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Zynga's expanding game lineup drives revenue growth for fiscal first quarter
Zynga's expanding game lineup drives revenue growth for fiscal first quarter
April 26, 2012 | By Tom Curtis

April 26, 2012 | By Tom Curtis
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For its latest fiscal quarter as a publicly traded company, social gaming giant Zynga beat analyst expectations with a significant jump in both revenue and monthly active players, influenced in part by Zynga's rapidly expanding game catalog.

For its fiscal first quarter ended March 31, Zynga reported revenues of $321 million, up 32 percent year over year, and beating average analyst estimates of $317.25 million. Its online games alone generated $292.8 million of that sum, while ad revenue made up the remainder.

Despite the increase in revenue, however, the company endured losses of $85.4 million on a GAAP basis, down from a profit of $16.8 million during this period in 2011. The loss was somewhat expected, as this quarter Zynga spent roughly $180 million (plus $30 million in employee retention payments) to acquire Draw Something studio Omgpop.

Alongside these financial results, the company also saw its monthly active users increase to 292 million, up 24 percent from this time last year. A significant part of this increase was attributed to the fact that Zynga debuted six new titles during this quarter, including Draw Something, Scramble With Friends, and Hidden Chronicles.

During its quarterly earnings call, Zynga COO John Schappert said the company accomplished three major goals that drove its growth this quarter. "We tackled new game genres, we became a leader on the mobile charts, and we launched the Zynga Platform," he said.

That platform, which launched just last month, allows players to access and play Zynga titles without going through Facebook.

In an SEC filing earlier this week, Facebook reported that 14 percent of its income came from advertising and payment processing fees related to Zynga's social games -- a marked decrease from the estimated 19 percent contribution for that same period in 2011.

Facebook noted that Zynga's new platform could help the social developer become less dependent on other networks, thus further reducing its contributions to other companies.

Zynga also noted that its older titles, like FarmVille and CityVille, also performed well during the quarter. "The total bookings [revenue and pending customer payments] from games that where more than a year old was approximatley 80 percent of what those games delivered in the first quarter of 2011," said company CFO David Wehner.

"The key takeaways here are two fold. One, we had a stable base of bookings from existing games, and two, there's not always a direct correlation between bookings and publicly available DAU [Daily Active Users] data, which showed a steeper decline year over year."

Looking ahead to the full 2012 fiscal year Zynga expects bookings of between $1.425 billion and $1.5 billion.


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Comments


Nooh Ha
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A conspicuous silence from the legion of Zynga haters on Gamasutra...

Ed Fries
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I'm not a Zynga hater but you seem to imply that these are good results. If you look at the actual numbers it's not so rosy. Year over year bookings (real revenue growth) increased only 15%. During that same time sales and marketing expense grew 40% and G&A and R&D spend grew much more than that. The article above seems to imply that they lost money this quarter because they paid $180M (+$30M) for OMGpop in this quarter but again that's clearly not the case if you look at the numbers. I'm not sure how much of the acquisition cost they wrote down this quarter but it has to be far less than $210M (total expenses increased $200M year over year).I assume that people digging into these numbers are the reason the stock is down over 5% today and about 50% over the last month.

Luis Blondet
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What do you want us to say? That in the real world bad people can succeed? What is there left to say about Zynga and Mark Pincus that hasn't already been exposed?

So they are succeeding by buying up innovation because they can't create their own with their mountains of ill-gotten funding.
So people chose to sell out because their purpose was merely an Exit Strategy.
Is this new or shocking or even surprising?

Gerald Belman
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"Despite the increase in revenue, however, the company endured losses of $85.4 million on a GAAP basis, down from a profit of $16.8 million during this period in 2011. The loss was somewhat expected, as this quarter Zynga spent roughly $180 million (plus $30 million in employee retention payments) to acquire Draw Something studio Omgpop."

Sometime I feel like I know more than other people about things.

How does acquisition of a company reduce net income?

The initial aquisition of assets(in this case omgpop) does not affect net income. The employee retention payments of 30 million might - I'm not sure how they would handle that. That might actually be considered an expense.

But that still leaves an unexplained 55 million dollar loss.


"A conspicuous silence from the legion of Zynga haters on Gamasutra... "

They had a loss of 85 million dollars. If we are silent - it's only because the numbers speak for themselves.

And the profits they have had in the past are barely break even. When a company is repeatedly barely breaking even that can often suggest some financial manipulation as well.

If anything, this article is written as a defense of Zynga's poor financial performance rather than an objective analysis of it.

If it was a company like EA, then I could see defending it's poor financial performance because it's been around for a long time and it has a proven business model(at least in the past). But most analyists agree that Zynga is at it's peak (kinda like guitar hero was cool for a while) - and if it can't start to generate earnings soon - that is not a good sign.

Alternate Procellous
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My understanding is that the acquisition was paid for in cash and presumably would have been recorded on the balance sheet, having no impact as an expense on the bottom line. However, their filings show a $133.9 million stock based expense. Basically, they paid out $133.9 million in stock grants to employees and directors. I didn't listen to the earnings call, so it isn't clear to me what the compensation was for, but it is a non-recurring one time expense.

You can look at this in one of two ways: a loss of $85 million or, adjusting for stock based compensation, non-GAAP results of $47 million in profit. This kind of contradiction is why a lot of finance people prefer looking at things like free cash flow instead.

Anyone interested in the details can find the 8-K filing at sec.gov

Nooh Ha
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"But most analyists agree that Zynga is at it's peak"

LOL, you obviously are not a stock watcher. Check any finance site and you'll discover that the current (post results) consensus opinion for the 20 analysts that cover ZNGA is for revenue, earning and share price growth. Out of 20, not one has a sell rating for the stock and the mean&median price targets are $13-$14 (vs its current $8.50 price).


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