Zynga Earnings Preview: Mobile Expansion In Focus

August 6th, 2014 by Trefis Team
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Zynga (NASDAQ:ZNGA) will release its Q2 2014 earnings on August 7, and we expect some sequential improvement driven by better execution, the launch of extensions for existing games and a continued focus on mobile devices. Compared to bookings of $161 million in Q1 2014, Zynga expects the figure to increase to roughly $185 million (mid point of guidance) in the second quarter of 2014, with adjusted EBITDA of $10 million to $20 million. [1]. This is the third quarter when Zynga will see such sequential growth, which clearly indicates that the business is picking up following a steep decline in early 2013. Much of this can be attributed to the revamp in Zynga’s management structure and greater focus on user experience and mobile platform, instead of earlier strategy of replicating existing game models and launching as many of them as possible.

Zynga expects its mobile bookings to account for more than 50% of its total bookings in 2014. For Q1 2014, the figure stood at 36%. If the company achieves this, it will join the ranks of other successful Internet firms that earn most of their revenues from a mobile platform. Some of the franchises are doing well and have adapted well to the mobile platform. These include Casino franchise, whichin turn  includes Zynga Poker, and Words With Friends franchise. The company continues to make investments in these franchises to promote and upgrade them and expand their audience.

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See our complete analysis for Zynga

We Expect Sequential Increase on the Back of Improvement on Mobile

Zynga has witnessed a sequential increase in its key metrics in the last two quarters. In Q1 2014, its monthly audience went up by 10%, whereas its daily audience jumped 7% over the fourth quarter of 2013. [1] Growing user engagement on mobile spearheaded this growth as Zynga’s monthly mobile audience shot up by 45%. While much of this can be attributed to the acquisition of mobile gaming company NaturalMotion, core Zynga mobile users also saw double-digit sequential growth. We expect Zynga to build upon its latest acquisition and launch of new versions of its key franchises.

In April 2014, Zynga launched FarmVille 2: Country Escape, on iPhone, iPad and Google Play. In addition, it also launched Hit It Rich! slots game globally on Google Play. The new versions of already successful franchises will help the company continue its sequential improvement in the near term. Expanding reach on mobile and creating new content is critical for Zynga. Monetizing mobile is important due to the continued shift of consumers to smartphones and tablets for most of their computing and entertainment needs. It was only after Facebook started ramping up its mobile ad business that its market price shot up significantly. Zynga is likely to introduce new games in second half of the year which will help it sustain its growth. Zynga’s acquisition of NaturalMotion has complemented its gaming roster by bringing successful games that appeal to genres of racing and people stimulation, areas where Zynga hasn’t seen much success.

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Notes:
  1. Zynga’s Q1 2014 Earnings Transcript [↩] [↩]