 million, and it's forecast for the full year was strong at $0.24 to $0.28 a share versus consensus at $0.22.
As Macke and I debate in the attached video, the problem with Zynga's quarter is that it requires a degree of faith that the company will be able to not only be able to replicate its success in developing new blockbuster games, but also that it will find a way to break its near exclusive dependence on one customer, Facebook.
"Young stocks like this, in terms of the ups and downs, that's what you get, that's why I tend to avoid them, because they just are spikey," Macke says.
There's no arguing that, or that the company is overseeing a stable full of funky new valuation metrics when traditional measures of sales, profits and margins fall short.
For example, I now know what "MUP" (Monthly Unique Payer) and "ABPU" (Average Booking Per User) are, but I have no idea how to apply those to a fast-moving stock.
If you're looking for solid, predictable results, Zynga may not the stock for you. But if you are looking for a way to play the social-gaming craze, have an open mind, then Zynga at $12 a share might be worth a look for an aggressive trade. The maker of Mafia Wars, even with today's give back, is up 33% year-to-date.
So far, at least 4 analysts downgraded the stock today (which emboldens me more than it scares me) and I don't blame them given the recent run-up in the stock.
"I wouldn't make too much of the price change today off this, because the earnings weren't that horrible." Macke says. "It's going forward that I have concerns with."
What do you think? Will Zynga's $450 million investment in research and development produce another blockbuster or this stock a time bomb?
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