Zynga’s New Games And Acquisitions In Focus During Earnings

July 23rd, 2012 by Trefis Team
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Zynga (NASDAQ:ZNGA) will report its earnings for Q2 2012 on July 25. It is the largest social gaming company in the world with over 230 million monthly active users and generates most of its revenue from in-game virtual goods sales and advertising in its games on multiple platforms like Facebook, Google+ (NASDAQ:GOOG), 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.

Check out our complete analysis of Zynga

New hit games and acquisitions to drive Zynga’s growth in 2012

Zynga has a pretty good track record when it comes to churning out new hits. Its active user base keeps bobbing up and down depending on the frequency of new launch hits, but it has stayed in the 200K – 300K range the last couple of years. Zynga unveiled a number of new games last quarter such as The Ville, Matching with Friends, Elite Slots, Ruby Blast and Bubble Safari, and also resumed its acquisition spree with companies like OMGPOP, Wild Needle, and Buzz Monkey. It also extended its partner publishing program to mobile developers, and launched the Zynga With Friends network.

We expect the user base of its new games to continue to increase going forward, and directly drive its revenue growth. Most of the user growth will come from Zynga’s mobile games, as the mobile gaming space continues its rapid expansion while the online social gaming space takes a backseat. Zynga is aiming to reach 1 billion users in coming years, with most of the growth expected to come from mobile.

Proprietary gaming platform and online gambling

We expect Zynga to focus on its own cloud platform and infrastructure to reduce its reliance on Facebook. Zynga could also generate a significant amount of revenue by allowing other game developers to leverage its massive reach and cloud platform to run its games and market them to its existing audience, charging a percentage cut of its revenues in return. It launched the Zynga with Friends network, which aims to provide a unified platform which will bring together all players from various platforms like Facebook, iOS, Android and others. The Zynga with Friends network will be connected with a social layer which consists of features like zFriends, a live social stream and chat.

Zynga recently confirmed its intentions to enter the online gambling space, with plans to leverage its large existing user base for games like Poker, Slots and Bingo to enable real money gambling. It is apparently looking to partner with casino firms like Wynn to get its online gambling venture off the ground and get some help with the regulatory hurdles. If it succeeds, which is quite likely, it could become one of Zynga’s most profitable businesses, and generate more revenue than all its other games combined. Recent speculation suggests that Zynga may be looking to buy Ongame, a Swedish poker network which enables players to play real money poker online. We will look for more details related to these developments in this earnings call.

We have a $14 Trefis price estimate for Zynga, which stands well 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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