Zynga shares endure a brutal day, dropping nearly 18% after first earnings report

Zynga’s shares endured a brutal day today, dropping almost 18 percent to $11.80, after the company’s first earnings report as a publicly-traded entity. That wiped out more than $1.7 billion from the company’s market capitalization.

Yesterday, Zynga did beat analysts estimates, with earnings of 5 cents a share excluding a massive, one-time $510 million charge related to the initial public offering. Analysts on average had estimated Zynga would earn 3 cents a share, according to a Bloomberg survey.

But it looks like traders — who had bid the stock up more than 35 percent since the day before Facebook filed for an initial public offering — were hoping for more.

In Facebook’s IPO filing at the beginning of the month, the company said it had a 20 percent quarter-over-quarter increase in payments revenue, suggesting that developers like Zynga might see a comparable boost. But Zynga’s bookings grew about 7 percent quarter-over-quarter to $306.5 million from the previous quarter’s bookings of $287.7 million.

It suggests that Facebook, which Zynga is dependent on for 93 percent of its revenue, is diversifying its payment revenue sources while Zynga has yet to prove that it can truly live off the social network’s platform.

At the same time, research and development costs are rising as Zynga aims to produce another CastleVille-class hit on Facebook, mobile and more. Costs popped this quarter in part because of a $510 million one-time charge related to stock-based compensation around the initial public offering plus infrastructure investment to move server and hosting expenses off Amazon. Just today, the company point to how much it had invested in its own cloud hosting services, saying that nearly 80 percent of its games are self-hosted.

Zynga is also looking to break away from Facebook this year with its own games network, titled Z-Live or Zynga Direct. Though no launch date is set for the service, Zynga confirmed during its earnings call yesterday that it was in closed beta — and we’ve heard rumors that the service may publish third-party games too.

Zynga also did not break out any new mobile statistics beyond daily active usage for its emerging iOS and Android business the way that comparable publicly traded companies like Electronic Arts do. It said only that it had 15 million daily active users on mobile, up five-fold from a year before. Zynga’s mobile gaming business is likely to be more dependent on advertising than virtual goods compared to many other mobile-social gaming companies because of the huge footprint that Words With Friends has.