Monday, May 6, 2013

Why Zynga Shares Tanked

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Zynga (NASDAQ: ZNGA  ) are down about 7% today, after losing more than 10% in early trading. The market is not satisfied with Zynga's second-quarter guidance, in spite of a surprising earnings beat yesterday.

So what: Zynga's first-quarter earnings came in with a profit of $0.01 per share, ahead of not only Wall Street's $0.04 loss-per-share consensus, but Zynga's own guidance, as well. However, revenue of $263.6 million was below the $264.8 million analyst consensus, and it also represented an 18% year-over-year decline, which is pretty bad no matter which way you slice it. Zynga's second-quarter guidance of between $225 million and $235 million in revenue, and a loss of $0.04 to $0.03 per share is below expectations -- Wall Street sought a loss of $0.01 per share, and $261.7 million in revenue.

Now what: What else is wrong? Daily active users are way down year over year, from 65 million, to 52 million (a 21% decline), and down 8% sequentially, from 56 million in the fourth quarter. Monthly unique users also posted double-digit declines of 13% year over year, and 15% sequentially, arriving at a figure of 150 million for the first quarter. Company executives recognize that this is a "transition" year, but investors can't hang around on hopes and promises -- Zynga needs to show real results to justify real gains.

Zynga's post-IPO performance has been dreadful, and investors are beginning to wonder if it's "game over" for this company. Being so closely tied to the world's largest social network can be a blessing and a curse. You can learn everything you need to know about Zynga and whether it's a buy or a sell in our new premium research report. Don't even think about picking up shares before you read what our top analysts have to say about Zynga. Click here to access your copy.

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