Interested in learning what's next for the gaming industry? Join gaming executives to discuss emerging parts of the industry this October at GamesBeat Summit Next. Learn more.
Maybe Mark Pincus is Zynga’s lucky charm.
The social-gaming company reported second-quarter earnings and bookings today that beat Wall Street’s estimates. The company outperformed expectations in the first full quarter since Mark Pincus returned as chief executive a hundred days ago. But user numbers continue to drop with daily numbers down 23 percent from a year ago.
Zynga reported a non-GAAP net loss of $7.6 million, or a loss of 1 cent a share, on bookings of $174 million. Analysts had expected a non-GAAP net loss of 2 cents a share on bookings of $157 million. A year ago, Zynga reported breakeven results on $175 million in bookings. The company credited the good performance to better-than-expected growth of its social casino games, including Hit It Rich! Slots and Wizard of Oz Slots. The slots bookings were up 274 percent from a year ago.
During the quarter, Zynga also introduced new games such as Empires & Allies and FarmVille: Harvest Swap.
“We think we can have success executing in other categories, too,” said Pincus in an interview with GamesBeat. “We re-entered the action-strategy category with Empires & Allies. It’s off to a strong start. It’s a proven team with a terrific engine that they are continuing to tune. They’re launching updates like leagues. We think that is a terrific category that we can make more social and accessible. We can bring a unique ‘special sauce’ to it.”
Zynga’s stock price is down 1.2 percent in after-hours trading. David Lee, chief financial officer, said that daily active users were down 15 percent from the previous quarter because of a decline with web games, Words With Friends, and a new Looney Tunes endless runner game.
Pincus also credited other teams besides strategy and social casino — and even web games — for the better results.
“It was a good quarter with strong execution from all of our teams. It was better than our own expectations in every category. With our web games, FarmVille 2, Zynga Poker — it was all stronger than we anticipated. The teams did a great job on FarmVille 2 in particular adding new content, and that is performing very well with a committed player base.
“The story that hasn’t come out enough is our advertising team has been a great growth engine. Our ad business is up 44 percent in the year, and it grew 15 percent in the quarter. It is now a quarter of all bookings. The ad margins are higher because you don’t have payment fees to the platforms. We are bullish on the mobile ad business.”
Pincus took over the management of the company in April, returning to the top job of the company he founded after the departure of Don Mattrick, the former EA and Microsoft executive who had run Zynga for more than a year. Pincus cut back the staff by 18 percent and withdrew from a couple of categories: sports and endless runner games.
Meanwhile, Zynga is also expanding on some fronts. It moved into the match-3 game category as well.
Zynga has been in the midst of a turnaround and transition to mobile for a few years now. Michael Pachter, an analyst at Wedbush Securities, said in a research note before the earnings were announced that Zynga has become a “show me” stock where investors want more evidence of a turnaround.
“Bing [Gordon, a Zynga board member] reminds me [that] stock price is a trailing indicator of success, not a leading indicator,” Pincus said. “Profits are a victory lap we get after we deliver results, not before. We want to have empowered entrepreneurs inside our company. Half the battle is to get out of the way, point to the right hill and get out of the way. It’s less about my confidence in my ability to get us there and more about the team. If we create the conditions for success for our teams, empower them, arm them, and point them at the right hill, they are going to do the rest.”
As for social gaming’s future, Pincus notes how he thinks “social gaming wants to be a new medium in the way that social networking and social media are. Over the next 10 years, people will do social networking and social media in and around their gameplay. We are not there yet. I see lots of opportunities around that.”
Also worth noting: Frank Gibeau, former head of EA Mobile, has joined Zynga’s board of directors. That is one more chapter in the constant executive revolving door between EA and Zynga.
As for upcoming games, Zynga is prepping the launch of strategy game Dawn of Titans and CSR Racing 2 as well as a new mobile slots game for later this year. Next year, it plans to launch a slots game based on Willy Wonka and the Chocolate Factory.
Zynga’s $174 million in total bookings was a 4 percent sequential increase, and it was above the top end of its previous guidance. Mobile is now 66 percent of the company’s business. Overall, mobile was up 8 percent sequentially and 30 percent from a year ago. It has $1.1 billion in cash and marketable securities.
The publisher said the average game play time for Empires & Allies is 38 minutes, a huge time for a mobile game. Average review scores on iOS are 4.5 out of 5, and players are playing the game five times a day. Average daily bookings per average daily active user are 26 cents, or three times the usual for Zynga. FarmVille: Harvest Swap also has 4.5 average ratings.
Zynga’s overall average daily active users are 21 million, down 23 percent from a year ago and down 15 percent sequentially. Average monthly active users were 83 million, down 32 percent from a year ago and down 18 percent sequentially. The average player conversion, or percentage of players who pay, is 1.6 percent (excluding Natural Motion), down 17 percent from a year ago and up 5 percent sequentially.
Its results included a restructuring charge of $12 million in the second quarter due to its previously announced cost-reduction plan.
For the third quarter, Zynga projects bookings to be $155 million to $170 million, and a non-GAAP net loss per share of 1 cent to 2 cents.
Pincus wrote a “CEO perspective” note to investors so he didn’t have to spend all his time on an analyst call reading the results. As a result, he said he hopes to have a more interactive conversation with the analysts. The full note is on the next page.