Zynga to Launch a Game Marketing Network for Social Game Developers

February 20th, 2012 by Trefis Team
9.50
Trefis
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Zynga

Zynga (NASDAQ:ZNGA) is reportedly working on a new publishing program and marketing network, which would enable other social game developers to promote their games. [1] The new marketing network may be integrated with the upcoming Zynga Direct network. It would enable game developers to host, publish and market their games through Zynga’s existing titles. Zynga aims to generate an additional revenue stream by taking a cut of the sales generated by the games it promotes. Zynga is currently the largest social gaming company in the world, with over 240 million monthly active users. It competes primarily with Electronic Arts (NASDAQ:EA), Playdom which was recently acquired by Disney (NYSE:DIS) and other independent social gaming studios.

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Zynga currently generates all its revenue from the sale of virtual goods and advertising, with a major portion of it dependent on Facebook. Zynga has been trying to reduce its dependence on Facebook by launching new games on other platforms like Google+, iOS and Android, and through initiatives like Zynga Direct.

Zynga’s wide reach helps it easily cross market its own games to its existing player base of more than 240 million. Zynga plans to leverage this very advantage to generate additional revenue by marketing games by other developers in exchange for a portion of their revenue. Given the size of the online gaming market, this could become a significant revenue driver for Zynga in the coming years. Zynga’s R&D costs have jumped in the last quarter, mostly because it spent a lot on making new games. Through this new marketing network, it will be able to clamp down on its R&D expenses, while continuing to grow its revenues.

However, that may be at the expense of its own games, if the games by other developers start attracting users away from its own offerings. We currently expect Zynga’s new games to attract increasing amounts of users in the coming years. Any decline in its projected user base could significantly impact its Trefis price.

We currently have a $13 Trefis price estimate for Zynga, which stands just above its current market price.

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Notes:
  1. Zynga Said to Plan Game Promotions to Lessen Facebook Reliance for Sales, Bloomberg [↩]