Zynga experienced quite the free fall in 2012. Wall Street watched as CEO Mark Pincus made business decisions that ate up Zynga's money, sent more than a dozen executives fleeing and left Zynga's stock down more than 80 percent by the year's end.
Wall Street is watching again today, as the social-gaming company releases its latest quarterly earnings. Last quarter, the company reported a loss of $52.7 million. Zynga has tried to pick up the pieces in recent months, cutting costs through layoffs and shuttering failing games.
The stock tumbled almost 4 percent yesterday -- $2.56 at the close of the market. Analysts are estimating that Zynga's revenue went down about 31 percent to $212 million with an earnings-per-share of $0.03.
Zynga needs to prove that it can be the rock star company it once was by making a few things clear in its report or during its earnings call:
Pincus showing he can lead. This one is a biggie. Of late, Zynga's house has been a revolving door of executives with its most recent loss, the chief game designer, reported last week. The company's had to shuffle its management team, with Pincus promoting some loyal employees to the top. He'll have to show that the new configuration works and, more importantly, that he can make the right decisions going forward. That means no more spending unnecessary money, for one thing, says Wedbush analyst Michael Pachter. Pincus spent more than $200 million buying OMGPOP for the popular Draw Something game, only to watch the game's user numbers drop dramatically.
"So far, he hasn't shown a compelling case why he is CEO," Pachter said in an interview. "If he wants the stock to go up, he needs to show people that he's ready. He's definitely a smart guy, he wants to be good. He's not evil, he's not trying to lose money."
He added that Pincus should make it clear to Wall Street that he understands the situation -- that the company has to start making some money for Wall Street to stick by it. "It doesn't have to be big numbers," Pachter said.
Cut more costs. By the end of 2012, Zynga shut down more than 10 games that weren't performing well, and let go 5 percent of its staff, including outside services, and it prepared to close its Boston studio and, potentially, some studios overseas.
Analysts at Sterne Agee estimate the layoffs saved Zynga between $60 million to $80 million in annual savings and that more layoffs are coming. Pachter said Zynga needs to let go of more people because the company has changed dramatically. Instead of acting like a quickly-growing startup, Zynga needs to think long term. For a company that's faced with slower growth, it is overstaffed, he said.
Show that its partnership with Facebook is not the only way it can make money. Zynga's relationship with Facebook had always been a love/hate one. The company needed the social network to make its games go viral, but Zynga's dependence meant it was at the mercy of Facebook when it came to revenue.
The exclusiveness of this relationship changed when Facebook ended Zynga's special status, choosing to focus more on its other developers. At the time, Zynga spun it as a way for it to focus on game publishing and not game developing, a strategy it adopted last year to get out from under Facebook's thumb. So far, Zynga has partnered with about a dozen developers and released several games on its online platform and five mobile games, but it has yet to show how these games are performing, or if they are making money.
Other things to look for today's earnings call: Analysts will watch to see if Zynga bought back any shares in the last quarter. Zynga announced a $200 million buyback last quarter. If the company bought back shares, it would be acknowledging that management believes the shares are undervalued. Also, the Sterne Agee analysts think Farmville 2's performance may actually surprise Wall Street. For the first time in several quarters, the number of daily active users in the entire "invest and express" genre -- the category Farmville is in -- is up, and it's because of the the steady visits of Farmville 2 players, according to a Sterne Agee report.