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Zynga Betting on Mobile Games

Posted on Monday, Feb 17th 2014

Gartner’s recent report on the gaming industry estimates the worldwide games market to be worth $93 billion last year, compared with $79 billion in 2012. The growth in the industry is attributed to mobile gaming, video game console, and software sales. Globally, the gaming industry is projected to be worth $111 billion by 2015 with mobile games reporting the highest growth during these years. Mobile games are projected to grow from $13.2 billion last year to $22 billion by 2015.

Zynga’s Financials
Zynga’s (Nasdaq: ZNGA) fourth quarter revenues fell 43% over the year to $176.0 million, significantly ahead of the Street’s projections of $143 million. They ended the quarter with a loss of $0.03 per share compared with the market’s expectations of a loss of $0.04 per share.

Overall, the U.S. accounted for 58% of the quarter’s revenues. By segment, online game revenues fell 45% over the year to $152.3 million and advertising revenues fell 35% to $24.1 million. For the quarter, their bookings fell 44% to $147.0 million and average daily bookings per average daily active user grew 19% to $0.06. Web bookings fell significantly from $207 million to $96 million while mobile bookings fell marginally from $54 million to $51.0 million.

Among other operating metrics, Daily Active Users fell 52% over the year to 27 million and monthly active users fell 62% to 112 million.

They ended the year with revenues falling 32% over the year to $873.3 million. Losses for the year fell from $0.28 per share a year ago to $0.05 per share. They will continue to manage their costs better in the coming year as Zynga announced plans to lay off 15% of their workforce.

For the current quarter, Zynga projected revenues of $155 million-$165 million with a loss of $0.01 per share. The Street was projecting a loss of $0.03 per share. Zynga expects to end the year with revenues of $760 million-$810 million and losses are projected to be in the range of $0.01-$0.03 per share.

Zynga’s Mobile Growth
As part of their effort to increase their mobile presence, Zynga recently announced plans to acquire privately-held NaturalMotion. U.K.-based NaturalMotion is a leading mobile games developer with popular game titles like Clumsy Ninja and CSR Racing Series to its credit. NaturalMotion is also known for their graphics and artificial intelligence software Morpheme and Euphoria, which have been used in the development of video games including Grand Theft Auto and Max Payne. Zynga believes that the addition of NaturalMotion will help them expand their presence into racing and simulation game segments.

Additionally, Zynga has also rolled out Riches of Olympus as part of their mobile games. The new mobile social Slots game is available on iPhone, iPad and iPod touch and will expand their Social Casino category which already has the very popular Zynga Poker in its portfolio.

Zynga’s stock is trading at $4.87 with a market capitalization of $4.05 billion. It touched a 52-week high of $5.06 last week.

I think for Zynga to succeed, they need to improve their game development skills. Recently, Vietnamese developer Dong Nguyen released a rather simple but addictive game, Flappy Bird. Despite having a simple objective and no remarkable graphics, the game has amassed a big viewership. It was downloaded 50 million times and was rumored to be raking in $50,000 daily in advertising revenues. Within 4 weeks, the game reached its peak and was pulled off-air for unknown reasons. It is surprising that Zynga, with all its financial backing, has not been able to deliver a hit like that in a while.


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