Zynga Inc (NASDAQ:ZNGA), the mobile gaming company that rose to fame with its popular Facebook Inc (NASDAQ:FB) game FarmVille, is feeling the pain from Wall Street today after reporting miserable fourth-quarter earnings. ZNGA stock was down more than 16% in early trading.
However, Zynga competitor King Digital Entertainment PLC (NYSE:KING) just reported a blowout quarter, and KING stock is soaring.
What gives?
Simply put, this is a continuation of the same dynamic we’ve seen for years. ZNGA stock has fallen 72% from its IPO in late 2011 as several follow-up games to FarmVille fizzled and failed. KING stock, although still below its $22.50 IPO price, continues to grow both revenue and earnings.
Zynga Inc: In Treacherous Territory
Fourth-quarter revenue from ZNGA came in at $182 million, missing analyst estimates for $200 million in revenue by a wide margin. After revenue peaked in 2012 at $1.28 billion, ZNGA has now strung together two consecutive years of extreme revenue declines, and 2014 revenue came in at just $694 million — 46% lower than it was two years ago.
The relatively young mobile gaming industry is all about innovation and new releases. Like TV networks and film studios, which often rely on tentpole films or shows to carry them throughout the year, mobile gaming companies need one or two hits each year to remain viable.
ZNGA could use a page from AMC Networks Inc (NASDAQ:AMCX), which after the blowout success of Breaking Bad on Netflix, Inc. (NASDAQ:NFLX) continues to milk the cash cow with its new spinoff series Better Call Saul.
To be fair, Zynga is trying to lengthen the tail of its successes with games like FarmVille 2, CastleVille, ChefVille and CityVille. ZNGA also launched New Words With Friends, but it was a commercial failure. So it’s not that Zynga isn’t trying spinoffs … it’s just not having any success.
Zynga just waved the white flag in China by closing its Beijing offices and laying off all 71 employees in the city.
ZNGA hopes to release six to 10 mobile games this year in an effort to reinvigorate the totally nonexistent growth that once defined the young company.
King Digital Entertainment PLC: An Industry Leader
KING stock, in stark contrast to ZNGA, is up by double digits today. The Candy Crush developer appropriately crushed Wall Street expectations for both revenue and earnings in the fourth quarter. Revenues of $559.2 million and earnings of 57 cents per share beat consensus estimates for $515.6 million and 47 cents per share, respectively.
Pretty awesome, right? Well, ZNGA, put on some earmuffs because it gets better: KING stock also declared a special dividend of 94 cents for shareholders of record as of March 4, to be paid March 24.
Now that is how you treat your shareholders.
While initially defined by the success of Candy Crush Saga, KING stock should continue to rise as it innovates successfully, and in 2014 it rode the success of Bubble Witch 2 Saga and Candy Crush Soda Saga.
Bottom Line
If you’re in love with the idea of investing in mobile gaming, go with KING stock over ZNGA stock. All signs point to Zynga stubbornly continuing its practice of slapping “-Ville” on random nouns until something sticks.
As of this writing, John Divine did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
