David Ko, the No. 2 executive at Zynga, might not be really popular right now. Yesterday, during Zynga’s earnings call, he announced that the social-game company had eked out a profit, but it is canceling four existing games. It has also shelved two unannounced titles as part of an effort to cut costs and be more disciplined about its strategy to focus on franchises, networks, and profitability. His decisions are bound to affect employees as well as the fans who have stayed loyal to those games even as they decline in numbers of users.

But Ko, Zynga’s chief operations officer, has put up the “guard rails” that the company’s investors have demanded. He said the company is cutting weak-performing games which were once big titles for Zynga: The Ville, Empires & Allies (pictured), Dream Zoo, and Zynga City on Tencent. Cuts that took place last quarter led to a reduction in Zynga’s total staff by 156 people, with the company’s roster now at 2,902 employees. Ko didn’t say if more are to come, but he says the company is being more disciplined moving forward.

Meanwhile, it’s worth noting that Zynga is no longer the largest social-gaming company. Zynga said it now has 52 million daily active users, but London’s King, riding high on Candy Crush Saga, has 66 million. But Ko acknowledged there will be short-term difficulties for Zynga during its transition in 2013 and that the company is making sacrifices so it can increase product quality and grow more in the future, particularly in mobile games. He noted that the company just launched Draw Something 2 with the hopes of recapturing a big audience for that title on mobile devices. Zynga is also unveiling new titles in “midcore” games like War of the Fallen and Battle Stone.

We interviewed Ko yesterday after the earnings call. Here’s an edited transcript of the conversation.

GamesBeat: Can you talk more about the reasons for canceling four games? These titles, like Empires & Allies, once had tens of millions of users. Their rise was rapid, and now it seems the decline is, too. Why cancel them?

David Ko: These are always difficult decisions, but this is part of us continuing to be disciplined. A lot of this revolves around staying true to what we believe in as far as strategy and staying committed to that as a company — building franchises, supporting the network, and being profitable. In the franchise case, it’s around making sure that we have our best resources and our best leaders on the right teams so that, in essence, we can have the best shot on goal. We’re not saying it’s always going to go in the net, but we are saying that we want to increase our odds and always make sure we have the best shot on goal.

What we’re recognizing is that to do that, you have to make some of these tough calls. While it’s always hard to shut down games that are in progress or games that are live, those calls are made so we can better position ourselves to win in the long term. We’re not playing for the short term right now.

GamesBeat: It looks like King has moved into first place in terms of daily active users in the social-gaming market. Is that milestone an important one – who has the most users overall?

Ko: The way I look at it is, we have a belief that social gaming is a huge opportunity. Not only from the estimate that it is a $9 billion market but also from what we’re seeing in the marketplace. Competition like this just reinforces the opportunity. My biggest thing is, I want to make sure that we’re confident that you’re going to see more of our franchises in that mix.

GamesBeat: It still looks to me like you guys have the largest work force here, the largest number of people working on digital games. Probably even in mobile. How do you look at whether or not you’re sized in the right way compared to the competition? It almost seems that the laws of probability would suggest that you guys should have a pretty large share of the hits in mobile, but it doesn’t always work that way. [King has 400 employees, but now it has more users than Zynga does.]

Ko: In the last few quarters, you’ve seen that we can be more disciplined in how we think about our costs and our expenses. I think we’ve shown that. We’re going to make hard decisions because we want to make sure we’re investing our resources and our money in the right areas to create games that we believe will be franchises. You know this better than anyone — developing a game is hard. The bar has gone up for the whole ecosystem. That’s why we’ve looked at a multipronged strategy that says we have to build games that are franchises — that set a high bar on quality, social, and accessibility.

One thing that’s going to help in our games is going to be our network. Because of all the games that are being downloaded today, one of the biggest challenges in the ecosystem is discoverability. I’m confident that, by the end of the year, you’re going to see us in a much better position than we are today.

GamesBeat: The investors may have reacted strongly to the second-quarter forecast. Could you explain that a little bit more as to why some of the metrics are weaker and why they might mean that the second quarter is going to be a tough one for you guys?

Ko: The drop-off that you see can probably be attributed to three things. One, we saw decay in our web games. Although it wasn’t as prominent, some of our franchises, like FarmVille, probably did see a bit of a drop. Two, we did shut down some games that weren’t prominent. While we thought they could give us a short-term bump, it wasn’t the best for us in the long term. Three, last quarter we did say we were going to pause our title slate as we focus more on the long-term strategy, and that was going to impact some of our numbers.

What you are seeing, though, is the launch of more games. I expect that pace to pick up over the course of the year. We are not presuming success. What we are saying is that we’re going to take more shots on goal. In our game that we’re launching tonight — Draw Something 2 — we really listened to our players and tried to make it different. We’re going to launch Running With Friends soon. We’re going to launch War of the Fallen and Battlestone. There are a number of other games that are coming out, and we’re going to see how that goes.

GamesBeat: Is there something about Draw Something 2 that you think is going to draw more attention?

Ko: One of the things we saw is that the brand is very strong. We’ve always said that. When we launched in Sweden and in Canada, we saw strong uptake. We got really great feedback from the community. They liked the changes we made to the game, which are the changes they’ve been asking us for. We have great expectations. We’re excited about the game coming out. We’re excited for our players to play it. Then we’ll see how it goes.

GamesBeat: The cancellations, do they mean that you’re going to redeploy those people, or do you have more announcements coming where you might have to cut back on the staff more?

Ko: We don’t comment on things that we may or may not do in the future. What you’re going to be seeing from us is that we’re going to maintain that discipline. We’ve got a great employee base. They’re really passionate about what they do. We want to make sure they find the right types of opportunities. We’re going to be very softball in that approach.

GamesBeat: Is there any seasonality to the business here? When you see a drop going from Q4 to Q1, is that similar to the rest of the video game business, or is there a different kind of pattern?

Ko: We’ve seen this in prior years, especially in mobile, where you do see a little bit of — whether it’s an uptick in activations because people get new devices or an increase in app sales, you do see some of those upticks. The reality, though, is that if you build a game that people love, those are a little bit less pronounced. We’ve seen that with FarmVille 2. It’s amazing to look at games like Words With Friends. It continues to have a very passionate and loyal following. So it depends on the game, but we do see some of that seasonality.

GamesBeat: Mobile seems like it’s still changing very fast. Are there particular trends that you think you need to jump on? Are there some fads that you can ignore?

Ko: The quality bar continues to increase on mobile. We’re seeing some of the console folks start to move into the mobile space. I do see costs have gone up. That’s why it’s important to have a network because traffic acquisition costs are going higher. We see a lot of people going to tablets, which is great. I see people’s playing times start to fragment across the different platforms. People are playing multiplatform, but it’s a little more fragmented. We’re having to adjust for that and think about the types of experiences we want to offer in that mix that follow what we talked about — fun, social, and accessible. I’m excited about these changes, though. I’m excited about the opportunities, and I’m excited about the games we’re going to be launching.

GamesBeat: You’ve got some experience in real-money gambling now. What are some of the things you’re learning?

Ko: I think what you’re seeing is a couple of things. Last quarter, I told you that we’d launch real-money gaming in the first half of the year. We launched in early April. We launched not only on download but in a real-time version you can play. We’ll be launching on Facebook and mobile later in the year. The vision is to create the most valuable casino-gaming experience for our players.

There’s a lot we don’t know getting into this space because it is complicated. That’s why we are taking a very soft approach to this in the U.K. That’s why we partnered with Bwin. We do see that our players — and Mark [Pincus, the chief executive officer of Zynga] talked about this — when we polled them, they are interested in trying real-money games if they’re offered in the right way. We think there’s an opportunity there. We’re excited to give them that opportunity to play. It’s a little bit of a wait-and-see. We don’t think it’s going to be a significant driver of revenue this year. It’s just very early.

GamesBeat: Phil Gordon’s company, Jawfish Games, just launched a synchronous multiplayer game. They partnered with BigFish on that. I think you guys were working on the same kind of technology for some of your arcade-shooter business. Is synchronous multiplayer going to be arriving very soon?

Ko: I can’t comment on the types of things that we’re doing differently in our games. We are looking at a lot of different styles. It just comes back to our core. We’re pushing teams to make sure that the quality bar is high, to make more social experiences, and to make them accessible. There’s a bunch of different ways to do that. Multiplayer is one of them that you mentioned, whether it’s synchronous or asynchronous gameplay. I can’t comment on that specifically, but we’ll see.

GamesBeat: Any other things that you think need some more clarification from the call today?

Ko: I’m personally encouraged by the early execution we’ve made as a team. We said 2013, for us, is a transition and investment year. We’re continuing to be disciplined and make those tough decisions. We believe there’s a long-term opportunity. By the end of the year, we’re going to be in a good position to win it. This is a first step, and we want to be very transparent and open in this process. We’re excited about the future.

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GamesBeat 2013 is our fifth annual conference on disruption in the video game market. You'll get 360-degree perspectives from top gaming executives, developers, and analysts on what’s to come in the industry. Our theme this year is “The Battle Royal.” Check out full event details here, and grab your early-bird tickets here!

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Embattled social-game publisher Zynga reported better-than-expected earnings for the first quarter ended March 31 and managed to stay profitable. Zynga’s results are closely watched as a bellwether for digital gaming, since Zynga is a huge player in social games on Facebook and it has a big — and growing — presence in mobile games.

Zynga said it had GAAP net income of $4.1 million, or break-even results per share, compared to a loss of $85 million, or 12 cents a share a year ago. Non GAAP net income was $9.1 million, or 1 cent a share, compared with non-GAAP net income of $47 million, or 6 cents a share, a year ago. Revenues were $263.5 million, compared with $320.9 million on a GAAP basis a year ago. Non-GAAP bookings were $229.8 million, compared with $329.1 million a year ago.

Analysts were expecting the company to report a loss of 7 cents a share on bookings of $209 million. Still, Zynga’s stock is tanking in after-hours trading, down 11 percent at the moment, erasing much of the run-up the stock had in the closing of today’s trading. The stock may be down since all of Zynga’s core metrics are down in the first quarter compared to the fourth quarter.

“We are encouraged by the strong execution from our teams and the breakout hit performance of FarmVille 2, which captures the imagination of nearly 40 million players every month,” said Mark Pincus, the CEO and founder of Zynga, in a statement. “2013 will continue to be a transition year as we face the challenging environment on the web and invest in developing the leading franchises and network across web and mobile platforms and offer our 253 million monthly players a connected experience that can follow them from work to school to home and anywhere in between.”

For the full fiscal year, analysts expect a loss of 17 cents a share on revenue of $949.7 million. In the previous quarter ended Dec. 31, Zynga reported a profit of 1 cent a share on revenues of $311 million and bookings of $261 million, down 15 percent from a year ago.

Worth noting: Zynga repaid its long-term debt of $100 million in April and it currently has no debt outstanding.

Zynga grew dramatically on Facebook from 2008 to 2012, and it raised a billion dollars in an initial public offering in late 2011. But the stock cratered in August after the company reported weaker-than-expected earnings and a slowdown in casual simulation games on Facebook. Zynga has been struggling to come back ever since.

For the past six months or so, Zynga’s world seemed to fall apart. Zynga’s No. 2 executive John Schappert, the former No. 2 executive at Electronic Arts, resigned on Aug. 8, and a bunch of other executives followed, including chief marketing officer Jeff Karp, chief creative officer Mike Verdu, chief security officer Nils Puhlmann, chief technical officer of infrastructure Allan Leinwand, OMGPOP chief revenue officer Wilson Griegel, Words With Friends co-creators David and Paul Bettner, and Zynga chief financial officer David Wehner. And in February, Zynga’s chief game designer, Brian Reynolds, also left the company.

In the meantime, chief executive Mark Pincus reorganized the management team and laid off employees. David Ko, chief operations officer, has stepped up to fill the management gap. It shut down “nonperforming” games and cut about 5 percent of the company’s staff, which is still about 3,000 employees. Starting in January, Ko said that the majority of Zynga’s teams are focused on mobile gaming. Ko said in an interview in February that the company had put up more “guard rails” to keep costs under control and to cut weaker games earlier. Among the casualties so far are studios in Austin, Japan, and Boston as well as games like CityVille 2, The Friend Game, and Party Place.

Zynga’s rival, Electronic Arts, recently shuttered three of its once-big social games: The Sims Social, SimCity Social, and Pet Society. It cited a declining interest in those games, and this is a sign to analysts such as Arvind Bhatia of Sterne Agee of across-the-board weakness.

One big hope is Zynga’s move into real-money gambling in the United Kingdom. The company has partnered with Bwin.Party to launch online gambling games in the U.K. market, and it is hopeful that regulators in the U.S. will permit similar online gambling at some point in the future. But the legalization of online gambling is expected to take a long time.

Zynga’s stock price rose in the latter half of trading today before the sell-off. Zynga said that combined bookings for FarmVille and FarmVille 2 grew compared to a year ago. FarmVille 2 is a “breakout hit,” and its daily audience engagement and bookings are exceeding expectations. Zynga’s cross-promotion is working well for its third-party developer, Playdemic, whose Village Life game has grown to 6.5 million monthly active users.

During the quarter, daily active users were 52 million, down from 65 million a year ago and down 8 percent from 56 million in the fourth quarter. Monthly active users were 253 million, down 13 percent from 292 million a year ago and down 15 percent from 298 million in Q4.

Daily average books per average DAU were $0.049, compared with $0.055 a year ago and $0.051 in the fourth quarter. Zynga’s monthly unique payers were 2.5 million, down 30 percent from 3.5 million a year earlier and down 14 percent from 2.9 million in Q4.

For the second quarter, Zynga projects revenues will be $225 million to $235 million. Net loss is expected to be $36.5 million to $26.5 million. Loss per share is expected to be 5 cents to 3 cents a share. Bookings are expected to be $180 million to $190 million. Non-GAAP loss per share are expected to be 4 cents to 3 cents.

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GamesBeat 2013 is our fifth annual conference on disruption in the video game market. You'll get 360-degree perspectives from top gaming executives, developers, and analysts on what’s to come in the industry. Our theme this year is “The Battle Royal.” Check out full event details here, and grab your early-bird tickets here!

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Mobile gaming is perhaps the most strategic market in gaming now, and David Ko, chief operations officer of Zynga and No. 2 in command next to chief executive Mark Pincus, knows it. Ko recently made the tough calls of shutting down Zynga’s social games on Facebook such as CityVille 2, The Friend Game, and Party Place. And he is throwing a lot more of the company’s 3,000 employees into mobile development. If the company succeeds in this market, it could turn itself around, rescue its stock price, and deliver a big jolt of confidence for the struggling game industry.

For 2013, Zynga’s focus is on growing new franchises, building its network, shifting into mobile, and making money. That’s not going to be easy, given the sea of competitors in mobile. But fast-growing segments exist within the space, such as games played on mobile messaging services like Kakao Talk, Line, and We Chat in Asia. Ko is optimistic that Zynga will succeed in mobile with titles like Draw Something 2 (which Ryan Seacrest outed) coming this year. We interviewed Ko on stage at Business Insider’s Ignition Mobile technology event this week in San Francisco. Here’s an edited transcript of the conversation.

GamesBeat: So how is Zynga’s transition to mobile games going?

David Ko: About 297 million people come to us every month on our overall network, and of that, about 72 million are mobile. While the numbers may appear larger to some, what we’ve said is that it’s still very early for us in mobile. We’ve been proud of how quickly the team has been focusing on the shift to mobile. The shift has come because of our players. So many of our players are telling us — we’re seeing it in their usage patterns and their play habits — that they want to play more on mobile and across tablets. That’s not to say they don’t play on PC, but those usage patterns and play habits are changing. We want to make sure we continue to deliver games where our players are.

GamesBeat: Few people would dispute that Zynga won on social. What does it mean to win in mobile?

Ko: The core part of it for us today as far as winning on mobile has been around the company mission, which has been connecting the world through games. While people may focus on mobile today, what it’s really about is, we deliver content. We’re creating fun social experiences for our players. That shift, when we first started a couple of years ago, was on the PC. Today we’re seeing more of that shift on mobile. But we’re not stopping there. We’re thinking about other options in the future. That’s why we’ve done things around the television — Google TV and others — because we want to work across different platforms.

What we said today about what it would mean to succeed in mobile, it’s around delivering what we call core franchises. They may start with mobile-first experiences, and that may lead to experiences on the web or other platforms. But it’s about creating these leading franchises that are potentially mobile first.

GamesBeat: The mobile landscape keeps changing. I didn’t even know about some of the big things that are happening until more recently, like in Korea with Kakao, the messenger service there. It’s becoming a really big games platform. Some of these games are showing up in the top-10 list worldwide on Google Play. December had maybe four Kakao games. It seems to have come out of almost nowhere. Line also seems very big as a messenger service in Japan. WeChat is an option in China. A velocity of change seems apparent here. How do you look at that?

Ko: It’s something we follow very closely. My parents live in Korea, and Kakao is how I’ve been communicating with them for the past year. One of the things that we saw and got excited about with Kakao was just watching how they’ve taken an existing channel around communications — it’s not different from what’s been around for a very long time — and what we saw is that there’s an appetite for gaming on that platform. The gaming you see today on that platform is a very light touch. It’s a bit of a curated type of experience. A lot of it’s around virals.

Some of those games that they’re launching, as you just mentioned, are in the top 10 grossing on Android, and that hit people by surprise. What you find, though, is that it really shouldn’t have surprised us. When people are on that network, they’re looking for other things to potentially go and do. A natural median, if you’re being social with friends, is to say, “Hey, is there a quick game I could go try,” and potentially send virals and invites back and forth. That’s what you see in Kakao.

The numbers have been interesting to watch there from not only a revenue perspective but also the number of people who have registered for the service. I’ve heard people say, “Oh, that’s just a service for Korea.” The reality is that more people have registered than there are in Korea today. You can see it starting to extend out. It’s no different from what you’re seeing with Line or WeChat in other places. There’s a lot we can learn from that here and potentially test out or launch.

GamesBeat: I’ve heard that some of the games are doing a million bucks a day in revenue. It almost reminds me of the craze around Draw Something. How does a big company absorb that kind of suddenness?

Ko: With every new platform that emerges, what you find is that initially there will be a couple of people on the platform. They’ll be the ones trendsetting. You’ll see a number of game apps start to appear across some of those platforms. You’ll figure out what works and what doesn’t work for those players. You’ll start to see that smooth out over time. But I do think there’s going to be a big rush to go onto some of those platforms and try to see if you can deliver and get some of those results.

GamesBeat: What does your pipeline look like for 2013?

Ko: I’m excited. We’re very focused on our franchise model. That’s creating hit games. There are three that I can specifically talk about now. One you may have seen tweeted out by Ryan Seacrest earlier in the week. He talked about Draw Something 2 coming, which I’m personally excited about. When Draw Something came out last year, it was one of the biggest games to hit mobile. It’s had more than 100 million downloads to date. I think we’ve had 10 billion drawings or more. It’s been number one in 84 countries, I think.

We’ve been saying that we want to build on that franchise. We took a lot of player feedback as far as what they liked or wanted us to improve in the game, and we’ve incorporated that into DS2, which is coming out soon.

GamesBeat: Who got Ryan to tweet that?

Ko: He tweeted that on his own. He’s been a huge fan of Draw Something. He’s had a pretty big following on there. The second game, which is currently launched in Canada, is Running With Friends. It’s in the running genre. Very casual, social. We got excited about it because when we company playtested it, it had the best response of anything we’ve been testing to date. Finally, in our last earnings call we talked about FarmVille 2 for mobile. FarmVille 2 on the Web and the original FarmVille have been the epitome of a franchise for us in the company. We just celebrated the six-month anniversary of FarmVille 2. It’s really held its peak daily active user base since it launched. We’re finding a huge appetite for that type of game.

Building franchises is hard. We’ve found that a lot of people who came back and said, “You took that next step in pushing social, making it fun, and differentiating the games between 3D and 2D.” Now, they’re asking for that mobile version of the game. We’re working hard to deliver it. That will come out later this year.

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David Ko’s job is to get Zynga into fighting shape. The chief operations officer of Zynga is No. 2 in command next to chief executive Mark Pincus, and Ko has made some tough calls, like the announced closing of CityVille 2, The Friend Game, and Party Place. In a conference call with analysts on Tuesday, he described this process as “putting up guard rails” so that managers can pull the plug on games that aren’t working earlier.

For CityVille 2, that meant pulling the plug on a game that still had millions of loyal fans. So far, the tactics are improving the company’s financial performance. Zynga’s bookings were much higher than expected at $261 million, and the company turned an unexpected profit (reporting a penny a share, compared to an expected loss of 3 cents a share) for the fourth quarter. Now it will focus on growing new franchises, building its network, shifting into mobile, and making money.

That’s not going to be easy with a sea of competitors who have been raiding Zynga’s employees. But Ko is optimistic that the San Francisco company, which still has 3,050 employees, will make a comeback and succeed in mobile. We talked with him on Tuesday afternoon after the earnings came out. Here is an edited transcript of the call.

GamesBeat: It looks like CityVille 2 didn’t get as large an audience as you guys wanted. I would think that many different companies out there would have loved to have the audience size that it did, though. Can you talk about deciding to close that down?

Ko: It goes back to the strategy I discussed with you on a previous call. The company’s now focused on franchises, network, and profitability. That means discipline and making some tough decisions to support that strategy. We saw FarmVille 2 exceed our expectations from quarter to quarter. If you’ve seen, our bookings beat expectations 100 percent. We first tested that for around six months in the Philippines. We tuned it to make sure it was social and fun. What we got out of that really pushed the envelope on 3D gaming. We were pleased with the results that we saw across the board with engagement and daily active users. We saw a resurgence of our players coming back due to FarmVille 2.

With CityVille… Everything we do, we want it to be a learning experience and build off it. We didn’t have some of those same guard rails that we put around FarmVille 2 in CityVille. It’s not just CityVille, too. We’re looking at all of our titles and seeing how they perform against things like NPS, engagement, and bookings. We’re looking at them across a number of different metrics. If they don’t meet our expectations after a reasonable period of time, we have to commit as an organization to making the tough decisions. Sometimes that includes closing games down, which we did. That puts us back to our focus as a company on delivering franchises.

There’s another good example in mobile of what we’re doing. I called this out in the earnings call. I’m really proud of what the company has done as we’ve laid the foundation in mobile. But it’s amazing when you look at Words With Friends and how, in December, it was the number one downloaded app on the iPhone and the iPad. It continues to lead in engagement four years after launching. That, to me, is the epitome of what we want to launch in these types of games. We want to create franchises that are almost evergreen. That’s what we’re focused on as an organization.

GamesBeat: The team for CityVille, do you reassign them to more successful franchises like FarmVille 2, then?

Ko: We’re continuing to look at all kinds of things with them. They are helping out in certain areas on some games. They’re looking at new IP. We continue to just look. The reality is, we do that with all of our teams. If we find games, for instance, that we think have great franchise potential, we’ve been doubling down on those games. One of the things we continue to say is, if we think this game may be a hit, maybe we can hold it for quality, for fun, for engagement. We may over-fund those games. But we want to make sure that they have that franchise type of potential going forward. We also support each other as a company making those decisions.

GamesBeat: What do you mean, more specifically, by “guard rails?”

Ko: It’s about discipline as a company, and focus. Part of the guard rails that we look at are essentially in how we develop games. One of the things that we saw is that we had a process in place that was really about building web games. We had to look over that whole process from top to bottom. It’s going to be a continuous work in progress.

I’m not saying we have a final product in place. We have a final playbook. But what we are finding is that there were certain criteria that we have for funding games and how much we would budget for games. Those criteria are different on mobile. We can launch and fund games to get to a playable slice with smaller teams. Budgets may not necessarily be the same. We have to look at that with different types of guard rails.

GamesBeat: With social games and mobile games, you can modify the games based on feedback. I guess there’s a certain point, though, where you must see diminishing returns on modifying a game, and that’s the point where you decide to shut it down?

Ko: It’s a matter of calling the ball, is what I would say. Making tough decisions. We look at engagement. We look at the metrics. We look at the net promoter score. We look at bookings. That’s just a couple of things. We look at a lot of other metrics as well. The reality is that if we don’t think it has that franchise potential, we have to call the ball. That’s what we ended up doing.

GamesBeat: I think you ended the year with more than 3,000 people, still. It didn’t sound like you were doing any layoffs here. Or was that just something you didn’t mention? Are there layoffs associated with these three games being shut down?

Ko: It’s never our intention to do layoffs. What we’re seeing is we’re trying to be a lot more disciplined in our cost approach. One of the things we did do last quarter, and you probably picked up on this, is that we really did reduce our expansion above expectations. I think the street had an expectation of $15 to $20 million. We came in at closer to $25 million. We did that by being disciplined across a number of different areas, whether it was around what we spent on R&D, whether it was outside spent… We’ll take that same type of discipline going forward. It’s too early to say what we’re going to do per game. But we’re really focused on being disciplined in creating franchises and focused on profitability. That’s part of profitability.

GamesBeat: The India and China expansions, does that have to do with those areas being low-cost?

Ko: It’s less about them being low-cost locations and more about…. India and China are very strategic to us, not only for the markets that they’re in today, but also for the talent and the quality that’s helping us to build global IP and support the studios here as well. There’s a lot of efforts where we have talents intermingled between two studios. We’re excited about our efforts in both of those markets today. We’re going to continue with that.

GamesBeat: You are doing more third-party publishing. Is that another way that you can lower the overall costs while still getting hits?

Ko: Yeah, I think that’s one way to look at it. We’ve got both. It’s still early. We’ve launched a number of titles on the Zynga network. It’s been great to see some things like Respawnables or Horn, for example. But we know that’s just the tip of the iceberg. We know it’s early, but we’re going to continue to evaluate that channel and those games, just as we do our other games. The thing about third-party is that we want to be as disciplined as we are with our first-party games. We want to launch games against our MAU, which is 72 million today, that have franchise potential, whether they’re third-party or first-party.

GamesBeat: You did have a lot of good news in your earnings results, but there was also a decline from the third quarter to the fourth quarter. Is there an explanation for the number of users that went down, in daily active users and monthly active users, from the third to the fourth quarter?

Ko: We talked about this during the call. We increased our numbers as far as total MAU in mobile over the last year, year over year. That was a pretty substantial increase, to 72 million. I think we found that more of our players are coming to us from mobile, whether it’s on the phone or the tablet. There’s a sense of urgency there across the entire company. If you remember from two years ago, when we first started building up mobile, we had about 20 people in the division. Today the entire company is focused on bringing our content across different platforms. It isn’t a mobile division versus a web division. It’s everyone’s responsibility.

We’re seeing players respond when we offer cross-platform. We see a real focus there. The other part of that is coupled with just our focus on franchises. It’s not about the number of games that we publish. Some people go for quantity in terms of the number of games. We want more focus on games that we think will be franchises going forward.

GamesBeat: Are you seeing some benefits yet from the restructured deal with Facebook?

Ko: We now have our amendment to the agreement, from Q4 of last year. The primary changes start in April. That’s where you’ll see we have flexibility to grow our games on Zynga.com, as well as other distribution channels on the web. That’s the primary benefit. Facebook is a great partner for us. It’ll continue to be a great partner for us going forward, both on the web and on mobile if it proves out.

GamesBeat: Can you summarize what you think of the results overall today and how the call went?

Ko: We’re all proud of our key financial gains in Q4. We had to make some tough decisions in support of our overall company strategy, which I feel that we’ve clarified for our employees in a way that hasn’t been there before — the focus on franchises, network, and profitability. I think the teams and the company are excited. We recognize it’s early for us right now. We want to play for the long game. But our goal this year is to mobilize and to win at it.

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GamesBeat 2013 is our fifth annual conference on disruption in the video game market. You'll get 360-degree perspectives from top gaming executives, developers, and analysts on what’s to come in the industry. Our theme this year is “The Battle Royal.” Check out full event details here, and grab your early-bird tickets here!

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Zynga got some of its magic back in the fourth quarter, reporting a narrow profit on higher-than-expected revenues.

As the largest social gaming company with a big presence in mobile games, Zynga has become a bellwether for the emerging social and mobile game industry.

The company grew dramatically on Facebook from 2008 to 2012, and it raised a billion dollars in an initial public offering 13 months ago. But the stock cratered in August after the company reported weaker-than-expected earnings and a slowdown in casual simulation games on Facebook.

Zynga reported a profit of 1 cent a share on revenues of $311 million and bookings of $261 million, down 15 percent from a year ago. Analysts expected a loss of 3 cents a share on bookings of $212 million. Zynga itself had guided analysts to bookings of $204 million to $214 million, so the results are much better than expected. In after-hours trading, Zynga’s stock is up 7 percent.

For the past six months or so, Zynga’s world seemed to fall apart. Zynga’s No. 2 executive John Schappert, the former No. 2 executive at Electronic Arts, resigned on Aug. 8, and a bunch of other executives followed, including chief marketing officer Jeff Karp, chief creative officer Mike Verdu, chief security officer Nils Puhlmann, chief technical officer of infrastructure Allan Leinwand, OMGPOP chief revenue officer Wilson Griegel, Words With Friends co-creators David and Paul Bettner, and Zynga chief financial officer David Wehner. And just last week, Zynga’s chief game designer, Brian Reynolds, also left the company.

In the meantime, chief executive Mark Pincus reorganized the management team and laid off 5 percent of the staff. He appointed David Ko as chief operations officer and promoted several other executives. He also shut down nonperforming games. The actions seem to have helped turn the company around, but the results are still mixed in a number of ways.

Growth just isn’t what it used to be. For the full year, Zynga’s revenue was $1.28 billion, up 12 percent from a year ago. Bookings were $1.15 billion, down 1 percent. The full-year net loss was $209 million, and adjusted earnings before income tax, depreciation and amortization (EBITDA) was $213 million.

The full year GAAP earnings per share loss was 28 cents, and non-GAAP earnings per share were 7 cents.

On a GAAP basis, Zynga reported a quarterly net loss of $48.6 million. EBITDA was $45 million, down 34 percent. GAAP earnings per share were a loss of 6 cents, and non-GAAP earnings per share was a profit of a penny.

“The biggest highlight of the quarter was seeing our team deliver a successful sequel in FarmVille 2, a next-generation social game that offers cutting edge 3D experiences loved by millions of FarmVille fans,” said Pincus, CEO and founder of Zynga. “In 2013 we’re excited to bring this new class of social games to mobile phones and tablets and build a network that offers an easier,better way for people to play together.”

During the quarter, the number of daily active users increased to 56 million, up 3 percent from 54 million a year ago. But compared to the prior quarter, DAUs were down  percent from 60 million in the third quarter of 2012.

Monthly active users were 298 million in the fourth quarter, up 24 percent from 240 million a year ago. But MAUs were down 4 percent from 311 million in the third quarter.

The number of monthly unique users was 167 million, up 9 percent from 153 million a year ago. And it was down 6 percent from 177 million in the third quarter.

Average daily bookings per average DAU were 51 cents, down from 61 cents a year ago and up 8 percent from 47 cents in the third quarter. That means Zynga is making more money per daily user than it did in the third quarter, but less than a year ago. The number of monthly unique payers was 2.9 million, down 1 percent from a year ago and down 2 percent from the third quarter.

In the fourth quarter, Zynga released six new games, including four on the web: Bubble Safari Ocean, CityVille 2, CoasterVille, and the Friend Game. It released two mobile games: Ayakashi and Party Place. It also launched mobile versions of Bubble Safari and Ruby Blast.

On Dec. 31, Zynga had five of the top 10 games on Facebook, according to AppData, in terms of DAUs. In the fourth quarter, Zynga expanded its third-party publishing platform, launching eight web games and four mobile games designed by outside game developers. In December, Zynga mobile gamers in the U.S. spent more time in Zynga games than the next five game companies combined.

“Our team executed well in the fourth quarter and made important progress in building sustainable new revenue streams and further aligning our company around our best growth opportunities,” said David Ko, chief operations officer of Zynga, in a statement. “2013 will be a pivotal transition year and we are focused on achieving three strategic objectives: growing our franchises on mobile and web, expanding our network and maintaining profitability on an adjusted EBITDA basis. With 298 million monthly average users, including 72 million on mobile alone, Zynga already has the largest social gaming audience and remains the best positioned company to lead in building the future of social gaming.”

Zynga closed the year with $1.65 billion in cash, down from $1.92 billion a year ago. In the fourth quarter, ad revenue was $36.8 million, up 35 percent from a year ago and up 19 percent from the third quarter. Zynga repurchased 5 million shares of common stock in the quarter.

For the first quarter of 2013, Zynga project revenue of $255 million to $265 million. It expects a loss of $12 million to $32 million, and earnings per share losses of 2 cents to 4 cents a share. Bookings are expected to be $200 million to $210 million. For the full year, Zynga is projecting a profit in terms of earnings before income tax, depreciation and amortization.

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GamesBeat 2013 is our fifth annual conference on disruption in the video game market. You'll get 360-degree perspectives from top gaming executives, developers, and analysts on what’s to come in the industry. Our theme this year is “The Battle Royal.” Check out full event details here, and grab your early-bird tickets here!

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Struggling social-game giant Zynga has more than 42.4 million monthly active players for FarmVille 2, and that means it can dig out all sorts of interesting details about those people playing the online social game on Facebook and Zynga.com.

The surprising facts from Zynga’s findings include: 17 players are in the Vatican City. Maybe the Pope is playing? FarmVille 2 launched in September. While it isn’t as popular at this point in its life cycle as the original FarmVille was at its peak (around 83 million monthly active users), the numbers of people playing it is still impressive.

Zynga also says it has nine players in Tuvalu, a remote island nation with a population of 10,544. About players harvest 350 million crops every day and plant more than 8,000 every second. Enough virtual fertilizer has been produced to cover 24 million acres of farmland. Zynga says its Water.org charitable campaign in FarmVille 2 set a record for player donations from any Zynga game in 2012. My favorite stat: 17,876 people received a lifetime supply of clean water in real life, thanks to the donations.

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GamesBeat 2013 is our fifth annual conference on disruption in the video game market. You'll get 360-degree perspectives from top gaming executives, developers, and analysts on what’s to come in the industry. Our theme this year is “The Battle Royal.” Check out full event details here, and grab your early-bird tickets here!

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Adobe is announcing today a set of cloud-based tools for game developers.

The tools take advantage of the new cloud-computing trend, where web-connected data centers host subscription-based software. Hosted in the Adobe Creative Cloud service, the tools enable developers to access a centrally located suite of tools for making their titles. The aim is to streamline the game-development process from creation to final deployment.

Adobe says that developers who use its tools can access an audience of 1.3 billion worldwide on PCs and more than 500 million on smartphones and tablets, 20 times the reach of Microsoft’s Xbox 360 console.

Among the new tools is Adobe Scout (pictured below), a tool for profiling that “uncovers granular internal information in ActionScript-based mobile and browser content to unlock significant performance optimization opportunities.” In other words, it helps games run faster. Adobe Scout will be available for free to members of the Adobe Creative Cloud, a subscription service. Other tools include the Adobe Gaming SDK, Adobe Flash C++ Compiler, and trial versions of Flash Professional CS6 and Flash Builder 4.7 Premium.

A year ago, Adobe acknowledged that it would give up on a Web version of Flash for mobile devices. But Adobe allows developers to create native versions of their releases for those devices instead. More than 25,000 mobile versions of Adobe Air apps exist, and the majority are games.

In the past nine months, Adobe launched version 11 of its Flash Player, making the leap from 2D games to hardware-accelerated 3D games and its Stage 3D applications programming interface.

Diana Helander, group product marketing manager for Gaming Solutions at Adobe, said that 600 million people have chosen to opt in to a feature that updates Flash in the background. That means a game developer can issue an update for a title and get it to 600 million people within 48 hours.

“With these new tools, we’ve got a single work flow for game developers,” Helander said in an interview with GamesBeat. “The costs of developing games and acquiring new users are rising. We’re helping developers to deal with that.”

The Adobe Gaming SDK lets studios create and monetize both 2D and 3D ActionScript games on Web browsers and mobile devices.

The Adobe Flash C++ Compiler is a new tool that lets developers take a native game and recompile it for the Web. That is, it takes offerings coded for game engines on the PC, Xbox 360, PlayStation 3, and iOS and then converts them to run directly online across browsers using the Adobe Flash Player.

Meanwhile, Adobe Flash Professional CS6 is an authoring tool to create animations and games, and it includes support for delivering animated assets ready for use with the open-source framework Starling. Adobe Flash Builder 4.7 Premium adds support for the new ASC 2.0 compiler and the ability to test and debug apps directly on Apple iOS devices.

Those who pay for Creative Cloud memberships can use full versions of Flash Professional and Flash Builder, and they can use future versions of Scout following the introductory promotion.

Adobe argues that using Flash makes developers more productive when it comes to cross-platform experiences. Helander said that Flash has powered popular games on Facebook including SongPop, FarmVille 2, and Diamond Dash. Some of the top Flash implementors include Zynga, Wooga, Kixeye, Ubisoft, Northway, and Damp Gnat. Rivals (and occasional partners) include Unity Technologies, Epic Games, Microsoft’s Silverlight, and a variety of other game-development platforms.

Helander said some cool new users of Starling and Stage 3D include Incredipede and Smart Aliens. She said that Zynga used Adobe Flash and Air for its mobile version of Ruby Blast, and Rovio used Flash for the Facebook version of Angry Birds. Square Enix also released Crystal Conquest using Flash. Helander said Adobe is doing a series of game jams in different cities to support game developers.

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GamesBeat 2013 is our fifth annual conference on disruption in the video game market. You'll get 360-degree perspectives from top gaming executives, developers, and analysts on what’s to come in the industry. Our theme this year is “The Battle Royal.” Check out full event details here, and grab your early-bird tickets here!

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Video game publisher Zynga is on a bit of a roller coaster. In recent weeks, the social gaming giant dealt with news good and bad. But most industry analysts agree that the San Francisco-based studio can put most of its difficulties behind it with some new hits. Zynga launched CityVille 2 today on Facebook as its first attempt to reverse its recent ill fortune.

Zynga East, one of its first external studios, developed this latest social game. Traditional gaming veterans Brian Reynolds (Civilization III) and Mark Nelson (The Elder Scrolls IV: Oblivion, Kingdoms of Amalur: Reckoning) led the team with a goal of producing a city-building game with vast appeal.

“CityVille was a runaway hit that brought players a truly social and fun city building experience. It quickly catapulted to the number one most-popular social game, and it stayed in that spot for more than a year after it launched, reaching 100 million monthly players at its peak,” CityVille 2 director of design Mark Nelson said. “Drawing inspiration from the original CityVille as well as FrontierVille, CityVille 2 immerses players in a storyline peppered with quirky and interesting characters while also delivering a beautiful 3D town where players can compete with or play with friends as they build their unique city.”

The new standout feature in CityVille 2 is the “whodunit” storyline. Early in the game, a house fire sets into motion a series of events that lead the player through a mystery narrative. Nelson said he really wanted to bring the type of engrossing plots he worked on in Oblivion and Kingdoms of Amalur to a genre that usually glosses over that kind of storytelling.

Other new features include:

• Fully 3D visuals
• A full day-night cycle
• Timed minigames
• Unexpected events
• A perk system

When I saw CityVille 2 in action, I was most interested in the timed minigames and the perk system.

The minigames add a sense of kinetic energy to a genre that is otherwise often static. In most social games, players wait around, click a button, and watch something happen. CityVille 2 borrows from developer Intelligent Systems’ Paper Mario platforming franchise by asking players engage with timing games that increase the effect of an action when performed properly.

The perk system fosters customization through active and passive effects. It’s like the perk system in any role-playing game. Nelson described a particular perk that would allow one of the city’s shoppers to go on a shopping spree which would boost the area’s economy by a certain percentage.

Zynga wants players to approach CityVille 2 like a bag of toys. It’s designed to work well for different kinds of players. Players that want to re-create their city can do that. Others that want to solve the game’s mystery can do that. And anyone else that just wants to mess with their in-game citizens can do that.

Will CityVille 2 reverse Zynga’s recent slide? I don’t know, but I actually want to give this game a try.

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GamesBeat 2013 is our fifth annual conference on disruption in the video game market. You'll get 360-degree perspectives from top gaming executives, developers, and analysts on what’s to come in the industry. Our theme this year is “The Battle Royal.” Check out full event details here, and grab your early-bird tickets here!

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Zynga‘s stock price is rising today, and assessments of its third-quarter earnings performance are coming in from analysts. While positive signs provide some encouragement, they still worry about Zynga’s critical transition from desktop gaming to mobile.

In the analyst call yesterday, Zynga chief executive Mark Pincus blamed the earnings weakness on the poor performance of The Ville simulation game and the decline of Draw Something. Older games declined because Zynga didn’t create “enough heat” to keep players spending, while the new games didn’t bring in enough revenues to offset the declines. Pincus said that faster adoption of smartphone and tablet gaming also hurt Zynga. That’s because the mobile market is more competitive and Zynga isn’t anywhere near as dominant as it is on the PC-based Facebook market.

In trading today, Zynga shares are at $2.39 a share, up 12 percent from yesterday’s closing price. That gives Zynga a market value of $1.81 billion. The San Francisco-based company is probably worth a lot more than that, since it has $1.6 billion in cash and a lot of valuable real estate. But investors have been down on the stock since it blew up in the second quarter with a poor earnings report. A stock repurchase plan, better-than-expected earnings (based on reduced expectations after a warning), a 5 percent layoff, and a real-money gambling alliance with bwin.party are likely lifting the stock.

“We’re focused on driving profitability and growth in our core web business,” Pincus said in an analyst call yesterday. He said Zynga now has the No. 1 mobile gaming audience in the Western world and it has the No. 4 mobile network in terms of all apps the U.S., reaching 30 percent of all U.S. smartphone users.

Michael Pachter, an analyst at Wedbush Securities who specializes in the gaming market, said the third-quarter results were in line with the latest expectations and that Zynga now has sufficient control of its expenses to return to profitability. He expects a loss in the fourth quarter and a recovery after that. Pachter is targeting a 12-month share price of $4, or twice the amount of cash and real estate Zynga has.

Atul Bagga, an analyst at Lazard Capital Markets, said the $200 million share buyback program that Zynga announced yesterday could help prop up the stock price. He doesn’t think real-money gambling in the United Kingdom would help the company’s 2013 financials much, but it could also create a positive sentiment for the stock.

“While we believe that Zynga has a number of credible assets that could help its position in mobile and rebound in web, we remain concerned on the employee turnover which we believe risks execution in the near term,” Bagga wrote in a research report.

Since its weak second quarter earnings report, Zynga has lost its chief operating officer John Schappert and a number of other executives and high-profile game creators. This week, the company laid off 150 people, or 5 percent of its work force, and it is shutting down 13 older games. The layoffs could reduce spending by $15 million to $20 million a quarter.

Bagga noted that Zynga’s mobile ad revenue was $31 million, up 69 percent from a year ago, thanks to a new ad format that includes video ads, which were up 142 percent from the previous quarter. But Draw Something’s weakness meant that mobile revenue was down from the previous quarter.

Colin Sebastian, an analyst at R.W. Baird, said, “Share repurchases and the real-money gambling partnership are positive steps, although neither one really alters the fundamental challenges the company faces with its games on Facebook.”

In a research note, Sebastian wrote that Zynga needs to demonstrate it can produce hit games on multiple platforms: mobile, social, and browsers. He noted existing games have shown decay in revenues, and some app fatigue persists. That suggests a need for diversification. Mobile bookings are now 20 percent of the total, but in part because of the decline in Facebook gaming, he said. A smaller number of users appear to be driving a larger part of revenues. That suggest there is limited opportunity to squeeze more money out of the existing players. The number of paying customers is now 3 million, down from 4.1 million payers in the previous quarter.

Ben Schachter, an analyst at Macquarie Capital, said that the transition from desktop to mobile is a key one for Zynga. He remains neutral on the stock.

“As users migrate to mobile, Zynga has neither first-mover advantage nor, so far at least, sustainable execution,” he wrote in a research report. “We are simply not willing to give them the benefit of the doubt until we see proof of execution. Stated another way, we attribute very little value to their core game business until they prove that it can be run profitably.”

Overall, Zynga has 311 million monthly active users who generate 700 million social interactions a day — more than Google’s interactions in a day, Pincus said. FarmVille 2 has grown to more than 61 million monthly active players while ChefVille has topped 27 million. FarmVille 2 has 500,000 unique buyers (those who pay real money for virtual goods in the free-to-play game), and on one recent day, Zynga says they spent $950,000.

Zynga is planning to launch a sequel to CityVille soon, and it will debut real-money gambling in the United Kingdom with bwin.party in the first half of next year. Zynga plans to release two web games and four mobile games per quarter, not counting third-party titles. There are 18 third-party games on Zynga.com now, and more are coming.

It remains to be seen how that real-money gambling effort will fare. Zynga didn’t describe the gambling effort much. But we hear that Zynga is reportedly going to put its name on a number of bwin.party games so that the games do not have to be re-certified by gambling authorities. That’s not necessarily as good an option as creating brand-new games produced by Zynga’s staff. But to do the latter would be tough since it requires regulatory review and would mean a smaller share of the overall revenue pie for Zynga. It recently hired Maytal Ginsburg Osha, a veteran gambling executive, to sort out its online gambling strategy.

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GamesBeat 2013 is our fifth annual conference on disruption in the video game market. You'll get 360-degree perspectives from top gaming executives, developers, and analysts on what’s to come in the industry. Our theme this year is “The Battle Royal.” Check out full event details here, and grab your early-bird tickets here!

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Zynga reported slightly better than expected earnings today for the third quarter, but struggling social gaming giant is still trying to recover from a downturn in its business. Zynga’s stock is rising in after-hours trading as a result of the better earnings and a stock buyback program. Zynga also announced it’s jumping in the real-money social gambling market with bwin.party in the United Kingdom.

The earnings come just a day after Zynga laid off 5 percent of its 3,000 employees, closing a studio in Boston, preparing closures in the United Kingdom and Japan, and slashing jobs in Austin. And Facebook noted yesterday that Zynga’s contribution to its revenues dropped 20 percent in the third quarter. Zynga said it was sunsetting 13 older games and was significantly reducing its investment in The Ville, which happens to be mired in litigation with Electronic Arts over alleged copycatting.

Zynga reported revenue of $317 million, up 3 percent from a year ago. Bookings for the third quarter that ended Sept. 30 were $256 million, down 11 percent from a year ago. Earnings per share were a loss of 7 cents, compared with break-even results a year ago. Non-GAAP earnings per share were 0 cents ($400,000), down from a profit of 4 cents a share a year ago. The GAAP net loss was $52.7 million, compared to net income a year ago of $12.5 million. That was due to a $95.5 million impairment charge related to the write-off of intangible assets acquired with the purchase of OMGPOP this spring.

“While the last several months have been challenging for us, Zynga remains well positioned to capitalize on the growth of social gaming. We’re implementing a number of steps to drive long-term growth and profitability. The successful launches of FarmVille 2 and ChefVille in the third quarter demonstrate that when we develop great games, our large player audience engages. It’s more clear than ever that along with search, shop, and share, play is a fundamental pillar of the Internet, and Zynga continues to be the leader,” said Mark Pincus, the chief executive and founder of Zynga, in a statement.

The San Francisco-based social gaming gianta warned on Oct. 4 that earnings for its third quarter would be weaker than expected for the second quarter in a row. Due to weakness in the “invest and express” category of games such as The Ville, Zynga said earlier it would report revenue of $300 million to $305 million in the quarter and a net loss of $90 million to $105 million (on a non-GAAP basis, the loss will be $2 million to $5 million). Analysts expected Zynga to lose 1 cent a share on a non-GAAP basis.

“Pretty much in line with the preannouncement, although the cost reduction plan is pretty significant,” said Michael Pachter, an anlayst at Wedbush Securities. “If they can cut $15 million to $20 million in costs per quarter, they’re looking at pretty solid profitability, particularly if they can keep revenues flat or growing. I think the $200 million buyback will get them at least 10 percent of shares, so that should grow earnings by 10 percent or so. It’s interesting that share count dropped a bit, likely because of out of the money options.”

Zynga said that daily active users in the quarter were 60 million, up 10 percent from a year ago. Monthly active users were 311 million, up 37 percent from 227 million a year ago. Average daily bookings per user fell to $.047 from $.058 per user a year ago. Monthly unique usres were 177 million, up 17  percent from 152 million a year ago. Monthly unique payers were 3 million in the third quarter, down 27 percent compared with 4.1 million in the previous quarter. that was mainly due to the weakness of Draw Something.

During the quarter, Zynga launced four games: ChefVille, FarmVille 2, Gems With Friends, and Montopia. Early results from ChefVille and FarmVille 2 are “positive.”

Zynga’s stock price has been lingering around $1.68 billion, which is near Zynga’s cash value of $1.6 billion. That’s a far cry from the $8.9 billion valuation that Zynga had when it went public in December. That has prompted rumors that Zynga is an acquisition target (unlikely, since Pincus has voting control), or, more likely, a management-led buyout to take the company private.

Things started falling apart in the summer. After Zynga reported lower-than-expected results in the second quarter, Zynga’s stock fell 40 percent in a day. In the wake of that report, Zynga has lost a number of executives, including chief operating officer John Schappert. The stock is now at $2.82 a share, far below its initial public offering price last fall of $10 a share. Zynga had also lowered its expectations for the full year ending Dec. 31 to bookings of $1.15 billion to $1.225 billion, while earnings per share for the year are expected to be 4 cents to 9 cents.

The new outlook: Zynga said bookings will be $1.09 billion to $1.1 billion. Adjusted earnings before income taxes, depreciation and amortization will be $152 million to $162 million. Stock-based expense will be $310 million to $325 million. Full-year non-GAAP earnings per share are expected to be 2 cents to 3 cents a share.

After-hours, Zynga’s stock is trading up 33 cents to $2.45 a share, up 15.5 percent. Zynga also announced a stock buyback program, where the company will buy up to $200 million in Class A common stock.

But Zynga is still the No. 1 social gaming company, with more than 316 million monthly active users. The next-largest competitor on Facebook, King.com, has just 48.5 million monthly active users, according to AppData. And FarmVille 2 has had a spectacular launch, with more than 61.3 million monthly active users. The question is whether Zynga can properly monetize the game. Zynga has five of the top 10 games on Facebook.

Typically, 2 percent or 3 percent of Zynga’s users pay real money for virtual goods. But most users prefer not to pay in the company’s free-to-play games on Facebook and Zynga.com. But Zynga is also hoping to boost ad revenues. And it is busy launching third-party games on Zynga.com, Facebook and mobile. Zynga has launched five partner games on Zynga.com: Rubber Tacos, Sports Casino, Mini Putt Park, Fashion Designer, and Knights of the Rose. Zynga also has nine to publishing partners.

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GamesBeat 2013 is our fifth annual conference on disruption in the video game market. You'll get 360-degree perspectives from top gaming executives, developers, and analysts on what’s to come in the industry. Our theme this year is “The Battle Royal.” Check out full event details here, and grab your early-bird tickets here!

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FarmVille 2 is kicking into high gear as Zynga has begun to open up its viral channels to help the game spread.

Zynga quietly launched FarmVille 2 on Sept. 5. As we noted on that day, FarmVille 2 carries immense importance for San Francisco-based social gaming giant. As Zynga’s earnings took a dip in the second quarter, and its industry-changing “Ville” series of social games began to lose their novelty, the company has a lot at stake with FarmVille 2. At first, the game had a relatively small audience as Zynga’s engineers tuned the game based on feedback from players. Zynga has evidently moved past that stage into turning on its full viral marketing channels, where it cross promotes the game to its existing users.

Now Zynga has 15.2 million monthly active users for FarmVille 2, up 13.5 million from just a week ago, according to market researcher AppData. Just eight days ago, FarmVille 2 had only 1.7 million monthly active users. On a daily active user basis, FarmVille 2 has 6.9 million users. FarmVille 2 is now the fastest-growing game on Facebook.

The original FarmVille grew its audience to as 83 million monthly active players. It introduced social games to the mainstream and became one of the most broad-reaching titles in history, even as critics said it wasn’t really a real game. So the remake is akin to Zynga’s best shot at launching social gaming 2.0, and game designers like Zynga’s Tim LeTourneau said that created FarmVille 2 to become a lot more addictive and game-like.

Zynga now has more than 344 million monthly active users on both Facebook and mobile platforms. FarmVille 2 is Zynga’s ninth-largest game at the moment. The top of the heap is Zynga Slingo, with 53 million users. ChefVille has 50.2 million users, and Texas HoldEm Poker has 39.3 million users. I’ve been playing the game and have gradually climbed to level eight, and I have a real farm ecosystem going where I can generate a lot of income by growing my ingredients and the using them to create high-value foods for the village market.

The new FarmVille 2 has better graphics based on the Flash 11 format (and Stage 3D) that Adobe has created to improve animations in web-based games. The characters and animals are created using 3D graphics though they are displayed in the familiar isometric, two-dimensional perspective. The animations look more fluid, and the landscape is more interactive as you move your mouse cursor over the screen. FarmVille 2 is an attempt to capitalize on how web-gaming technology has moved forward in just three years.

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GamesBeat 2013 is our fifth annual conference on disruption in the video game market. You'll get 360-degree perspectives from top gaming executives, developers, and analysts on what’s to come in the industry. Our theme this year is “The Battle Royal.” Check out full event details here, and grab your early-bird tickets here!

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Sean Ryan joined Facebook in January, 2011, in order to make sure that the social network understood the games and game publishers that were making Facebook into one of the world’s largest gaming platforms. He is the director of game partnerships at Facebook and has to communicate Facebook’s platform strategy for game companies and tell the broader story about one of Facebook’s most successful application categories. About 235 million of Facebook’s members have played a game in the past month, about 30 million more than a year ago. Mobile gaming has become one of the fastest-growing sectors of the business and Facebook is making it easier for mobile games to get discovered within its mobile app and on Facebook itself.

Here’s part one of our edited interview with Ryan. Part two runs tomorrow.

GamesBeat: What’s interesting to me about you guys is that you have so much data that you can know everything, right? What do you know about these 235 million players? When you look at all this data, what do you conclude?

Sean Ryan: A key theme is diversity. Diversity in genres of games, where we used to have only one or two genres. Now we have hidden-object games, core games, arcade games, and casual games.

Second is regions. If you look in the Middle East right now, the top game there is this Chinese-made,Turkish-published game called Happy Farm, which is just killing it in the Middle East. We didn’t see that a year or two ago. We saw mostly U.S. developers with non-localized games. This year we’ve seen a rise, particularly in Europe, but around the world, of local or regional developers. Even the U.S. developers have, in many cases, localized their games into 12 or 14 languages.

And then finally platforms. We’ve gone from a desktop-only product to having a mobile platform product. The majority of the top apps and games in the iOS and Google Play stores are using our platform. That’s the general theme we look at from last year. We’ll continue to see that going forward as we try to make sure we have a range of games for a range of players from around the world.

GamesBeat: How do you look back on Facebook gaming history? It seems like the Vampires and the Zombies games are pretty far behind us?

Ryan: Yeah. We were talking about that in the last couple of days. As we see the rise of 3D games on the desktop, whether it’s Unity or Flash 11… I’ve only been here a little less than two years. But if you look back at four years ago, the games that won Social Game of the Year were almost simple word-based games. The vampires or the mobsters or the Big Brain games. Now I look at FarmVille 2 or Jet Set Secret. They’re pretty rich games. There are bigger storylines, better music, deeper gameplay. They’re becoming full-fledged games in a way that I think is compelling. And they’re a much more diverse set of games. I think that’s the greater theme over the last four years.

GamesBeat: I just spoke recently to Blake Commagere about his new startup. He was saying it was interesting how much things have changed, but also how little some other things have changed. Virtual goods are still such a gigantic part of monetizing games on Facebook. He wants to develop new business models, like product placement, which is what he’s doing now.

Ryan: We launched subscriptions a few months ago. That’s being gradually adopted by a set of our partners. But what we’ve found, if you look around the world at both the desktop business and now the mobile business, is that virtual goods or some type of freemium model tend to be the most efficient way to drive revenue from users.

I used to run a music subscription service called Rhapsody. It was about $15 dollars a month. What we would see in those days was that about a third of our users never used it, so they were going to cancel. About a third of our users appeared to run it 24 hours a day. And then a third of our users used it intermittently.

The advantage of virtual goods, versus subscription, is that it tends to match how interested you are in the game and how much you’re willing to either spend time or spend money. That’s often a better match. If I’m going to want to play the game for an hour or two a week, I never have to spend any money. On the other hand, if I really want to get into it, with something like Kixeye’s War Commander games, where you have some really hardcore users…. They end up spending more money than a subscription or a package product might cost.

But I agree with Blake in that I don’t think it’s the only revenue model in the world. Along that diversity theme that I keep going back to, I would say subscriptions are a valid model for a section of games, like chess. You don’t really want to make chess into a virtual goods game. It’s not the way the game is built. They can have advertising-supported models or a la carte paid models or subscription models. Product placement will be interesting. We haven’t seen enough revenue generated from that model yet, but Blake’s a talented guy. I think we’ll continue to see people looking at different types of revenue models for different types of users and different types of games.

That’s what I keep going back to. It’s not just one type of game or one type of revenue model. What we’ve seen in Asia and other parts of the world is that when you build a game correctly around a freemium business model, it can be quite a profitable enterprise. We see that in mobile. When you look at the top 25 grossing games on iOS, in general, the majority of them now are freemium games. That wasn’t true a year ago. And luckily the majority of them, if they’re social games, are using Facebook as their primary login. That’s working well for us.

GamesBeat: What is your job like these days? What are you talking to game companies about when it comes to games on Facebook?

Ryan: [laughing] Depends on the week sometimes. We’ve expanded my team and our investment in gaming overall in the last year. A lot of it’s about hiring, or it has been for the last six months. That’s on a global basis, as we spread around the world making sure we have the right set of developers for different regions, like Asia-Pacific and Europe and now the Middle East and Latin America. Most of what we do is work with a wide set of partners to explain to them what’s coming down the pipe from the platform. We get their feedback on how we can improve the platform, as we look at our product development roadmap for the next six months. That could be things like, “Hey, we’d really like it if you added these payment systems in Saudi Arabia.” It could be, “Hey, it’d be nice if you had new types of stories that showed up in the feed that we’ve started to deploy….” Those are the types of feedback we get from developers about how we can be a better game platform.

Certainly the last 12 months have been all about, “What can you do for us on mobile?” That’s why deploying the mobile platform has been such a large focus for us. In addition, we try to do a better job of explaining to them what is still a pretty fast-moving platform. “These are the next set of improvements coming. Here’s how you can take advantage of them.”

GamesBeat: I don’t know if you had to spend much time on…convincing them that Zynga was not the only company that could be successful on Facebook? And then convincing them that Facebook Credits were a good idea. Was there a period of time where that was a big part of your job?

Ryan: Whenever we make policy changes, part of my team’s goal is to make sure that we explain that to developers and tell them how it’ll affect their business. We want to help them through that. Every day we compete in the world of platform and how our developers allocate resources. We spend a lot of time explaining to them how they can make better games. Not so much on the level of the game itself, but how they can integrate better with us, so that they can have a more successful experience.

We spend a lot of time with, for example, Song Pop, which is a wonderful game. They use our social channels, both on desktop and mobile, better than almost anybody. They’ve been wonderful to work with. They’re incredibly responsive, as are a lot of developers. So the question is, where should you be spending your resources in games? If you want to be mobile only, we absolutely support that. Here’s how to use our mobile platform, especially now that we’ve announced the integration with iOS 6 and our new SDK, which is quite powerful. Here’s why you should adopt that. Here are the benefits. If you want to be on Canvas, just Canvas to desktop, here’s the benefits of that business. Especially with the rise of App Center, which is increasingly how people find games on Facebook.

It’s not just about how many messages you send into the channel. We can help your game be discovered. That’s what we are, a discovery engine. We’re a discovery and distribution engine for both desktop and mobile. So we spend a fair amount of time on that. The best way to be featured in App Center, the best way to make sure you’re using our channels correctly.

GamesBeat: What do you think of the trends in the genres right now?

Ryan: When I came here, that was the one thing I really wanted. I wanted to see a greater diversity of games. The hidden-object games alone, there were probably 10 or 20 by the end of the year. That’s a category that didn’t exist a year before [on social]. I didn’t foresee the rise of arcade and casual. The Bubble Shooters, the Candy Crushes, that type of lighter-weight game. The developers are coming up with great ways to monetize it: power-ups and bonuses.

We certainly spent a fair amount of time on the rise of casino, which is a natural for us. It’s a very social genre. The next six to 12 months, it’s about core and mid-core. Not because the other genres aren’t good, but when we look at openings on the platform where we think we can deliver a powerful experience alongside our developers…. As we start to see Unity and Flash 11 become more prevalent, we can have a really rich gaming experience.

GamesBeat: Can you explain both of those a bit more? Flash 11.4 is something that will enable new kinds of games.

Ryan: Sure. Flash 11 introduces 3D. So does Unity. Both of those enable the software to tap the graphics processing unit, which means you can get far richer graphics in a web-based game than you could before. FarmVille 2 is a great example. It has 3D effects that you wouldn’t see before. You look at Robot Rising from Tencent, which is a great new game, a MechWarrior-style blow-things-up game.

It’s not just about graphics, though. It’s about storyline. It’s about sound. People forget about sound sometimes. But that’s what we’re seeing now with the success of Kixeye, the success of Plarium in Israel, and some of these smaller studios like Eruptive Games. They’re a small studio out of Vancouver. If you haven’t played Citizen Grim, it is a wonderful game. It’s a zombie shoot-’em-up. You just run around and kill everything, and it is so much fun. That’s where we’re going to see the next wave of richer games. Previously, you could only get those through a large download. Now you can get them in a web-based experience.

You’re seeing this in China already. China is moving away from the very thick client, a two-gig client, to a lighter-weight, thinner client, meaning a web-based game. We’re seeing that here in Facebook as well.

GamesBeat: What do you think is going to happen between 2D games and 3D games? On iOS now, they have pretty good 3D graphics capability, but it still seems like 2D games are the vast majority.

Ryan: Yeah. I went through this debate many other times at many other companies. I remember this on the console. 2D games can be great experiences, like Bejeweled Blitz or Song Pop. These aren’t necessarily better as a 3D game. But that being said, user expectations tend to go up over time as far as the quality of experience they’re looking for. What we’ll see in 3D, which will enable to rise of new games on Facebook — the role-playing games, the MMOs, the realtime strategy games like War Commander and others…. You get a richer experience. It’s suited to those types of games.

2D games are simpler to build, and in many cases appeal to a wide set of users. So it’s not an either-or. It’s not “everything goes to 3D” at all. But until very recently, on Facebook we’ve mostly had 2D games, or 2.5D games with an isometric 2D view. What we’re seeing now is the addition of 3D games. Those can be more expensive to make, because the graphics are richer and the overall experience can be richer, but they provide a more immersive experience. I think you’re going to see some great first-person shooters. If you haven’t seen UberStrike, which was recently revamped and relaunched…. You will see great first-person shooters on desktop Facebook that we didn’t see a year or two years ago.

Look for part two of our interview with Ryan on Saturday morning.

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GamesBeat 2013 is our fifth annual conference on disruption in the video game market. You'll get 360-degree perspectives from top gaming executives, developers, and analysts on what’s to come in the industry. Our theme this year is “The Battle Royal.” Check out full event details here, and grab your early-bird tickets here!

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Three years after its launch, Zynga‘s FarmVille social game has 3.2 million daily active users. That’s just a tenth of its peak. But Zynga is still betting that there’s a farmer in all of us, and it’s launching FarmVille 2 today to get us back behind the plow. As Zynga’s earnings take a dip and its industry-changing “Ville” series of social games lose their novelty, the company has a lot at stake with FarmVille 2. As FarmVille grew its audience to as 83 million monthly active players, it introduced social games to the mainstream and became one of the most broad-reaching titles in history, even as critics said it wasn’t really a real game. So the remake is akin to Zynga’s best shot at launching social gaming 2.0.

From the start, Zynga wants players to see that the game is visually richer and has a more personalized feel for what it is like to run a farm, according to Tim LeTourneau, the vice president of games at San Francisco-based Zynga, in an interview with GamesBeat. You now run a farm as an ecosystem, where your actions and help from your friends lead to real causes and effects. In short, FarmVille 2 appears much more like a living simulation of how to run a real farm — it’s a real game instead of just a mindless clickfest.

LeTourneau and FarmVille 2′s director of design, Wright Bagwell, both joined Zynga around 18 months ago after they left Electronic Arts. Their team had both social and traditional gaming experts.

“We asked ourselves, ‘What does the next generation of FarmVille look like?’” said LeTourneau. “We are reimagining and reinventing FarmVille, taking advantage of Zynga’s learning in the social space and what we bring from traditional gaming. For those who aren’t playing FarmVille anymore, we tried to reimagine virtual farming and bring those people back. It was our goal to make this a more intimate farming experience.”

Like the original, FarmVille 2 is geared toward people who want to play for five minutes a day and interact with their friends. The farm is a means of self-expression. Each day, players harvest over a billion virtual crops. To date, “farmers” have planted 50.4 billion white grapes. The original was so novel at the time that it soared to 10 million players in just six weeks when it debuted in June 2009. It set Zynga on the road to becoming a billion-dollar-revenue company by 2011.

The original FarmVille will continue to operate, and Zynga will continue to support it. But the new FarmVille 2 has better graphics based on the Flash 11 format (and Stage 3D) that Adobe has created to improve animations in web-based games. The characters and animals are created using 3D graphics though they are displayed in the familiar isometric, two-dimensional perspective. The animations look more fluid, and the landscape is more interactive as you move your mouse cursor over the screen. FarmVille 2 is an attempt to capitalize on how web-gaming technology has moved forward in just three years.

FarmVille 2 invites players to return to their old family farm with the hope of making it thrive again. You can do so by planting and harvesting crops, raising cute animals, and crafting fresh goods to sell in a roadside stand or to the local grocer. Friends can sit alongside your farm on hay bales until you assign them a task to perform in your fields. Each action performed by a “farm helper” is meaningful as it accelerates progress in your daily farm chores. You can also visit friends’ farms to harvest crops, feed animals, and collect the resources you need to finish crafting goods on your own farm.

At the heart of the ecosystem is water. Players gather it from wells that they dig and at their friends’ wells. They use it to grow crops, which can be turned into feed for animals. Those animals can produce ingredients like milk and cheese. Animals produce fertilizer that can double your crop output. Players craft ingredients into items they can sell at the roadside stand. You can, for instance, make apple scones that you can sell for a higher price. It’s all a virtuous circle, says LeTourneau. Sometimes, when the conditions are right, players can grow giant-sized crops that win prizes.

“You have to water seeds once you plant them,” said Bagwell in an interview. “Things don’t just fall from the sky in this game.”

Animals also come to life as players care for them from babies to adults. They use the resources the animals produce to sustain or grow the farm. Planting seeds no longer takes a mouse click for each patch. Now you can hold your mouse down and wave the cursor over a section of crops, “painting” seeds into the ground using broad brush strokes. Players can also right-click in the game (for the first time in a Zynga game), allowing them to pick up and rotate objects more easily. Your corn and wheat stalks sway in the breeze. Wind chimes move and make sounds. When you expand your map into grassy fields, goats eat away at the grass until you can plant there.

“It is tactile and alive,” said Bagwell. “The world reacts to your touch.”

Once you generate some income, you can buy things at the general store to spruce up your farm. You can purchase machinery that automates production. And it’s much easier to decorate a farm with items like garden gnomes or even sprawling mansions.

Zynga has added some narrative, as well, introducing characters such as Marie, a country girl who shows players the basics. Walther Thorncroft, a retired engineer turned farmer, teaches players how to take their farms up a notch.

Cornelius is the local village grocer. He gives the player daily challenges to perform by placing orders for goods that can be crafted from what the player actually has on his or her farm. Cornelius is an interesting game mechanic that prods you to outdo the production that you accomplished the day before. The game adapts to the way you like to play.

“He’s actually looking at my farm — the things I am growing and the recipes in my kitchen,” said Bagwell. “He places orders for things that I can actually produce. In return for doing what he wants, I can get cool prizes from him.”

While the virtual characters can prompt you to take action, your real friends are the most powerful force in the game. Your farm helpers come over every day and help you instantly grow or harvest crops. You can see that work happen as the animated characters move across your farm in real time.

The net result is a simple and intuitive version of what it is like to run a farm, said LeTourneau. And that farm is not just a “game board.” You can see that it’s part of a larger landscape that includes a village community off in the distance. Your goal is to eventually get to the village (the place where the village grocer Cornelius comes from), where you can interact with neighbors even more.

“I love to play Zynga games because of the social interaction more than anything,” said Denise Lambert from Toronto, Canada. “When life gets busy and things get stressful, you can step away for a little bit to relax and socialize with people who have the same interests as you, which brings you to a happy place. I’m excited for FarmVille 2. I can’t wait to play!”

Both FarmVille and FarmVille 2 will continue to evolve over time, as both have dedicated teams. FarmVille 2 is available in 16 languages, including English, Danish, Arabic, Dutch, German, Japanese, Korean, Norwegian, Swedish, Thai, Turkish, French, Italian, Portuguese, Spanish, and traditional Chinese. Zynga says it has more than 306 million monthly active users on Facebook, Zynga.com, and other platforms. The game will go live with 30 levels. If you want to progress faster in the game, you can pay real money to purchase faster progress in growing crops, and you can also pay for decorations.

On the surface, FarmVille 2 uses the first game as its inspiration, said LeTourneau. FarmVille may have brought virtual farming to all of us, but FarmVille 2 is the real game.

“Our goal was to create an ecosystem where all these things were interconnected,” said LeTourneau. “We want it to feel like it’s next generation, and it’s always very alive.”

Here’s our image gallery of FarmVille 2:

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GamesBeat 2013 is our fifth annual conference on disruption in the video game market. You'll get 360-degree perspectives from top gaming executives, developers, and analysts on what’s to come in the industry. Our theme this year is “The Battle Royal.” Check out full event details here, and grab your early-bird tickets here!

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If you follow VentureBeat but don’t regularly check our GamesBeat site, here’s a list of the best games stories we ran over the last seven days that you may have missed.

This week, Sega shut down several studios world-wide, Zynga held a press event in San Francisco revealing tons of new Facebook social games, and developer Radical Entertainment shuts its doors.

You’ll also find a review for The Elder Scrolls V: Skyrim expansion Dawnguard and Lego Batman 2: DC Super Heroes.

GamesBeat:

The DeanBeat: Zynga battles to dominate the red ocean, not the blue

The Last of Us’ “Truck Ambush” trailer: now with 100% more Sackboy (video)

Console game studio Radical Entertainment shuts its doors

Sega closes multiple offices worldwide and focuses on digital

Nintendo hires a networking chief to shore up a weak spot

Dawnguard finally brings a sense of urgency to The Elder Scrolls V: Skyrim (review)

How we voted in the Game Critics Awards

Infinity Blade is more profitable than Gears of War

Valve releases the magically fiery ‘Meet the Pyro’ video

Halo 4′s free Spartan Ops content detailed: 50 missions spanning 12 hours

Past sales point to a ‘win’ for Nintendo with the 3DS XL

New Smart TV device allows game-streaming via OnLive

Sulake un-mutes Habbo Hotel in select countries for first time since sex scandal

CCP’s David Reid says Dust 514 heralds a new free-to-play era on consoles (interview)

Dragon Eternity lets iOS gamers play with Android users

4 games that should be in Kirby’s 20th Anniversary Collection

GamesBeat casts the Need for Speed movie

Lego Batman 2 tries to redefine the franchise but stumbles (review)

VentureBeat:

Delaware’s approval of online gambling will make social game companies perk up

Gaikai streams Bulletstorm console game in the Chrome browser

Meet the judges for our GamesBeat 2012 ‘Who’s Got Game’ game-startup competition

Lara Croft will invade your Chrome web browser this fall

Hello, Hero Academy: $2M deal helps mobile-platform Yodo1 bring Western games to China

New institute gets $10M to gamify education for kids

The new console war pits Microsoft, Nintendo, and Sony in an Apple arena

Pocket Gems launches All Talk voice-based mobile game

Pamela Anderson takes on Zynga with BamPoker game

YoYo Games launches a series of Chrome games with the flip of a switch (exclusive)

Zynga’s big Unleashed event strikes out with investors

Earn real recipes while playing Zygna’s new game, ChefVille

Zynga confirms that FarmVille 2 is in the works

Zynga With Friends to feature live synchronous multiplayer

By the numbers: Zynga’s total words, drawings, users, and more

Take-Two aims big in China with free-to-play NBA online game with Tencent

Google transforms its homepage into a Turing machine minigame

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GamesBeat 2013 is our fifth annual conference on disruption in the video game market. You'll get 360-degree perspectives from top gaming executives, developers, and analysts on what’s to come in the industry. Our theme this year is “The Battle Royal.” Check out full event details here, and grab your early-bird tickets here!

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Zynga chief executive Mark Pincus introduced a new trailer of the game as he closed out a press conference where the company showed off its new slate of titles. He didn’t show any actual live gameplay of FarmVille 2, but the trailer showed that the game is a significant step up in terms of graphics quality compared to the original Zynga game from 2009.

The game is a big deal because it is a followup to the title that put Zynga on the map. FarmVille grew to as many as 30 million daily active players at its peak, allowing Zynga to get on the path toward dominating social games on Facebook. It helped cement Zynga’s whole “Ville” series of games that started with YoVille and continues today with the newly announced ChefVille. For three years, FarmVille has been in the top charts  of Facebook’s top apps, and it has generated a considerable amount of cash for Zynga, which now has nearly 3,000 employees.

FarmVille 2 was hinted at in April after the trade journal MCV published rumors about the title based on a mention of the game on the resume of someone working with Zynga. The title is one of a number that will test whether Zynga can hang on to its 290 million monthly active users in the face of increased competition.

FarmVille still has more than 21 million monthly active users on Facebook, according to AppData.

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GamesBeat 2013 is our fifth annual conference on disruption in the video game market. You'll get 360-degree perspectives from top gaming executives, developers, and analysts on what’s to come in the industry. Our theme this year is “The Battle Royal.” Check out full event details here, and grab your early-bird tickets here!

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