Zynga Not Out Of Troubled Waters
Zynga’s (NASDAQ:ZNGA) results from last quarter did little to lift the market sentiment. The outlook was relatively weak and now it seems like the company’s recent decision to partner with big brands and use their IP (intellectual property) to launch games might not turn out to be a game changer. NFL Showdown game app saw lower than expected downloads and the upcoming game Loony Tunes Dash again suggests a lack of creativity and originality. Zynga’s web bookings are declining and the company expects its full year bookings to total between $695 million and $725 million. [1] In this context, the company’s licensing agreements with big brands continue to cast a doubt over its ability to create original gaming content.
Our price estimate for Zynga stands at $3.20, implying a premium of little under 15% to the market price.
See our complete analysis for Zynga
New Mobile Games May Not Be Successful
Here is what Zynga did recently to improve its mobile gaming roster.
Zynga entered partnership agreements with famous franchises including NFL, Tiger Woods and Warner Brothers’ Looney Toons, under which it can use their brands to launch new games. We believe that the company hopes to leverage these brand names to better market its new games and expand its presence in the underserved sports genre in the mobile gaming market. While sports-related titles accounted for 12% of sales on gaming consoles last year, they constitute just about 4% of mobile gaming revenues. [1] However, this move also casts doubt over the company’s ability to create unique content and IP (intellectual property), which has been an issue that has plagued it in the past. Zynga intends to launch several new titles in the near future, but unless it can show that it can build unique and appealing gaming content on its own, investors may continue to shy away from its stock.
Recent reports suggest that despite its partnerships with strong brands, Zynga may not be able to attract as many paying users as may be necessary to revive investor faith. For instance, its new gaming app NFL Showdown has received a lukewarm response from iOS users. In fact, the game has consistently lost its download ranking among mobile games ever since its launch. The image below is taken from App Annie, a web firm that compiles app data for iPhone and iPad users, and shows how the download ranking of NFL Showdown has fared over past few weeks. It is important to consider iOS usage statistics because average revenue per iOS user tends to be much higher than the figure for Android users. This can be attributed to their higher activity and greater tendency to pay for Apps and in-app purchases. According to Park Associates, around 33% of iPhone users have a lifetime value of $5,000 or more as compared to just 22% of Android phone users. [2]
Additionally, Zynga plans to release the new game Looney Tunes Dash based on the character Bugs Bunny. However, we are disappointed by the fact that the game appears to be a run-of-the-mill runner games and is not likely to bring anything new to the table. Other games in this category include Temple Run and Stampede Run. Zynga needs to be innovative to differentiate itself and merely licensing known brands may not help. It is ultimately about gameplay and experience.
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Notes:
- Zynga’s Q2 2014 Earnings Transcript [↩] [↩]
- Parks Associates: iPhone users have a higher lifetime value than Android phone users, Park Associates, May 6 2014 [↩]