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Zynga Launches Much Awaited CSR2, but Market Outlook Remains Weak

Posted on Thursday, Sep 29th 2016

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According to market reports, the mobile gaming industry was worth $34 billion in 2015. Within games, it is among the fastest growing segment. But despite the growth, gaming companies like Zynga are finding it difficult to deliver stellar results.

Zynga’s Financials

For the recently reported second quarter, Zynga’s (Nasdaq: ZNGA) revenues fell 9% over the year to $181.74 million compared with the Street’s forecast of $169.5 million. Bookings were flat at $175 million and reported a decline of 4% sequentially. Zynga reported a break-even quarter on a non-GAAP basis compared with a loss of $0.01 per share reported a year ago. Net loss came in at $0.02, compared with the market’s forecast of loss of $0.03 per share.

During the quarter, online game revenue fell 1% over the quarter and 16% over the year to $136 million. Advertising and other revenues fell 8% over the quarter and 22% over the year to $46 million.

Zynga continues to rely on a few key games. Zynga Poker, Wizard of Oz Slots, FarmVille 2, Hit It Rich! Slots, and Empires & Allies accounted for 19%, 15%, 12%, 11% and 10% of online game revenue.

For the current quarter, Zynga projected revenues of $170 million-$180 million with a net loss of $33 million- $29 million or $0.04-$0.03 per share. Bookings are expected to be in the range of $180 million- $190 million. Non-GAAP EPS is projected to be $0.01. The market was looking for revenues of $188 million for the quarter.

Zynga’s user metrics showed no sign of recovery. Average daily user sessions fell from 21 million in the second quarter of 2015 to 18 million. Average mobile daily users also fell from 17 million a year ago to 15 million. Average daily bookings per average daily user improved 17% to $0.107.

Zynga’s Game Plan

Zynga continued to improve its gaming offerings for the players. For the popular Words with Friends, it announced a variant called Words With Friends EDU as an educational game. The game was launched at the start of the new school and has been developed with the intention of making it not only entertaining, but also effective for students to help grow their language skills. The game addresses needs of students with advanced vocabulary and even those who are learning English as their second language. It has been developed based on inputs received from teachers and education experts. It includes features such as badges, avatars for students, includes a lesson plan for teachers to supplement, andinteractive dashboard where teachers and parents can track progress.

Earlier this month, Zynga also announced the ability to play Words With Friends directly in Messages on iPhone or iPad. The new feature expects users to download the Words With Friends iMessage app on any iPhone or iPad with the new iOS 10.

During the last quarter, Zynga finally delivered the long awaited and the much delayed mobile racing game CSR 2. CSR2 has been well received and has earned more than 600,000 five-star reviews across the App Store and Google Play. Fans are pleased with the game’s impressive visuals and social capabilities that include player versus player drag racing experiences. Since its launch more than 264 million miles of races have already been played on the game.

Other gaming releases during the quarter included Spin It Rich! Slots, Ice Age: Arctic Blast, and Wizard of Oz: Magic Match. It is also on track to release 10 additional games this year including titles such as FarmVille: Tropic Escape and action-strategy game, Dawn of Titans. But Zynga now realizes the importance of delivering quality over quantity. As a result, they have stopped production on the current version of CityVille mobile and are also removing the game from its portfolio.

The interest in mobile and social games was recently re-ignited with the launch of Niantic’s Pokémon-Go. Zynga claims that the launch of the game has neither hurt it, not benefited it much. Zynga is glad the game has amassed such interest as the lure to social gaming will be helpful across the industry. It also knows, from experience, that the success of a mobile game is momentary and it is not possible for a developer to continue to deliver impressive results with each game. The only way out is to continue to develop innovative games. Zynga is now working on its versions of virtual reality, augmented reality games, and wearable technology. Hopefully, the results will pay off.

Zynga’s stock is trading at $2.82 with a market capitalization of $2.43 billion. It touched a 52-week high of $3.02 in August last year and has recovered from a 52-week low of $1.78 it fell to in February this year.

Photo Credit: Mike Mozart/Flickr.com

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