Zynga Barely Beats Earnings Estimates; Not Enough Growth for Investors as Stock Drops

Zynga’s stock is down over 10% today on yesterday’s earnings which revealed that Zynga had booked $306.5 million for their fourth quarter.  That’s only a few million above estimates of $302.4 million, and apparently that crawling growth wasn’t enough for investors to stick around — Zynga is having a major sell off today and the stock (NASDAQ:ZNGA) has dropped 14% from yesterday’s close of 14.35 to a price of 12.36 as of this writing.

That said, Zynga’s stock is still above it’s IPO price of $10.  After the IPO, Zynga took a hit as investors were still uncertain about the potential of social networking stocks as Chinese companies like Renren and Baidu have had volatile pasts and the recent release of LinkedIn still hadn’t proven to be a flash in the pan.  However, with the news of the approaching Facebook IPO, investors felt like they couldn’t pass up the opportunity and a buying spree started. Then, just last week, hearing that LinkedIn had a fantastic quarter and looks poised to become a stable provider of hiring solutions for years to come, the sense that these social networking stocks are real businesses has had investors pushing even harder to buy.

Faith in Zynga grew and over the course of the last month alone Zynga had risen almost 50%, from around $9 to $14.  So that makes this drop less of a cataclysm and more of a correction, based on the fact that they’re not growing quite as fast as the $14 stock price and over $9 Billion valuation would support — investors seem happier with a market capitalization of around $8 Billion, even though that is still a crazy valuation for a company who’s earnings were only $37.1 million on the quarter.

Will Zynga continue to grow?  This is the billion dollar question for investors right now, and is difficult to answer.  After a few months of decline on existing games, Zynga has done well to release a few new hits in the form of Hidden Chronicles, which is now their 3rd largest game.  The question is whether they can achieve the same level of ARPU (average revenue per user) for every game they create going forward, and whether they can achieve such ARPU for their mobile games, which will undoubtedly be a big focus in 2012.  Mobile is a very different space where monetization follows a different path, and Zynga is somewhat late to the game — companies like Electronic Arts and ngmoco (part of Dena) already have a head start there.

Take a look at the video below to see Michael Pachter and Arvind Bhatiya, two prominent games analysts, take a deeper look to analyze Zynga’s latest quarter and possible future.

Image: leungchopan via Shutterstock