Will Zynga Earnings Be Your Valentine?


Ever since Facebook exposed its private parts and revealed that it chalks up 12% of its revenue to Zynga (NAS: ZNGA) , the social gamer's shares have jumped over 28% on optimism that it will put up a strong showing for its first earnings release as a public company.

Zynga's shot at a first impression comes after the market closes on Valentine's Day. Can the digits live up to the hype for one of the most over-hyped IPOs in recent times? Fellow social butterfly -- and over-hyped IPO -- Groupon (NAS: GRPN) fell flat; can Zynga investors expect their company's fourth-quarter report to do better?

Looking at consensus estimates, analysts are expecting Zynga to put up earnings per share of $0.03, with estimates ranging as high as $0.06 to as low as a loss of $0.05. Top-line revenue is expected to be $302.4 million, with a range of estimates between $289.2 million to $318.2 million. That revenue estimate would represent 54% growth over the prior year's $195.8 million in the fourth quarter.

Facebook brought in $3.71 billion in revenue last year, so 12% of that ($445.2 million) is attributable to Zynga. Facebook takes a 30% cut of all the virtual goods that Zynga sells on its platform, although that doesn't apply to what Zynga pays Facebook in advertising. The tricky part, then, is estimating the breakdown between its cut on goods and advertising revenue.

Some analysts have used Facebook's disclosure as a proxy of what to expect. According to a recent Wall Street Journal report, Macquarie analyst Ben Schachter believes that Facebook's figures imply $268 million in sales for Zynga, which is far short of the consensus. On the other hand, Baird analyst Colin Sebastian uses a different set of assumptions and thinks the top line will come out to $315 million.

Zynga's monthly active user (MAU) figures will also be carefully watched, with its most recent figure standing at 227 million at the end of September. Zynga hasn't come out with any major hits lately to reinvigorate MAU growth, and they have been trending lower since March.

I'm still not sold on the long-term sustainability of the freemium model that Zynga and fellow gamer Glu Mobile (NAS: GLUU) rely on. Both companies have been putting up major growth, but both also lack lasting brand strength. Compare that to subscription models like Activision Blizzard's (NAS: ATVI) immediately recognizable World of Warcraft, which boasts 10.2 million blood elves and gnomes paying up each month.

Even if Zynga presents digits to win over investors' hearts, it's not a company I'd want to take home to meet the parents.

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At the time thisarticle was published Fool contributorEvan Niuholds no position in any company mentioned.Click hereto see his holdings and a short bio. The Motley Fool owns shares of Activision Blizzard. The Fool owns shares of and has written calls on Activision Blizzard.Motley Fool newsletter serviceshave recommended buying shares of Activision Blizzard and creating a synthetic long position in Activision Blizzard. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.

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