What analysts expect from Zynga Q1 earnings

Zynga stock bumps up nearly 3% to $9.36 ahead of company's report, released after the close

Zynga’s shares have suffered a hard run on the Nasdaq since they debuted in December, but many investors thought shares would bounce back nicely since the Feb. 1 announcement from Facebook that the gaming company accounts for 12% of the social network's revenue and the stock catapulted to more than $13 after trading in the $9 range for weeks.

At the moment, shares are up nearly 3%, ahead of the company's report, to be released after the close.  

Analysts area expecting the company to report earnings of 5 cents a share on revenue of $316.8 million for the first quarter ended March 31.  In the first three months of last year, Zynga earned $17 million on revenue of $243 million, according to documents it submitted to the Securities and Exchange Commission. 

Zynga has roughly 281.5 million monthly active users, according to App Data, and has secured all five of the top five games measured on Facebook but there has been a growing independence between Facebook and Zynga that has seemed to help Facebook but may be hurting the gaming giant.

Colin Sebastian, an analyst with Baird Equity Research, published a report saying that he expects results to be in line or slightly below his estimates of 6 cents a share.

Despite Zynga adding its own new platform, the company still pays about 30% of revenues to Facebook as a fee for Facebook Credits transactions. Sebastian is estimating that Zynga’s net bookings for the quarter are around $230 million and that the company likely also claimed $65 million in ad bookings. 

“While Zynga continues to dominate Facebook games and is making solid progress on mobile platforms, we believe that slower growth on Facebook limits upside to estimates near term,” Sebastian said.

Other analysts like Atul Bagga, with Lazard Capital Markets, thinks Zynga has had a strong reception for its Hidden Chronicles and Slingo games and improved the monetization of CastleVille and expects guidance for the full year to be raised higher than the projected $1.35 billion to $1.45 billion range. His long-term target for the stock is $16 a share.

On a lot of people's minds is also the recent acquisition of OMGPOP. Rather than fight head-to-head with an iOS app that snagged the top spot in the App Store, Zynga acquired OMGPOP for $180 million on the same day Rovio launched Angry Birds Space.

Earlier this month, Zynga revealed that since the game launched, more than six billion drawings have been created and, that at the game’s peak hours, it generates 3,000 drawings per second -- totally more than six billion drawings since inception. The mobile game also comes up as the most popular game on Facebook since the Facebook connection option makes it easy to find all your friends that you can play games with.

AppData shows that the game has more than 14 million daily active users. The next most popular game, also owned by Zynga, is Words With Friends, which draws about eight million daily users.

In the past six months, Zynga has released 15 games and is continuing to build out its Zynga.com platform so that people can go directly to Zynga for their gaming.

Other than Draw Something, Zynga continues to flex its muscle to snap up games that it wants is its pantheon. In December 2010, it acquired the Texas-based mobile game developer Newtoy, developers of Words with Friends, for $53.3 million.  

A look back at the prior quarter

Zynga earned a Q4 operating profit of 5 cents a share, as revenue grew 59% from a year ago to $311.2 million. Leading into that fourth-quarter announcement, Zynga was expected to post a profit of 3 cents per share on revenue of $301.2 million, according to analyst John Butters of Factset. 

Zynga shares had risen 7.61% to $14.44 per share, leading up to the announcement. After the report, Zynga shares took a dive, falling 5% due to a conservative outlook for revenue in 2012.

The company reported a big $435 million loss in Q4 net income,  though analysts were expecting this, as its public offering cost the company in restricted employee shares.