Zynga’s Bookings Could See Strong Growth In The Near Term

by Trefis Team
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Zynga (NASDAQ:ZNGA)  generates its revenue from social games, such as CSR Racing, FarmVille, Zynga Poker, and Words With Friends, among others. It reports its revenues under two segments, Online Gaming, and Advertising, while its total bookings also include deferred revenue change. In this note we discuss the company’s business model, revenue growth in the recent years, and our view on future growth. You can look at our interactive dashboard analysis ~ ZNGA Revenues: How Does Zynga Make Money? ~ for more details. In addition, you can see more of our Information Technology data here.

Online Games Account For Over Two-Thirds of The Company’s Total Bookings

  • Total Bookings refers to total revenues adjusted for change in deferred revenues, which is derived from the sale of virtual items. Zynga generates its revenues primarily from two sources ~ Online Games, and Advertising.
  • Online Games refers to sales of all of Zynga’s games, and accounts for over 70% of total revenues. Key franchises ~ Poker, FarmVille, CSR.
  • Advertising refers to revenues generated by Zynga through advertising services by helping marketers reach and engage with their audience in a targeted manner. Advertising accounts for over 25% of the company’s total revenues.

Zynga’s Business Model

  • What Need Does Zynga Serve?
    • Zynga is engaged primarily in developing social games, that use a variety of social platforms to enable gaming interaction, and features the ability to have multiple players engaged at any point in time if needed.
    • Founded in 2007, Zynga creates social games such as CSR Racing, FarmVille, Zynga Poker, and Words With Friends. The company has recently acquired some of the games, including Merge Dragons! and Empires & Puzzles.
    • The company provides its games for different platforms including Facebook, iOS Store, and Google Play Store.
  • Who Pays To Zynga?
    • Facebook, iPhone, and Android gaming users.
  • What Are The Alternatives To Zynga?
    • Alternatives to Zynga include console games.
    • Within social games for mobile and web, Zynga competes primarily with Activision Blizzard’s King Digital, Electronic Arts, and Take Two Interactive.
  • What Are Zynga’s Competitive Advantages?
    • Zynga has a strong base of 85 million monthly active users.
    • Zynga currently has over $300 million of net cash.
    • Zynga’s huge gaming audience enables it to market new games to its existing users at low costs.
    • Strong franchises, such as Zynga Poker, FarmVille, Words With Friends.

Zynga’s Total Bookings Have Grown 40% Between 2014 And 2018, And We Expect The Growth To Be Even Higher Over The Next 3 Years.

  • Zynga’s total bookings have grown at an average annual rate of 9% from under $700 million in 2014 to a little under $1 billion in 2018.
  • This can be attributed to an overall growth in mobile gaming demand, as well as the demand for Zynga’s franchises, including Zynga Poker, CSR 2, FarmVille, and Wizard of Oz Slots, among others.
  • We forecast the total bookings to grow at an average annual rate of 21% to $1.6 billion in 2021. Much of this growth is expected to come in 2019 itself.
  • This can partly be attributed to acquisitions of some of the popular games of Gram Games and Small Giant Games.

Zynga’s Bookings Growth Has Been Primarily Led By Better Pricing, And This Trend Will Likely Continue In The Near Term.

  • Zynga’s total bookings can be derived from number of daily active users (DAU) times number of days in a year times average revenue per DAU (ABPU).
  • The company’s total DAUs declined from 25.7 million in 2014 to 23.3 million in 2018. It will likely grow to 27.4 million in 2021.
  • ABPU has been on the rise, and grew from $0.074 in 2014 to $0.114 in 2018, and it is expected to grow to $0.162 in 2021.
  • This can be attributed to the recent acquisitions, as well as the new game launches, which should aid the ABPU. In fact, mobile ABPU stood at $0.179 for the six months period ending June 2019. This compares with a $0.103 figure during the prior year period.
  • Note that the total bookings forecast for 2019 is in line with the company’s own guidance.

 

 

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