What To Watch For In Zynga’s Q3 Earnings

November 1st, 2016 by Trefis Team
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Zynga (NASDAQ:ZNGA) is scheduled to release its financial results for the third quarter Wednesday, November 2. For Q3 2016, Zynga expects revenue in the range of $170-180 million, implying a decline of 8-13% year-over-year (y-o-y), and bookings to be in the range of $180-190 million, implying an increase of 3-9% y-o-y. The company also expects adjusted EBITDA to range between $12-$16 million, implying a growth of 0-33%.

znga-5Zynga likely continued to face pressure with respect to top line growth in the third quarter and the upcoming results are likely to be in line with its guidance of an 8-13% decline. However, the ongoing cost cutting measures are likely to have helped increase the company’s adjusted EBITDA to around $15 million in the quarter.

Key Metrics To Watch

  1. Revenue Growth: Zynga reported a 12% decline in revenue from online games in the first six months of the year, which was partially offset by a 31% increase in advertising revenue in the same period. Going forward, we expect sales to continue to decline on a year-over-year (y-o-y) basis owing to a declining user base, but total bookings could improve driven by growth in the company’s key franchises: Words With Friends, Slots, Zynga Poker and the newly launched CSR Racing 2 and FarmVille: Tropic Escape.
  2. Adjusted EBITDA & Free Cash Flow: Zynga’s adjusted EBITDA improved over 7x y-o-y to $22.5 million and free cash flow improved to $7.3 million in the first six months of the year driven by lower R&D expenses and lower general and administrative costs. The company expects its adjusted EBITDA to continue to grow y-o-y in the third quarter as well driven by cost-cutting measures. Compared to an adjusted EBITDA of $12 million in Q3 2015, Zynga expects to report adjusted EBITDA of $12-16 million in Q3 2016.
  3. User Base: Zynga continues to lose monthly and daily active players. In the second quarter, its user base declined on both the web and mobile platforms, with average daily active users (DAUs) declining 15% y-o-y to 18 million and average monthly active users (MAUs) declining 26% to 61 million. The company will be focusing on games such as CSR Racing 2 and FarmVille: Tropic Escape to interest its users, and success with these new games could lead to an increase in bookings and gaming revenue in the upcoming quarters.
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See our full analysis for Zynga here.

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