Earnings Preview: Zynga 2Q to spotlight players

Associated Press

NEW YORK (AP) — Online game company Zynga Inc. is expected to post higher second-quarter revenue than it did a year ago, when it was still privately held, on Wednesday after the market closes. But worries about declining player numbers have cast a shadow on the stock in recent month.

WHAT TO WATCH FOR: Zynga's stock has been trading at its lowest levels recently since the company went public in December. Any bad news will likely pressure the stock further. Wedbush analyst Michael Pachter, however, expects some good news. The analyst thinks Zynga will post revenue above Wall Street's expectations because it's been better at making money from its games. Zynga's games are free to play, but the company charges for virtual items such as poker chips or cows in "FarmVille."

Investors will also looking for updates on user numbers. Pachter said the company's stock continues to be hurt by data saying the number of its users is declining. But he noted that the number of users does not directly correlate to how much money Zynga is able to make. That's because most people don't pay anything, and "the majority of gamers who discontinue playing Zynga titles are likely to be non-payers, with payers spending more as they make a greater investment of time in each game."

Any new details on Zynga's mobile games and how it is able to make money from them will also be closely watched.

WHY IT MATTERS: Zynga's games are played about 240 million people on Facebook each month, according to AppData, which tracks Facebook apps. Its business model — offering free games and making money on selling virtual goods — is new for a public U.S. company, so it is closely watched.

WHAT'S EXPECTED: Analysts, on average, are expecting earnings of 5 cents per share on revenue of $342.3 million, according to a poll by FactSet.

LAST YEAR'S QUARTER: Zynga had net income of $1.4 million on revenue of $279.1 million in the second quarter of 2011, when it was still privately held.

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