in Mobile Gaming

#Zynga Q4 2011 report beats analyst expectations

Zynga, the online game maker of hits like FarmVille and CityVille issued its Q4 2011 earnings report on Tuesday, its first since its IPO in December. Zynga recorded a profit of USD37.2 million, or 5 cents a share, on an adjusted basis, a drop from the year-earlier period. While its revenue totaled USD 311.2 million, a 59%  increase from the year-earlier period, it was a mere 1.4% gain from the previous quarter. Still, on both metrics, the company managed to beat analysts’ expectations.

“We saw great momentum in mobile and advertising and ended the year with a strong pipeline of new games,” Zynga’s chief executive and founder, Mark Pincus, said in a statement. “We are excited about the opportunities in front of us to continue delighting our current players and to bring play to millions of new people.”

On an unadjusted basis, Zynga did report a net loss of $435 million, mainly because of USD 510 million in stock-based compensation to employees that was booked after the company’s I.P.O. 

Investors are sending down the Zynga around 9% as we speak, having risen nearly 7%  in yesterday’s session. “It was a little softer than what we were expecting,” Ken Sena, an Evercore Partners analyst said in an interview late Tuesday, referring to the company’s revenue. “It’s early days, but based on our view we do feel the stock price is ahead of itself.”

Zynga, which still makes the vast majority of its money on Facebook’s platform, is trying to become less dependent on the world’s largest social network and its original stable of hits. In the last few months, it has introduced two major franchises, CastleVille and Hidden Chronicles, and increased its investments in mobile platforms. The San Francisco-based company is also preparing to introduce Project Z, its independent gaming platform that uses Facebook Connect, which is currently being tested internally. In its earnings conference call with investors, Zynga said it was closely tracking the online gambling industry and would be well positioned to develop new projects in that category, based on the success of Zynga Poker, one of its earlier franchises.

“We’ve been investing heavily to build out our product pipeline,” said John Schappert, Zynga’s chief operating officer, in an interview. “The more fun, accessible and social a game is, the more players become payers.” Zynga’s mobile platform had 15 million daily active users by the end of 2011, Mr. Schappert added.

Including today’s drop, the Zynga share is trading at a 12-months forward PE-ratio of 42x on an expected earnings growth of 41%. This compares to our top-pick G5 Entertainment which trades at a 12-months forward PE-ratio of 14x on an expected earnings growth of 68%.

I am long G5 Entertainment and you should be too!

Nordic Investor

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