NEW YORK (TheStreet) -- An old tech dog can learn new tricks. That's what Zynga's (ZNGA) shareholders are wagering three years after the San Francisco game maker IPO'd. The shares have painfully shed more than 80% of the highs made in early 2012, albeit there's plenty of reason to remain optimistic.
Earlier this month, Zynga's chief handler, Don Mattrick reported a modest bookings beat, but enough to lift the already astonishingly low expectations, and send shares markedly higher. The earnings surprise is good news, although not nearly as significant as the company's mobile growth. We will explore the mobile growth in depth, but first, let's look into the earnings report and see what's under the hood.
Deciding if the market is more irrational for not seeing this one coming or for allowing the shares to fall as far as they have beforehand is a challenge. One thing's for sure, finding growth potential on the top and bottom lines isn't challenging. However, the earnings report does contain more than one concerning aspect.
The number of shares continues to grow. The weighted average number of shares in the first nine months of 2013 was 791 million. In the last three months, that number climbed to more than 880 million. In and of itself, maybe not that significant, but the company recently completed its last share buyback program and hasn't announced another.
Shareholders become increasingly diluted if the company continues to issue employee stock options, and of course the previously issued options, absent company buybacks aren't helpful for the average investor. Then there's that pesky GAPP accounting to deal with.
So many in the media are willing to write a headline stating the company "only" lost a non-GAPP penny a share instead of the actual 6 cents in the last reported quarter. Sure, maybe if investors don't count recurring expenses, but when was the last quarter non-recurring charges didn't occur? Remember, non-GAPP doesn't mean non-real money.