Earlier this week, I wrote about Wall Street’s extreme pessimism for Zynga’s (ZNGA) future — and how even a small improvement in third-quarter results could be good for the stock.
While making such predictions — especially for a company that has a checkered past — can be dangerous, this one turned out to work out. In today’s trading, Zynga stock is up 6%. That’s a great one-day jump, but ZNGA stock is still down 34% in 2014.
ZNGA is still losing money. In Q3, the net loss was $57 million, or six cents per share, up from a loss of $68,000, or zero cents per share, in the same period a year ago. But excluding equity compensation and one-time items, the quarter saw an adjusted loss of 1 cent per share, which was in line with expectations.
But the real boost for Zynga stock came from the top-line. In the quarter, the company reported revenues of $176.6 million, beating the Street forecast of $171.7 million.
Oh, and books were also very encouraging for Zynga stock: They jumped 15% to $175 million.
Of course, the report was not completely rosy. Keep in mind that daily active users fell a grueling 13% to 26 million. By comparison, they were as high as 70 million about two years ago.
The guidance for Q4 was also in line with expectations. ZNGA predicts revenues of $170 million to $200 million, which is certainly a wide range. Consider that the analysts were looking for $199 million.
Glass Half Full for ZNGA
But for investors, it is important to realize that ZNGA has been grinding things out through a tough restructuring — and it could now be at the point where investors will see sustainable results. As seen by the recent quarter, the company has been able to get its costs down, through layoffs and the closings of various studios.
At the same time, Zynga stock could get a lift from the robust pipeline of new games. Some of the titles include NFL Showdown, a Tiger Woods golf game, Hit It Rich! Slots, CSR Classics and a Looney Tunes game.
The company has also been revamping its existing titles. During the quarter ZNGA saw a combined 30% rise in bookings from Casino, Words With Friends and FarmVille. Zynga’s major investment in mobile has been a key to that success. Already about 55% of total bookings are due to smartphones and tablets.
It definitely helps that ZNGA got Don Mattrick as its CEO. Over his career, he has shown a knack for turnarounds (which he pulled off at Microsoft’s (MSFT) Xbox) and churning out breakout hits. During his stint as an executive at EA (EA), he launched titles like Need for Speed, Harry Potter and The Sims.
So yes, there is lots to be hopeful for Zynga stock. However, this doesn’t mean you should rush in to buy shares. Today’s jump is probably a combination of the good news for the quarter as well as a short squeeze (when short sellers cover their positions, sending shares higher). So over the next few weeks, the stock could easily level off.
But once ZNGA stock has regained its footing, it could be a poised for further upside, as it continues to benefit from growth in mobile and the potential from its growing pipeline of games.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
