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   Technology StocksZynga, Inc.

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To: Glenn Petersen who wrote (356)8/12/2021 4:57:44 AM
From: Glenn Petersen
   of 358
Zynga Will Need to Beat Apple at Its Own Game

The mobile-game maker’s damaged stock is unlikely to recover until it shows it can adapt to iOS changes

By Dan Gallagher
Wall Street Journal
Updated Aug. 10, 2021 7:03 am ET

Zynga has lowered its full-year forecast for bookings, a key indicator of sales. PHOTO: DAVID PAUL MORRIS/BLOOMBERG NEWS

Zynga’s ZNGA -1.61% most recent results revived some painful memories. The mobile-game maker will need to work hard to make sure they are fleeting.

Late Thursday, Zynga reported $712 million in net bookings for the second quarter, up 37% year over year. That was a substantial deceleration from the 63% growth rate averaged over the previous three quarters and was also slightly under analysts’ projection of $715.7 million. Net bookings reflect the amount of in-game and advertising transactions executed during a given period. Zynga hasn’t missed Wall Street’s target for this key metric in at least five years, according to FactSet.

Zynga blamed the shortfall on a combination of reduced game-playing activity as more leisure options opened up and recent changes to Apple’s AAPL 0.18% iOS platform that make it harder to track users for the purpose of selling targeted advertising. Both were well-known risk factors before the report, but having them hit at the same time was painful. And the pain isn’t over quite yet: Zynga’s forecast for the third quarter called for net bookings to grow by only 5% year over year—its worst pace in five years. The company also trimmed its full-year bookings outlook by 3% to $2.8 billion.

Zynga’s share price slid 18% the following day—the stock’s worst single-day drop since its second quarter report in July of 2012. That date is an ominous one, as it was when the company first warned investors that changes by Facebook were hurting engagement in its social games. Given that Facebook games accounted for nearly all of Zynga’s revenue at the time, that warning marked the beginning of a serious crisis for the company. Zynga lost more than one-third its market value that day alone and the business went into a tailspin, with net bookings sliding 37% the following year.

The situation now doesn’t come close to that sort of crisis—even Zynga’s reduced forecast calls for 23% bookings growth this year. But some parallels are there. Zynga’s subsequent reorganization around mobile games has sharply revived its fortunes, but it still leaves the company somewhat vulnerable to the whims of tech titans that run the world’s dominant mobile platforms. And while Apple’s iOS powers only about 15% of smartphones sold globally each year, it is a far more lucrative platform than Google’s Android. Global spending on games in iOS totaled $25.9 billion in the first half of this year compared with $18.7 billion on Android, according to data from Sensor Tower.

Zynga’s relatively small cut to its full-year forecast suggests it is confident that it can remedy the problem soon. The company’s recent acquisition of mobile-ad firm Chartboost should help it improve its ad targeting. Zynga also intentionally scaled back ad spending on iOS following the changes to make sure its user-acquisition costs were generating an appropriate return. It also said the weakness was still limited to newer players who didn’t have a strong history of spending in the company’s games.

Wall Street is still very much on board; 94% of covering analysts rate Zynga as a buy—the highest of any videogame publisher, according to FactSet. But the company will still need to demonstrate that it can survive Apple’s bite to get investors to keep playing along.

Write to Dan Gallagher at

Copyright ©2021 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

Appeared in the August 11, 2021, print edition.

Zynga Will Need to Beat Apple at Its Own Game - WSJ

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From: Glenn Petersen11/8/2021 6:36:34 PM
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Zynga’s Q3 2021 bookings of $668M are up 6% from a year ago

Dean Takahashi @deantak

November 8, 2021 1:05 PM

Zynga is buying StarLark and Golf Rival for $525M. / Image Credit: Zynga

Zynga beat analysts’ expectations today, reporting strong bookings and revenues in the third quarter that ended September 30 thanks to the performance of games including Rollic’s hypercasual
titles and strong ad revenue.

While Zynga beat profit and bookings targets for the quarter, its Q4 expectations fell short of where the analysts predicted on profits, even though the full year is still the best financial report in Zynga’s history.

Zynga also announced it hired former Coca-Cola game executive Matthew Wolf as its new head of blockchain gaming as it prepares for a big shift in business models. It also launched Disco Loco 3D, a new game for TikTok’s emerging game platform — Zynga’s first game on the social media platform. That follows the launch of FarmVille 3 last week, which the company said was off to a great start.

The San Francisco-based Zynga’s revenue was $705 million, up 40% year-over-year; and bookings of
$668 million, up 6% year-over-year. In after-hours trading, Zynga’s stock price is up 6% to $7.41 a share.

“We had record results ahead of guidance, our highest ever Q3 revenue and bookings,” said CEO Frank Gibeau in an interview with GamesBeat. “We were up 40% year over year in revenue, which was pretty good considering the comparisons we have coming out of COVID. We’re really seeing the multi-year growth strategy come into place and our live services have moved through the transition out of pandemic mode, and also some of the other issues related to ( Apple’s app tracking transparency) ATT. So we’re really turning the corner and starting to see growth again.”

He added, “The Rollic growth is there, the audience is up, advertisings taking off. And then we just released FarmVille 3 last week, and we go into soft launch on Star Wars: Hunters next week. The new game pipeline has never been stronger. And we’re really excited about what that’s going to do.”

Above: Zynga is buying StarLark and Golf Rival for $525M. / Image Credit: Zynga

Deal-making machine

While the pandemic has been a tragedy in lost lives and economic hardships, gaming is one of the few industries that is emerging stronger than before the coronavirus hit. People are still playing more than before, and the San Francisco firm has also benefited from its acquisitions.

Zynga has been buying aggressively under Gibeau, and the whole game industry has been following suit. In addition to StarLark and Chartboost, Zynga has been making regular acquisitions since the 2017 purchase of casual card games from Turkey’s Peak Games for $100 million. In May 2018, Zynga bought Gram Games for $250 million, followed by the late 2018 acquisition of Empires & Puzzles maker Small Giant Games for $560 million.

The big one came in June 2020 as Zynga acquired all of Peak Games for $1.8 billion. In October 2020, Zynga bought hypercasual game maker Rollic for $168 million. It took a step into PC games with the acquisition of Echtra Games, which was started by the makers of the Torchlight series. And it acquired Chartboost for $200 million. Zynga said the integration with Chartboost was making significant progress as the company creates a next-gen mobile ad platform.

During the quarter, the company added Golf Rival as a new franchise, thanks to the closing of its acquisition of China’s StarLark for $525 million.

Gibeau said the business is also growing organically, and so Zynga can walk away from deals if they get too expensive.

The addition of Wolf will help the company tackle the emerging area of blockchain games, Gibeau said. Regarding Wolf’s hiring, Gibeau said he knew Wolf back when they were at Electronic Arts together.

“We’ve been talking a lot at the board level with Mark Pincus and Bing Gordon about how NFTs will unfold,” Gibeau said. “I know it’s been a buzzword recently in terms of a lot of the releases that have come out. But we hired Matt to come in and build out our division. We think that there is a future for blockchain and NFTs in the overall interactive entertainment community. And we’re going to start to build out against that future. We love the idea of open platforms, where the players owned the content, and we participate with them in that kind of community and in that social dynamic. So for us, it’s exciting to get into the ground floor here.”

Gibeau said the company has been talking a lot about nonfungible tokens (NFTs) and blockchain, and they think there is a place for it where players can own their content.

Regarding NFTs, he said, “I think we typically like to go fast at Zynga. So I don’t think you’re going to b waiting for very long and I think what we’re going to do is let Matt get on board, put together the right kind of rollout, and start talking to you guys about our plans. We think it’s great growth opportunity and tt could have role in our new games and our live games. But it also could be a case where we build specific games for that marketplace. And so I think you’ll see us kind of look at those three opportunities.”

The company has also launched Revamp on Snapchat. The TikTok game is an interesting experiment with a new platform, but Gibeau said he did not yet expect it to produce big financial results.

“We want to see how big an audience it generates and where it’s fun,” Gibeau said.

Other Q3 details

Above: Zynga has teamed up with Girls Who Code. / Image Credit: Zynga

Gibeau said in an interview with GamesBeat that the quarter benefited from Rollic’s hypercasual games, including Arrow Fest and Text or Die. Both hit the No. 1 top free downloaded game in the U.S. iOS app store.

Small Giant Games did well, as did Words With Friends, and social casino and poker games did. Zynga is nearing the end of earnout payments to Small Giant Games and Rollic in the first quarter of 2022, and it has completed earnout payments to Gram Games.

“We’re feeling very good about performance in the quarter,” Gibeau said.

Gibeau predicts annual revenue could hit $2.78 billion and bookings of $2.814 billion. Advertising in Q3 was also a key growth contributor, hitting a record $134 million in revenue, up 99% from a year earlier. Much of that game came from Rollic, which has added a large scale to the ad business.

Looking ahead, the company expects good things from the Alliance Quest live services update in Empires & Puzzles, the Fantastic Feasts update in Harry Potter: Puzzles & Spells, Dragon Missions in Merge Dragons, and Piggy Bank in Toon Blast.

Peak Games has a match-3 title in the works called StarBlast and Gram Games has Pirate Evolution in the works.

Latest on IDFA

Above: Zynga’s Rollic is buying the Onnect matching game for $6 million. / Image Credit: Zynga

Apple changed the Identifier for Advertisers (IDFA) so that people can more easily opt-out of being tracked. That’s good for user privacy. But it makes it harder to target ads at gamers who spend money, which is what game companies have had to do in the absence of great discovery on iOS devices. Without access to IDFA data, game companies will have a harder time finding users.

Gibeau said previously that change began to have more effect as it was implemented in iOS 14.5 in April, and it became clear it was harder to target users as in the past. Now he believes the company has tried alternative ways to attract users and get them to try Zynga’s games, and the results are improving. In that way, Gibeau believes the company is putting its IDFA challenges behind it.

“It’s starting to be in the rearview mirror for us,” he said. “We had to paused our spending back in the prior quarter as we got into position for implementing new systems and new ways to acquire users and so it has improved throughout the quarter. We’ve seen good yields. We’ve been executing with new tools and we felt confident enough in our position to launch FarmVille 3. So we’re ramping the businesses as we go into the holidays, of course. There is a little bit of a lag effect from the last quarter that we need to catch up on. But overall, we feel like we’re moving onwards and upwards in the future.”

Zynga closed the quarter with close to 2,714 employees, compared with 2,476 in the previous quarter. A lot of that came from the acquisitions, and much of the company is in Asia and places like Turkey.

“It’s a very different Zynga than in years past,” Gibeau said.

Potential market reaction

Above: Zynga is part of the #PlayApartTogether campaign to boost the WHO. / Image Credit: Zynga

The stock market reaction to Zynga’s results is usually driven by whether it hits revenue or earnings targets. But it’s complicated, because Zynga is required to report some revenue later than when it actually receives it (like when a user buys in-game currency but doesn’t use it until much later). This is called deferred revenue. But if you add the changes in deferred revenue and current revenue, you get a better picture of the actual quarter’s results in a number dubbed bookings. Zynga’s management uses this number in how it guides expectations. And its investors view bookings as more important than revenues.

As a public company, Zynga is required to report quarterly results on a U.S. GAAP basis, while analysts and investors use non-GAAP financial metrics to assess a company’s underlying performance. Bookings and adjusted earnings before income tax, depreciation, and amortization (EBITDA), excluding the impact of deferred revenue, are among those metrics that are most highly scrutinized as they reflect the actual operating activity of the company better.

Here are the numbers that really matter when it comes to stock market trading for Zynga’s stock. Analysts expected Zynga to report GAAP earnings for the third quarter ended September 30 of a loss of 10 cents a share and non-GAAP EPS of a loss of 9 cents a share, and the actual non-GAAP loss came in lower than expected at 4 cents a share. Analysts expected bookings of $665 million. Zynga had guided to $660 million in bookings, and it came in at $668 million.

And it also beat the analysts’ profit targets. Adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) is more closely watched as a measure of the company’s profitability. After adjustments, the figure that analysts focus on (adjusted EBITDA, excluding the impact of deferred revenue) of $150 million, while Zynga guided to $145 million. The comparable profit target number that Zynga hit for adjusted profits was $160 million, well above expectations.

More Q3 details

Above: Frank Gibeau is CEO of Zynga. / Image Credit: Zynga

The company had online game (or user pay) revenue of $571 million, up 31% year-over-year, and user pay bookings of $534 million, down 5% year-over-year due to a tough comparison to COVID-19 lockdowns.

The company had record average mobile daily active users (DAUs, or those who play at least once a day) of 38 million, up 21% year-over-year, and a best-ever average mobile monthly active users (MAUs, or those who play at least once a month) of 183 million, up 120% year-over-year. That increase was due to the addition of Rollic’s hypercasual games.

The company reported a net loss of $42 million, an improvement of $80 million over a year ago. This loss included a one-time cost of $67 million due to the impairment of its vacated office lease and related expenses. Zynga is moving its headquarters to San Mateo, California.

Adjusted EBITDA was $197 million, which is up $159 million from a year ago. This was primarily driven by the change in deferred revenue. The company closed the quarter with $1.3 billion in cash and investments, which it will use to fund future and existing acquisitions.

Full-year outlook

Above: Zynga bought 80% of Rollic for $168 million. / Image Credit: Zynga

In 2021, Zynga expects to deliver revenue of $2.78 billion, up 41% from a year earlier, and bookings of $2.814 billion, compared to expectations of $2.807 billion in bookings. It expects a net increase in deferred revenue of $34 million, down 88%, from a year earlier.

Zynga expects to generate a net loss of $97 million, in-line with prior guidance, and now including a charge of $67 million primarily related to the impairment of its existing San Francisco lease and related leasehold improvements.

Zynga anticipates adjusted EBITDA of $650 million. Analysts had been expecting full-year EBITDA (excluding the impact of deferred revenue) of $659.5 million.

Gibeau said the company’s new game pipeline has never been stronger with the launch of FarmVille 3 and titles like Star Wars: Hunters in soft launch in selected markets.

“This is going to be the best year we’ve ever had as a company from a revenue and bookings standpoint,” he said.

Q4 outlook

Above: Harry Potter: Puzzles & Spells is another Zynga “Forever Franchise.” / Image Credit: Zynga

For the fourth quarter ending December 31, Zynga expects revenue of $675 million, up 10% year-over-year, with bookings of $715 million, up 24% year-over-year. Analysts had been expecting bookings of $723 million in Q4 and they are expecting Zynga to report earnings per share of 9 cents for the fourth quarter ending December 31.

Zynga is being more conservative for those expectations, but Gibeau said the company is on track to have its best year ever. But it is being more conservative on the ramping of live services and ad growth for Q4. Zynga will also do more marketing spending in Q4 to boost games like FarmVille 3.

The net loss will be $60 million, while adjusted EBITDA will be $122 million. Analysts were expecting EBITDA (excluding the impact of deferred revenues) of $180.5 million for the fourth quarter, and Zynga expects it will hit $162 million in Q4 in its guidance.

“We’re a tiny bit below for the fourth quarter. But given the climb back from post-IDFA and reopening and the launches, we feel really good about where we’re at,” Gibeau said. “And, frankly, we’re set up for a really strong 2022 with all the new games live services growing, the expansion in hypercasual, and the advertising business.”

Zynga's Q3 2021 bookings of $668M are up 6% from a year ago | VentureBeat

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