What To Watch For In Zynga’s Q4 Earnings

by Trefis Team
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Zynga (NASDAQ:ZNGA) is scheduled to release its financial results for the fourth quarter Thursday, February 9th. For Q4 2016, Zynga projects revenue in the range of $180 to $190 million, much lower than earlier estimates of around $202.8 million. The company expects adjusted EBITDA (new methodology) to be between $12 million and $14 million and bookings to be in the range of $185 million to $195 million. In terms of bottom line, the company expects a net loss of $25 to $27 million in the quarter.

Key Metrics To Watch

  1. Revenue Growth: Zynga reported a 12% decline in revenue from online games in the first nine months of the year, which was partially offset by a 22% 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 recently 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. In the third quarter, adjusted EBITDA declined 44% y-o-y to $17.9 million but beat the company’s own guidance of $12-16 million. This decline in adjusted EBITDA was driven by higher costs, owing to mobile payment processing fees due to the launch of CSR Racing 2, headcount-related expenses and marketing costs for CSR Racing 2 and FarmVille: Tropic Escape, offset by better than expected bookings.Zynga expects to report adjusted EBITDA of $12-14 million in Q4 2016, compared to $1.7 million in Q4 2015.
  3. User Base: Zynga continues to lose monthly and daily active players. Its user base declined on both the web and mobile platforms, with monthly active users (DAUs) declining 13% y-o-y to 66 million at the end of September 2016. However, the company was able to increase its average monthly unique users (MUUs) as well as its average monthly unique payers (MUPs) both y-o-y and quarter-over-quarter to 57 million and 1.3 million, respectively, by the end of the third quarter.The company 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.

See our full analysis for Zynga here.

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