Key Takeaways From Zynga’s Q4 Earnings

by Trefis Team
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Zynga (NASDAQ:ZNGA) announced weak fourth quarter results Thursday, with the company’s revenues rising 3% year-over-year (y-o-y) to $190.5 million but missing average consensus estimates of $192.5 million. Zynga’s loss of 4 cents per share also missed market expectations of a profit of 1 cent a share. Zynga has been trying to turn around its online game business for the past several quarters, and management stated that bookings are a better way of measuring Zynga’s performance than revenue growth. The gaming company generated $201.5 million in bookings during this quarter, which was above both the company’s high-end guidance and the year-ago quarter.

EBITDA & Free Cash Flow

Zynga’s adjusted EBITDA improved 2x y-o-y to $10.6 million and free cash flow improved over 7x to $24 million in the fourth quarter last year, driven by lower marketing and general and administrative costs.

The company’s free cash flow improved from (-$52) million in 2015 to about $50 million in full year 2016 driven by robust increase in cash flows from operating activities. This is a positive sign and bodes well for Zynga’s turnaround strategy going forward.

Monthly Unique Users Increase

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. 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. 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.

Q4 Guidance: Losses To Continue

For the first quarter, Zynga projects revenue around $185 million. The company expects adjusted EBITDA (new methodology) to be $14 million and bookings to be around $190 million. In terms of bottom line, the company expects a net loss of 2 cents per share in this quarter.

See our full analysis of Zynga

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