Zynga Reports Better Than Expected Results But Lowers Guidance

by Trefis Team
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Zynga (NASDAQ:ZNGA) announced its Q4 2012 and FY 2012 results on February 5. The company benefited from successful promotions for games while cutting costs. The social gaming giant shut down offices in Boston and Japan and also expects to close its U.K. studios. Revenue for Q4 was $311 million, flat y-o-y, even as full year revenues were up by 12% at $1.28 billion. The net loss in Q4 was $48.6 million, down 89% y-o-y while full year net loss came in at $209 million. [1]

Zynga is still the largest social gaming company in the world with about 30o million monthly active users of which nearly 72 million users are purely mobile users, a demographic it plans to target in 2013. The company generates most of its revenue from in-game virtual goods sales and advertising on multiple platforms like Facebook, Google+, iOS, Android and others. Zynga competes primarily with Electronic Arts (NASDAQ:EA), Playdom, which was recently acquired by Disney (NYSE:DIS) and other independent social gaming studios.

Below we highlight some of the key developments and what to expect from the company in the near future.

Check out our complete analysis of Zynga

Zynga’s New Games Managed To Increase User Engagement

Despite a challenging quarter, the company managed to successfully leverage its FarmVille franchise with FarmVille 2. In 2012, FarmVille surpassed $1 billion in total player purchases, inclusive of partner fees. In Q4, FarmVille 2 surpassed $100 million in gross bookings, and the company plans to roll out this franchise on mobile platforms in 2013.

Mobile, Core And Real-Money Gaming To Drive Revenues In 2013

Zynga dominates the social casino scene across all web and mobile platforms, and Zynga Poker grew to 37 million monthly active users in Q4. The company plans to introduce games such as Elite Slots in 2013 to beef up its casino gaming franchise. It also plans to launch real money casino games in U.K. in the first half of 2013. The fourth quarter also saw the release of multi-player poker tournaments which has led to more user engagement.

Zynga also plans to introduce mid-core games in 2013 in a bid to keep users engaged for longer periods of time. A mid-core game tries to combine the engagement level of a core game with the learning curve of a casual game to provide an engaging gaming experience to a larger user base. This can potentially allow for retention of a large user base while promoting in-game purchases as the games are designed to be more engaging and users are likely to pay to upgrade rather than drop off once the free-play scenarios are completed.

Outlook For Q1 2013

The company expects lower bookings in Q1 2013. It expects bookings between $200 – $210 million, down sequentially from Q4, mainly due to slower new releases in a bid to control its game portfolio. The company also expects Q1 adjusted EBITDA between -$10 million and breakeven. GAAP revenue is expected to be between $255 – $265 million with a net loss between $12 – $32 million. [2]

We have a $ 3 Trefis price estimate for Zynga, which stands 10% above its market price. We expect Zynga’s new platform and gaming network, and online gambling initiatives to account for much of its future earnings potential.

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Notes:
  1. Zynga SEC Filings, www.sec.gov, Feb 5 2013 []
  2. Zynga Earnings Transcript, www.seekingalpha.com, Feb 5 2013 []
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