This site requires a more recent version of Adobe Flash Player to function properly.
Go here to get Flash.
Trefis's graphical modelling tools require Flash, but here's a preview of some of the content you'll see once
Flash is enabled:
Investment Overview for Zynga (NASDAQ:ZNGA)
Farmville, Farmville2 and Other Games
- Average Monthly Active Users: We currently forecast the number of average monthly active users for Zynga's other games (except Poker) to decrease in the near-term, in line with the trend seen over the last two years, and then stabilize over our forecast period. We expect Zynga's new games such as CSR Racing 2 and FarmVille: Tropic Escape to attract users and compensate for the decline in the user base of its current and older games. However, if the figure declines to 30 million, there can be 10% downside to our price estimate. There could also be an upside of about 20% if the figure reaches 50 million instead.
- Average Monthly Active Users: Texas HoldEm Poker is one of Zynga's oldest games, and one of its most valuable ones. We estimate that the game's monthly active users will decrease to around 21 million by the end of 2016. Given the recent trends in Zynga's Poker business, we expect its user base to decrease consistently over our forecast period. However, if the user base stabilizes around current levels, there could be a 5% upside to our current price estimate.
Social games are generally web based games that use a variety of social platforms to enable gaming interaction. The features that make social gaming attractive include the ability to track how well an individual’s friends and other people within the community are doing, and the ability to have multiple players engaged at any point in time if needed. The social aspect of these games makes gaming more addictive and viral, thereby attracting more users.
Founded in 2007, Zynga creates free social games such as CSR Racing 2, FarmVille: Tropic Escape, Zynga Poker and Words With Friends. The company provides its games for different platforms including Facebook, iPhone and Android.
Millions of people login to these platforms to play Zynga games, interact with their friends and buy in-game items and virtual goods.
Monthly Unique Users Showing Gradual Improvement
Zynga has around 66 million average monthly active users (2016). Its competitors Electronic Arts and Playdom have a smaller active user base. Apart from leading the Internet in terms of total number of active users, Zynga is fairly popular but has lost a considerable number of users in the last two years. Its user base has declined on both the web and mobile platforms but the company has been able to increase its average monthly unique users (MUUs) as well as its average monthly unique payers (MUPs) in the last couple of quarters. Zynga is currently focusing on new games such as CSR Racing 2 and FarmVille: Tropic Escape to interest its users, and success with these games could lead to higher user growth and user engagement going forward.
Zynga has become the web’s most dominant social gaming website. Some of its key competitive advantages are:
- Strong capital position
- Zynga currently has close to $900 million of net cash (as of September 2016), which constitutes a major chunk of the company's value as per our estimates.
- Marketing advantage
- Zynga’s huge gaming audience enables it to market new games to its existing users at low costs. New game developers often have marketing budgets of 50% of the cost of developing the game. However, the company has spent heavily on marketing to bring back users and increase engagement. These efforts are starting to bear fruit. The average dollar value of bookings per user per quarter has increased from $2.00 in 2015 to $3.00 by the end of 2016.
Evergreen gaming categories will be targeted by Zynga for growth in 2017 and beyond
Zynga currently has games in highly-popular gaming categories such as action-strategy, Social Casino and Racing. A number of new titles such as CSR Racing 2 and FarmVille: Tropic Escape have recently been launched.
Recent Cost Cutting Measures Could Drive Margins Higher
Zynga recently announced a new cost cutting initiative under which it will cut around 18% of its workforce (comprising 364 employees) and will reduce spend on outside and centralized services. While the annualized savings from the workforce reduction program is estimated at about $45 million, the same from the cutback in centralized services is forecast to be higher at $55 million. We expect these cost cutting measure along with top-line growth to result in increased margins in the future.
Revenue concentration in games
Certain games such as Poker and FarmVille contribute for the bulk of the revenues for Zynga as they represent majority of its total daily active users (DAU). The share of the three top games in the company's overall online gaming revenue has come down from 54% in 2014 to around 40% in 2016. High dependence on certain games can potentially be a risky strategy for social gaming companies and therefore, Zynga is trying to diversify its product portfolio.
How Does Trefis Modelling Work?
How do we get the historical numbers for this chart?
Trefis has a team of in-house Analysts who gather historical data from company filings and other verifiable sources. When historicals are available, we explain how we got them at the bottom of the Trefis analysis section below.
Who came up with the Trefis forecast for future years?
The Trefis team of in-house Analysts considers a variety of factors when projecting any forecast. The rationale for our projections is explained in the Trefis analysis section below.
How does my dragging the trendline on the chart impact the stock price?
- We use forecasts for business drivers to calculate forecasted Revenues and Profits for each division of the company.
- We then use forecasted Profits in a Discounted Cash Flow (DCF) model to obtain the Price Estimate for the company.
See more on: DCF Methodology
View All Help Topics