Zynga Earnings Preview: What We're Watching

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

NEW YORK (Trefis) -- Zynga (ZNGA) will report earnings for the fourth quarter of 2011 on February 14. The company is the largest social gaming company in the world with over 230 million monthly active users. Since its revenues are tightly linked with Facebook and this is the first earnings since its IPO, investors will watch closely for greater detail surrounding its results and outlook.

Zynga competes primarily with Electronic Arts (EA); Playdom, which was recently acquired by Disney (DIS); and other independent social gaming studios.

New games account for more than 40% of Zynga's $10.20 Trefis price estimate, which stands nearly 20% below its current market price.

Check out our complete analysis of Zynga

User Growth

Zynga has shown significant growth in its user numbers in the past, but the growth had slowed down significantly near the end of 2011 due to the lack of any new hit games. We expect the average number of Zynga's total monthly active users to be around 230 million in 2011, and expect this to increase to around 245 million by 2012, with most of the growth coming from new games.

Zynga has launched a series of new games in the last couple of months, and we expect it to continue launching new games on mobile platforms as well as new social networks in the coming years. This means there can be a significant rise in the user numbers for its new games in the future.

Plans for the Future

The next couple of years will be very crucial for Zynga, as it's expected to launch its own gaming network -- Zynga Direct in 2012 -- as well as introduce many new mobile games on platforms like iOS and Android. We expect mobile games to generate a significant portion of Zynga's revenue in the coming years.

We will be watching its earnings call closely for any details on these fronts. Zynga may also reveal some details about its plans to enter the online gambling space, which could easily be a billion-dollar business in the near future. Furthermore, we will be looking for any signs of an increase in Zynga's average revenue per user, ARPU, for its new games, which is one of the biggest drivers to its stock value, by our estimates.

Click here to find out how a company's products impact its stock price at Trefis.

Like our charts? Embed them in your own posts using the Trefis Wordpress Plugin.

>To order reprints of this article, click here: Reprints