Zynga (ZNGA) shares rose 3 percent on Friday, no thanks to the earnings results the digital game maker released Thursday afternoon. Its losses hit $57.1 million in the third quarter, up from $68,000 for the same period in 2013. The red ink rose to $180.1 million for the first nine months of the year, versus $11.4 million in 2013.
Revenue also went backward, with $176.6 million in 2014, down 13 percent from $202.6 million in 2013. The number of daily active users was down by 13 percent.
And yet, the stock rose -- and even more sharply early in the day before cooling off. The reason was investor hope. The quarter showed a year-over-year 111 percent increase in mobile bookings -- money from ads and sales of in-game virtual merchandise. Mobile bookings represented 55 percent of total bookings, a 5 percent step-up from the second quarter of 2014.
Still, despite Friday's little rally, Zynga shares are down some 37 percent for the year so far. That's because gaming companies have found initial success hard to follow up on. What was a hit with the public doesn't last, leaving management teams trying to navigate the eternally tricky waters of fads. Catching lightning once doesn't guarantee the second attempt will leave a company unscathed.
So, Zynga investors were reacting strongly not to the loss, but to the hope that the company would find a way to catch on in casual mobile gaming rather than depending on Facebook (FB) users, as it has in the past.
And Zynga isn't the only one in gaming trying to find its way to continued success.
Privately held Rovio Entertainment doesn't report its results. But the creator of Angry Birds stumbled hard this year. In October it said it would "consider possible employee reductions" of a "maximum 130 people," or 16 percent of its workforce, to "reignite growth." The company had a massive hit in Angry Birds and went on to license merchandising rights to its characters.
But no series of games lasts indefinitely. Eventually the public gets bored with sequels and wants a new experience. For example, before Rovio happened upon its breakthrough hit, it created 51 titles. There is no intrinsic reason that it wouldn't have to go through that many misses again before finding the next hit.
King Digital (KING), responsible for the wildly popular Candy Crush game, announced results after the markets closed on Thursday as well. Its stock ended more than 4 percent higher today even though revenue of $514.4 million was under last year's $621.2 million, and profit of $141.7 million was well down from $229.8 million in 2013 (although that performance was better than analysts expected).
In addition, King announced a $150 million share-buyback program, pushing its profits into the hands of shareholders. Given how young the company is, that's an unusual move. Typically, buybacks to bolster stock price are undertaken by large and mature companies that, because of their size, can't necessarily deliver on the high growth that investors usually want.
There are two ways to take the move, as Business Insider pointed out. It's either a reward for investors who stuck with the company after the IPO or tacit acknowledgment that banking on innovation and growth might be chancy. As journalist Joe Weisenthal wrote on social network Ello, the move makes sense because "Candy Crush isn't an easily repeatable phenomenon."
A number of casual gaming companies quickly cashed in on full-fledged Internet hits. Now they have to show those successes weren't a fluke.