Zynga reports earnings that beat estimates, stock gets upgraded in face of $200M buyback

As bad as the news has been for Words with Friends creator Zynga, the gloom has definitely lifted. On Tuesday, the gaming company announced that it was cutting 5% of its staff and closing the Boston office. The stock had fallen to a new all-time low near $2. But after disclosing higher than expected Q3 revenues of $316.6 million vs. expectations of $291.5 million, a partnership with a British real money gaming company and a stock buyback, the shares are soaring 13% higher on Thursday morning. In addition, at least one analyst has upgraded his rating on the stock putting a target of $4 on the shares which are currently trading at $2.41.

Zynga also raised the lower end of its 2012 earnings estimates. But the big news was that the company, which got into trouble after purchasing Draw Something creator OMGPOP for $180 million in the Spring, entered into a deal with British online gambling firm Bwin.Party to offer real money gaming with online poker and a suite of 180 casino games. Both companies will share the revenue from the real money venture which will start operations next year. Zynga still accounts for the top five games on Facebook including FarmVille 2 which has 61.3 million monthly users. CEO Mark Pincus blamed the company's problems due to its decision to focus on mobile games and the lack of a compelling new game.

Zynga announced that it was going to buy back $200 million of its own shares which will reduce the number of outstanding shares and raise earnings per share numbers in future earnings reports. For the just announced third quarter, Zynga announced a net loss of $52 million or 7 cents a share. That beat Zynga's earlier guidance of a loss in the range of $90 million-$105 million. For the full year the company said it would report a profit of 2 to 3 cents a share, not including the effects of the stock buyback. The previously announced restructuring, including the staff reduction, will alllow Zynga to save $10 million to $ 15 million in pre-tax dollars in the current quarter.

source: Bloomberg, Reuters