Key Takeaways From Zynga’s Third Quarter Earnings

9.50
Trefis
ZNGA: Zynga logo
ZNGA
Zynga

Zynga (NASDAQ:ZNGA) outperformed expectations on both bookings and profitability during the third quarter, sending its stock higher. These results were driven by strong growth across mobile games and core franchises. In addition, a substantial increase in monetization helped fuel its results during Q3, as the user base declined on both the web and mobile platform. However, the company’s guidance for the fourth quarter came in weak, as a number of new game launches have been delayed into 2016. Other significant announcements included the resignation of the company’s CFO and a $200 million stock buyback program. We expect the release of new successful titles and stabilization in the user base to be the next catalysts for the company’s stock.

See our complete analysis for Zynga

Relevant Articles
  1. What’s New With Zynga Stock?
  2. What’s Happening With Take-Two Interactive Stock?
  3. What’s Happening With Zynga Stock?
  4. What To Expect From Zynga’s Q4?
  5. Take-Two Interactive To Acquire Zynga
  6. What’s Happening With Zynga Stock?

Key Takeaways From Zynga’s Earnings

Bookings Outperformed Expectations: Zynga’s bookings totaled $176 million during the third quarter, which represented a 1% sequential rise and flat annual growth. This came in above the company’s initial guidance of $155 million to $170 million, beating market expectations. The company’s core mobile franchises — including Slots, Words With Friends, and Poker — saw bookings increase by 61% annually, which largely drove the quarter’s results.

Mobile Drove Performance In Q3: With the the web business facing declines due to the sunset of certain older games and a reduction in PC usage, mobile games continue to account for a higher proportion of Zynga’s business. Mobile bookings, which were up by 6% q-o-q and and 26% y-o-y, comprised 69% of overall bookings in Q3. In contrast, web bookings fell by 10% sequentially and 31% annually. While mobile will continue to drive growth for Zynga in the future, we also expect the web business to bottom out in the coming quarters.

Cost Reduction Plan Showing Results: The cost reduction plan initiated in May 2015 is starting to yield results, as Zynga reported better-than-expected adjusted EBITDA of $12 million in Q3. Since Zynga continues to make significant investments in the development and marketing of games, we forecast its profitability to remain somewhat volatile over the coming quarters.

User Base Fell Substantially During Q3: Zynga’s user base continues to fall, raising some concerns regarding the sustainability of its revenue streams. The overall average monthly active user (MAU) base decreased by 27% annually in Q3, with 6% and 63% declines on mobile and web, respectively. Moreover, the average daily active user (DAU) base dropped by 21% during Q3. The declining popularity of Looney Tunes Dash! and Words With Friends contributed to the decline in mobile MAUs. In contrast, monetization – as represented by average daily bookings per DAU (ABPU) – rose by 10% sequentially and 27% y-o-y. We expect Zynga’s user base to keep declining in the near term, as the company has delayed the launch of certain key games into 2016.

Launch of Dawn of Titans and CSR2 Has Been Delayed: Zynga has delayed the launch of certain key games, such as Dawn of Titans and CSR2, into 2016 in order to maximize the potential of these new games. While this move weakens the near-term outlook, success with these new games could lead to upside in the company’s stock.

We are in the process of revising our $3.30 price estimate for Zynga’s stock.

View Interactive Institutional Research (Powered by Trefis):

Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap
More Trefis Research