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Zynga’s post earnings slide

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Zynga’s post earnings slide

After Facebook (NASDAQ:FB) reported a stellar quarter Wednesday, much of the social media space including the social gaming giant Zynga (NASDAQ:ZNGA) moved higher as a result of the exuberance. However, the move upwards was short lived for Zygna, the company reported its highly anticipated second quarter earnings on Thursday after the close. Shares almost immediately traded sharply to the downside following the announcement in the after hours session despite positive data.

The company beat analyst estimates on both the top and bottom lines by reporting an adjusted earnings per share loss of $0.01 on revenue of $231 million. Analysts were expecting the company to report a net loss of $0.04 per share on revenue of $185.4 million. On the surface it looks like the company should be trading higher after such an upbeat quarterly result, however, shares plummeted as the company announced it will no longer pursue a license for online gaming here in the States. Below is the statement from management regarding the decision:

“Zynga believes its biggest opportunity is to focus on free to play social games.  While the Company continues to evaluate its real money gaming products in the United Kingdom test, Zynga is making the focused choice not to pursue a license for real money gaming in the United States”.

While shares of the company are well of the highs seen post initial public offering during 2012, shares have moved significantly higher since their bottom late last year. Much of this move can be attributed to the possibility of online gaming. The news the company would be sticking to digital currency is a definite blow to the premium built into the stock. Without additional revenue streams the future for the company looks bleak. How many quarterly losses does it take to eventually bankrupt an unprofitable company? Time will tell, but today, I would keep my money away. This announcement comes after the highly publicized layoff the company issued last month, roughly 18% of Zynga’s workforce will need to find work elsewhere. Not a great sign for a supposed high growth technology company. There are better speculative plays out there, I would keep you money on the sidelines until this company can prove profitability.

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