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Zynga Proves It's Positioned For Profits

Stocks in this article: ZNGAMSFTFBGOOGLAAPL

NEW YORK (TheStreet) -- Quarter by quarter, Zynga (ZNGA) is destroying the short-seller bear thesis.

Shares in the game maker were recently trading around $4 Thursday, down 4% but up 11% for the year to date after reporting better-than-expected earnings. Based on the latest earnings report, I maintain my strong bull bias. I wrote a Real Money Pro post with an exact entry, including using options to mitigate risk.

Investors were looking for and received a 1-cent loss per share, although concerns over declining revenue proved to be overblown. Zynga's first-quarter (bookings) revenue was $161 million compared to analyst's expectations of $147 million.

ZNGA Chart

The company gave revenue guidance for the current quarter of $175 million to $195 million. For the full year, the company expects to produce $770 million to $810 million in revenue.

Booking revenue is similar to but not exactly the same and is generally greater than traditional revenue. The company records "bookings" as it's received and, in turn, gives the user tokens or other credits that may be used in game play. When the user actually spends the credits, it's considered revenue.

Revenue may have bottomed and may be finally on track to trek higher. The company generated 10% greater bookings and mobile use in the first-quarter compared to the previous quarter. Overall, daily active users, or DAUs, increased 7% (28 million) and mobile use skyrocketed 23% sequentially quarter over quarter. On the other hand, 28 million DAUs is significantly lower than the 52 million recorded during the corresponding quarter last year.

Don Mattrick is the former entertainment and Devices boss at Microsoft (MSFT), and helped shape Xbox into a leading and highly profitable game platform. This quarter marks Mattrick's fourth quarter as Zynga's CEO. It's not an overstatement to say Mattrick snatched the company from the jaws of a slow and painful death.

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