Zynga Stock Has a Lot to Prove on Tuesday

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The game's afoot for Zynga (NASDAQ: ZNGA). The casual and social gaming giant behind FarmVilleZynga Poker, and Words With Friends is rolling. The stock is within 2% of revisiting the three-year highs it hit in late September, and a new multiyear high is certainly within reach if Zynga comes through with strong financial results this week.

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Zynga reports its quarterly numbers shortly after Tuesday's market close, and it tends to move on earnings. The stock rose a modest 3% the day after posting its second-quarter results in early August. Zynga soared nearly 13% higher the day following its first-quarter announcement three months before that, rising 2.3% the period before that. String the upbeat market reactions together, and you have a stock that could reasonably hit a fresh three-year high in Tuesday afternoon's after-hours trading. You have to go back to the second quarter of last year to find the last time that the stock declined the day after offering up a financial report. However, that 7% slide is a painful reminder that volatility cuts both ways. Momentum is on Zynga's side, but like the fickle nature of its mobile gamers, it's something that can turn in a hurry. 

Expectations with friends

Zynga's summertime guidance calls for $7 million in net income, adjusted EBITDA of $30 million, and $210 million in revenue for the third quarter. It sees $205 million in bookings for the period, a sequential dip but a modest 4% increase since the prior year. 

Investors may be spoiled after the 20% year-over-year surge in bookings during its blowout second quarter, but it also bears pointing out that Zynga has been conservative in its sneak peeks lately. It was also modeling $205 million in bookings for the second quarter, eventually clocking in at $209.2 million. Zynga was also bracing investors for a tiny deficit, and it came through with a small profit. The period before that, we saw Zynga's bookings guidance of $190 million translate into $207.4 million. It's not a coincidence that the stock has rallied nicely following its two last quarterly outings. The stock's been a market-beater, rising 53% so far in 2017.  

Revenue is still a far cry from its 2012 peak, but Zynga has worked hard at the reinvention process. The company that was generating more than $100 million in gross bookings from the FarmVille franchise alone in any quarter back then is now relying more on its social casino games -- as poker and slots account for half of its bookings in its latest quarter -- and a more diversified portfolio of traditional mobile diversions. 

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Zynga is unlikely to approach its 2011 IPO price of $10 anytime soon, but most investors who have hopped on the stock over the past year are doing well. A strong report pushing the stock to its highest levels since the springtime of 2014 will make sure that all of the stock's recent buyers are doing well.

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Rick Munarriz has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.