Zynga Shares Plunge on Revenues Miss: Tech Winners & Losers

NEW YORK (TheStreet) –– Zynga (ZNGA) shares dropped 5.8% to $2.75 this morning following disappointing second-quarter earnings.

The online games maker’s revenues declined to $153.2 million from $230.7 million a year earlier, a 33.6% change, while earnings per share were flat. Analysts polled by Thomson Reuters expected break-even earnings on revenues of $191 million. Monthly active users (MAUs) were 130 million, down from 187 million in the same quarter last year but up 5.7% sequentially. Monthly unique players (MUPs) were 1.7 million, a drop from 1.9 million a year ago but a 21.4% increase sequentially.

Zynga also lowered its 2014 revenue guidance. It now expects between $695 million and $725 million in revenue, down from the previously estimated range of $770 million to $810 million. Next quarter, the company expects revenues between $160 million and $170 million and earnings from flat to 1 cent per share.

"While our quarterly financial results were in line with our guidance range, we aspire to do better and improve execution across our business,” said CEO Don Mattrick in a press release. “Inside Zynga, we recognize that our products have the potential to live for multiple years and with nurturing, refinement and investment, they can grow and scale. We are purposefully competing, and while we would like to be further along, we believe we are making the right decisions to grow our business and unlock long term shareholder value.”

Zynga ended the quarter with $1.149 billion in cash and equivalents, down from $1.541 billion at the end of 2013.

Analysts were bearish following the report. Barclays analyst Christopher Merwin who holds an “equal weight” rating on the stock and a $3 price target, was concerned about “the likely volatility in Zynga's near-term performance as the company ramps investment into the new franchises,” which, however, may represent potential growth opportunities.

Credit Suisse analyst Stephen Ju rates the stock an “underperform” with a $3.50 price target, but similarly noted that given the company’s new games released every year, “the possibility of upward revisions to estimates is increasing given the more ‘at bats’ the company will have.” 

NVIDIA (NVDA) shares jumped 8.3% to $18.90 after releasing strong quarterly earnings.

For its second quarter 2015, which ended June 27, 2014, NVIDIA earned 30 cents per share on revenues of $1.102 billion, a 13% revenue increase year-over-year. Analysts surveyed by Thomson Reuters forecast earnings of 20 cents per share on revenues of $1.100 billion. For the third quarter, the chip maker expects revenues of $1.20 billion, plus or minus 2%.

"We had a great quarter with strong gains in each of our three growth areas -- Gaming, Datacenter & Cloud, and Mobile," said CEO Jen-Hsun Huang in a statement. "Our Tesla  (TSLA) datacenter business is in high gear, benefiting from strong demand from cloud service providers, and our new SHIELD tablet is generating considerable excitement. NVIDIA's accelerating growth stems directly from investments in extending our visual computing leadership to the mobile-cloud revolution."

Analysts’ perception of the company is mixed. Needham & Co. analyst Rajvindra Gill upgraded the stock to “buy” from “hold” with a $23 price target, writing that NVIDIA “is undergoing a fundamental transformation: migrating from a consumer-orientated company towards one that focuses on stickier and more profitable markets, such as autos, enterprise/datacenter, and HPC.” This transformation will result in “reduced volatility in earnings, better visibility and overall higher margins.” 

Another bull was Stifel Nicolaus’s Kevin Cassidy, who reiterated his “buy” rating and $22 price target. He wrote that the results released yesterday “are evidence that management’s long term strategy for driving its GPU technology into servers, data centers and supercomputers is reaching critical mass.” He also raised his full-year guidance estimates, to $4.65 billion in revenues and earnings of $1.30 per share from prior $4.63 billion and $1.21.

Shares of Ubiquiti Networks (UBNT) climbed 7.2% to $42.16 on record quarterly earnings.

For its fiscal fourth quarter, the telecom communications company reported $156.0 million in revenues, up 54% year-over-year, and earned 56 cents per share, up 70% year-over-year. In the Service Provider Technology, revenues grew 37.6% year-over-year and 2.5% sequentially to $124 million. Enterprise Technology revenues more than doubled year-over-year, and increased 17% sequentially, to $32 million. Analysts were expecting revenues of $151.03 million and earnings of 51 cents per share.

"We continue to ramp our R&D resources in an effort to accelerate the next phase of our long-term vision of democratizing end to end communications technology infrastructure for the unconnected" said Robert J. Pera, the founder and CEO of the San Jose-based company.

Cash and equivalents at the end of the quarter were $347.1 million, up from $227.8 million in the same quarter last year.

Ubiquiti also issued guidance for the first quarter 2015. It expects revenues from $156 million to $161 million and earnings of 52 cents to 54 cents per share.

Arista Networks (ANET) rose 5.8% to $76.39 after beating expectations in its first quarter since its IPO.

Revenues for the quarter, ending in June, were $137.9 million, which yielded earnings of 35 cents per share. Analysts had expected earnings of 13 cents per share on revenues of $125.6 million. For the current quarter, the networking equipment vendor expects revenues from $142 million to $150 million, above the consensus estimate of $134 million.

“I’m pleased with our performance in Q2 2014 as we increased to 2,700 customers this quarter,” said CEO Jayshree Ullal in the press release. “We saw good balance across our top four verticals, as customers adopted our new Arista 7000 Spine and Spline products for cloud networking innovation and reduced total cost of ownership (TCO).”

Analysts’ reactions were mixed. Citigroup analyst Ehud Gelblum raised his rating on the stock to “buy” from “neutral.” He wrote that the results made him more confident, especially operating margins, which he expects will “remain in the ~20% range for ’14 – up from our prior estimate of 12% – expanding to a sustainable mid to 20s LT matching peer Cisco (CSCO).” Wells Fargo analyst Jess Lubert was also bullish: he maintained his “outperform” rating and raised the price target to $85 to $90 from $75 to $77.

In contrast, Gabelli & Co.’s Hendi Susanto downgraded the stock to “hold” from “buy” because of the run-up since the company’s IPO. The long-term prognosis is still fairly positive: “We believe Arista’s cloud-networking solution portfolio is well positioned to win market shares in the triple play market opportunities of in software-defined networking, cloud computing infrastructure, and data centers.” Raymond James analyst Simon Leopold also sounded a cautious note: he reiterated his “market perform” rating, noting, “Given the stock’s valuation, we suspect the market considered consensus estimates conservative, and we suspect the company will struggle to manage expectations.”

--Written by Laura Berman in New York

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