Zynga Inc (NASDAQ:ZNGA)’s FarmVille 2 drove Q1 bookings well above guidance, and more than offset a light release slate and accelerating declines in web games. The success of FarmVille 2, which has had multiple days of over $1 million gross bookings, has increased the company’s belief in the franchise strategy, which will presumably mean that an even higher percentage of revenues quarter-to-quarter will be driven by a smaller group of titles. The company canceled two unreleased games in Q1 as it did not view them as franchise-worthy. In addition, it will be shutting down four other games, including Empires and Allies.

Zynga Earnings

After generating revenue of $264 million, bookings of $230 million, and non-GAAP EPS of $0.01 in Q1, all near or significantly above the high-end of guidance, management guided to Q2 revenue of $225 – 235 million (down 11% q-o-q at the high-end) and bookings of $180 – 190 million (down 17% q-o-q at the high-end) and non-GAAP EPS of $(0.04) – (0.03), which suggests that sustained profitability will be difficult to achieve, and reversing positive momentum. Zynga Inc (NASDAQ:ZNGA) attributed the disappointing guidance to the continued decay of some older games, as well as a Q2 release slate skewed towards the end of the quarter.

Zynga Inc (NASDAQ:ZNGA)’s Mobile Growth:

Mobile bookings, which were up 21% y-oy, accounted for 22% of total bookings in the quarter, up from 12% a year earlier. Although mobile MAUs declined sequentially due to only one launch, audience metrics according to analysts are expected to improve in the second half of the year helped by several Q2 launches, including Draw Something 2 on Wednesday.

According to a Wedbush’s report, real money gaming presents a new and significant growth opportunity, but many hurdles must be overcome before RMG meaningfully contributes to revenue: Zynga Inc (NASDAQ:ZNGA) must overcome significant competitive and legislative issues, among others. The near-term impact of real money gaming should be limited.

Zynga Inc (NASDAQ:ZNGA)’s Price Target:

Wedbush is maintaining their OUTPERFORM rating and raising their price target for Zynga Inc (NASDAQ:ZNGA) to $4.25 from $4 to reflect Q1 upside and improving fortunes in the back half of the year when the number of launches increases. Research firm’s revised price target reflects 15x its FY:14 EPS estimate of $0.15 plus $2/share in cash and investments.