Zynga Inc (NASDAQ:ZNGA) will report Q2 earnings later today, and investors are bracing for bad news. The company that became famous for Facebook games like Farmville and Cityville told shareholders back in June to expect losses from 3 – 4 cents per share, but it has failed to meet even declining expectations in the past, reports Alyson Shontell of Business Insider.
Zynga Inc (NASDAQ:ZNGA) has been hit by the shift to mobile computing that has also threatened Facebook Inc (NASDAQ:FB) and other IT giants who have built their business models on the assumption that people will continue to spend a lot of time on desktops. Now that smartphones and tablets are competing for people’s time, these companies are struggling to transition without losing market share.
To help with the transition, Zynga Inc (NASDAQ:ZNGA) brought in CEO Don Mattrick earlier this month while former CEO Mark Pincus changed his role to chairman of the board and chief product officer. Before joining Zynga, Mattrick headed the Xbox division at Microsoft, another company that has been losing ground to mobile gaming.
Mobile gaming is an odd and unpredictable market
Mobile gaming is proving to be an unpredictable market for the same reason that predicting social media trends seems impossible. People have access to a huge number of free games and there is no cost associated with switching from one game to another. Mobile games also tend to be free to play, bringing in revenue through ads or in-store purchases – or not at all.
King’s Candy Crush is the current market leader, bringing in more than a half million dollars a day, but Betawork’s Dots has also found a large audience and made virtually no money.
Zynga could lose ground and still beat expectations
Because of these challenges, most people are bearish about Zynga Inc (NASDAQ:ZNGA)’s prospects, but that could be a good reason to take a position on a short-term rally, argues Jon Najarian of Option Monster. Since no one expects to see a strong earnings report, even mitigating their losses could beat expectations.
If Zynga Inc (NASDAQ:ZNGA) can put together a strong argument that Mattrick knows how start growing again, something more than another slate of Farmville clones and iPhone ports, that could be enough for investors to start putting their money back into Zynga, rewarding anyone who made the leap a day early. Since the market has priced in a big disappointment, it seems unlikely that the earnings report could cause Zynga Inc (NASDAQ:ZNGA) stocks to fall much lower than they already are.
