Zynga beats Q4 financial estimates and announces 10 games for 2016

Zynga beat Wall Street’s estimates for bookings for its fourth quarter, and it also announced 10 games that will launch in 2016. The slate is heavy on social casino slots games, FarmVille, and CityVille titles, but it also includes the action-strategy game Dawn of Titans and the racing title CSR 2.

The earnings highlight Zynga’s fundamental challenge of elbowing competitors out of the way in the $34 billion mobile game market, as its audience on Facebook desktop dwindles. There are signs that the company has stabilized its most valuable games, and it is making money from its core users. But the overall number of users is down, and Zynga knows it needs to ship some new big games to offset those declines.

The San Francisco maker of social mobile games reported breakeven results, or 0 cents per a share, on bookings of $182 million. Analysts had expected breakeven results on bookings of $177 million. The results show that the company is doing a good job monetizing existing games with its live operations and that it is still getting a good result from its social slots and core mobile games. In the fourth quarter of 2014, Zynga reported almost the exact same results of 0 cents a share on bookings of $182 million.

In after hours trading, Zynga’s stock price has fallen to $1.98, down 7 percent. Its market value is now $1.99 billion.

The stable performance is a win for Mark Pincus, who returned as chief executive in April when he replaced his hand-picked successor, Don Mattrick. But Zynga is still having challenges growing its number of users, and it still needs to ship some new games.

Zynga’s performance is being closely watched, as it has struggled, like King (Activision Blizzard is purchasing for $5.9 billion), to recapture the allure that enabled it to stage a successful initial public offering back in 2011. The game industry is consolidating, as the market is concentrating in the hands of fewer players. When Pincus returned to the top slot again three quarters ago, Zynga was losing customers in its core franchises like Words With Friends and Zynga Poker.

“I think the teams have been making great progress on our execution on our live mobile franchises,” Pincus said in an interview with GamesBeat. “We saw strong performance from our core live mobile categories like slots, Words With Friends, poker, and ads.”

The big games for the quarter included various social mobile slots games, Words With Friends, and Zynga Poker. Ad revenue also hit an all-time high. Adjusted earnings before income tax, depreciation, and amortization (EBITDA) was $1.7 million. Its mobile game bookings grew 63 percent from a year ago.

Above: Words With Friends on a tablet.

Image Credit: Zynga

Zynga is still struggling with how to increase its number of users. It has generally been gaining users on mobile, but it is losing them on Facebook desktop as more users switch to mobile, where Zynga faces more competition. But in this quarter, it actually saw a slide in mobile users.

Average daily active users (DAU) in the fourth quarter were 18 million, down 24 percent from 24 million a year ago and down 5 percent from 19 million in the previous quarter. Average mobile DAUs were 15 million in Q4, down 14 percent from a year ago and down 5 percent from the previous quarter. Average web DAUs were 3 million, down 49 percent from a year ago and down 7 percent from the previous quarter.

One of the big reasons the overall users were down was a lack of new games, as well as a drop in games such as FarmVille: Harvest Swap and Empires & Allies. A year ago, Zynga benefited from the launch of its Looney Tunes endless runner game. The core games were up in overall users, Pincus said.

Average daily bookings per DAU were 11 cents, up 31 percent from a year ago and up 9 percent from the previous quarter. About 0.8 percent of players paid for items in games, down 19 percent from 1.0 percent a year ago and down 7 percent from the previous quarter.

The Words With Friends revenues were the strongest in the six-year history of the game, and mobile poker grew 15 percent from a year ago.

In 2016, Zynga’s 10 new games include four social slots games and two titles from its $527 million acquisition of NaturalMotion in 2014. Dawn of Titans and CSR 2 have been in development for a long time, but Zynga gave not launch date for either, except to say they will come out this year. Both games are in test markets now.

Pincus said that Dawn of Ttians has a lot of hit potential. He said he expects that game and CSR 2 to debut in the second half.

Zynga also has new FarmVille and CityVille games coming to mobile this year, and it also has two games coming from a recent acquisition of Zindagi Games, a game studio in Camarillo, California. Zindagi, led by Umrao Mayer and George Simmons, focuses on match-3 games (like Bejeweled or Candy Crush Saga).

Also, Zynga said that Tim LeTourneau, who left in 2014 to go to mobile game publisher Storm8, is returning as a senior vice president of games. He will work on FarmVille. That’s a rare but increasingly common reversal, as Zynga has lost a lot of executives in recent years.

“He’s a good familiar face to having in the building and I have loved working with him in the past,” he said, noting that LeTourneau fostered a good culture and led innovations on social in the past.

Zynga also said it completed its previously announced $200 million stock buyback program.

Pincus took over Zynga’s management April, returning to the top job of the company he founded after the departure of Don Mattrick, the former EA and Microsoft executive who had run Zynga for more than a year. Pincus cut back the staff by 18 percent and withdrew from a couple of categories: sports and endless runner games.

For the first quarter ending March 31, Zynga said it expects bookings to be $150 million to $165 million, with adjusted EBITDA of a loss of $10 million to breakeven. Pincus said that the first quarter is typically a weak one, due to seasonal slowness. He also said the quarter will not benefit from any of those 10 game launches. Seven of the games are in soft launch, and six are slated for the first half, Pincus said.

“I wanted to restore a focus on being great at live operations and a focus on current customers, and growing what we have,” Pincus said. “Also, we didn’t ship what we hoped to in 2015. The games weren’t ready and wouldn’t have delivered on the promise. We are coming into a better position this year. Slots is executing well. Seven games are in soft launch. That gives us better visibility.”

Above: Mark Pincus, CEO of Zynga

Image Credit: VentureBeat

In the quarter, Zynga’s slots saw a 78 percent rise in bookings from a year ago, and it was up 7 percent from the previous third quarter. Words With Friends bookings were up 28 percent from a year ago and 29 percent from the previous quarter.

Zynga said its CityVille Mobile game went into limited territory testing in the fourth quarter.

For the full year, Zynga had $17 million in adjusted EBITDA, down 57 percent from a year earlier, and bookings of $700 million, up 1 percent from a year earlier. Mobile bookings grew 35 percent from a year ago, while Web bookings fell 32 percent. Ad revenue was up 22 percent from a year ago, and daily active users declined 20 percent from last year.

Zynga can afford to wait until it gets its games right before launching them. It has $987 million in cash.

As for the whole mobile game industry, he said, “Everything is driven by highest ARPDAU [average revenue per daily active user] supporting highest ad spend. In a lot of cases, that is against existing players. Where we would like to break out on our live games and brands, we would like to reactivate people and get them to come back. The No. 1 strategy is focusing on organic growth, to drive innovative features, get people to be social and play together, and that will move our growth. That is what happened in the last three quarters with Words With Friends.”

Above: Zynga Poker

Image Credit: Zynga