Zynga ramps from ‘fix it’ mode to ‘grow it’ mode as Q3 revenue hits $233 million

Zynga is shifting gears from its “fix it” mode to “grow it” mode as the company reported strong earnings results for the third quarter ended September 30, said Frank Gibeau, CEO of Zynga, in an interview with GamesBeat.

The San Francisco social mobile game company reported that revenue at $233.2 million was up 4 percent and bookings at $248.9 million were up 17 percent from a year earlier. Mobile revenues were up 9 percent, and mobile bookings were up 23 percent. The mobile numbers are a better reflection of where Zynga’s emphasis is, as its legacy Facebook desktop games business has been in decline for years now.

It’s not clear exactly how Wall Street will react to the report, as Zynga slightly missed its bookings target. But the company continues to invest heavily in new games even as it holds its own in terms of financial performance.

Analysts expected Zynga to report bookings of $250.1 million, up 17 percent from a year ago. Zynga’s bookings were slightly below the expected number. Earnings per share is expected to be 4 cents, up 100 percent from the same quarter a year ago. Gibeau said the company exceeded its own financial targets by a wide margin, particularly on achieving 21.6 percent EBITDA margin (earnings before income tax, depreciation, and amortization).

Above: Frank Gibeau is the CEO of Zynga.

Image Credit: Zynga

Gibeau said Zynga’s strategy for a turnaround has focused on sharpening its operating model, enhancing live services, and investing in areas for future growth.

“We want to change the conversation on how we are fixing Zynga and talk about growing Zynga,” said Gibeau.

Zynga is investing heavily in multigame, multi-year deals with Hollywood license holders. It announced a Harry Potter “mashup” match-3 game is in the works under a deal with Warner Bros., and it is working on a Game of Thrones slots game and another title with HBO. Gram Games, acquired earlier this year for $250 million, is also working on a number of projects. Zynga is developing new CityVille and FarmVille titles as well, and its NaturalMotion division is working on a Star Wars game.

Of the existing games, Words With Friends did the best, and CSR2 was strong, while Zynga Poker was just OK and slots dropped.

“Words With Friends just crushed it,” Gibeau said.

Words With Friends saw mobile revenue up 42 percent year-over-year and mobile bookings up 53 percent year-over-year. This performance was driven by increases in average moves per daily active users, advertising network optimizations, and continued adoption of user pay monetization as players engage with in-game Boosts and Solo Challenge features.

Above: CSR2 features realistic models of cars like this Ferarri.

Image Credit: Zynga

The word game recently launched the purchasing colored titles which customize the look of the game, and Gibeau said that is going well.

Mobile advertising is still around 20 percent, and it is getting bigger. Mobile ad revenue was up 45 percent from a year ago. That was driven by increased player engagement in Words With Friends and advertising network optimizations including some one-time projects in the quarter.

The new Harry Potter match-3 game, CityVille, and two Game of Thrones games will be made by teams in the U.S. The FarmVille game will be made at a studio in Helsinki. Zynga has 1,730 employees now. That’s down from a peak of around 3,500 years ago, but it’s above where it has been in recent quarters.

The Facebook desktop business has not hit bottom yet in terms of declining users, but Gibeau said the company continues to serve that audience, where the company started, because it is such a dedicated group of users. But overall, mobile is now 91 percent of total revenue, compared with 87 percent a year ago.

Mobile online game revenue (where users pay for items in games) was down 1 percent from a year ago, while mobile user pay bookings were up 16 percent.

Mobile average daily active users (DAUs) increased by 10 percent year-over-year and mobile average monthly active users (MAUs) increased by 7 percent.

CSR2 had another solid quarter driven by a series of updates, including the exclusive Bugatti Divo and a series of Porsches. While mobile revenue was flat year-over-year, mobile bookings were up 7 percent year-over-year. CSR2 will have a new expansion dubbed Legends in Q4.

Zynga Poker had some challenges. While mobile revenue was down 3 percent year-over-year, Zynga Poker matched its best mobile bookings quarter in history and was flat year-over-year. In Q3, the game continued to recover from platform changes Facebook made last quarter in addition to adjustments to its in-game economy. Toward the end of the quarter,  Zynga introduced the World Poker Tour (WPT) update, which combines faster-paced competitive tournament gameplay with a wide range of stakes and higher in-game rewards.

The Social Slots portfolio saw mobile revenue decline 9 percent year-over-year and mobile bookings were down 4 percent year-over-year. Zynga is introducing a new Wonka’s World of Candy match-3 game tomorrow, Gibeau said.

Revenue for Q3 was $233.2 million, up 4 percent compared with $224.6 million for the third quarter of 2017. Net income was $10.2 million, down 44 percent from $18.1 million a year earlier. (Zynga had guided Wall Street to a $21 million loss for the quarter, so it beat that forecast handily).

Bookings were $248.9 million, up 17 percent from $213.5 million a year earlier. Gibeau said Zynga was able to achieve this performance while investing in a number of new games, and he noted mobile bookings and revenues were a record.