eResearch | Last week, Zynga Inc. (NASDAQ: ZNGA) reported Q2/2020 earnings with record revenues and bookings, as the mobile game company fueled growth through focusing on its portfolio of live service games, while acquiring Rollic, other high-growth franchise.
Zynga is an American game developer headquartered in San Francisco, California, with a diverse portfolio of popular live service games, to which it adds ongoing content and additional micro transactions to create a sustainable monetization model around its products.
Zynga’s portfolio of live service games:
- CSR2
- Empires & Puzzles
- Merge Dragons!
- Merge Magic!
- Words With Friends
- Zynga Poker
- Toon Blast! (acquired from Peak Games)
- Toy Blast! (acquired from Peak Games)
PHOTO 1: Zynga portfolio of live service games
Zynga Acquisitions
On the same day of the earnings report, Zynga announced a US$168 million all-cash acquisition of 80% of Rollic, an Istanbul-based game development company focused on hyper-casual mobile games, with more than 250 million downloads, 5 million Daily Active Users (“DAU”), and 65 million Monthly Active Users (“MAU”).
Rollic’s latest games, Go Knots 3D and Tangle Master 3D, ended Q2/2020 as the top two most downloaded free games in the U.S. App Store. So far, Rollic has developed eight games which reached either the number one or number two ranked spots for free downloaded games in the U.S. App Store.
In the press release, Frank Gibeau, CEO of Zynga, said, “We are excited to expand into the hyper-casual category with the acquisition of Rollic, one of the fastest growing hyper-casual developers and publishers worldwide in 2020, led by an incredibly creative team.”
eResearch recently published an article which highlighted the growth in the hyper-casual game category.
- June 2020: “2020 PGC Conference: Trends in the Gaming Industry”
The acquisition of Rollic came only two months after Zynga announced a US$1.8 billion acquisition of Peak Games, another Istanbul-based game company. Peak Games’ popular mobile match-3 puzzle games, Toon Blast and Toy Blast, boosted Zynga’s DAUs by 60%, as the two games brought a collective 12 million DAUs.
eResearch provided an overview on Zynga’s acquisition of Peak Games in an article published two months ago.
- June 2020: “Zynga Acquires Turkish Mobile Games Developer Peak Games for $1.8B, Boosting Daily Active Users by 60%”.
Zynga Financials Q2/2020
In Q2/2020, Zynga reported revenues of US$452 million beating S&P Capital IQ analysts’ consensus estimate of US$434 million, with a loss per share of US$0.16 versus the consensus estimate of a loss per share of US$0.14–.
Zynga experienced a 47% increase in revenue year-over-year, as mobile games sales grew to US$370 million, a 65% increase year-over-year, accounting for 82% of Zynga’s total revenue. Total bookings increased to US$518 million, which includes US$66.4 million in deferred revenue.
Zynga’s top two revenue generating mobile games were Empires and Puzzles and Merge Dragons!, which accounted for 25% and 18% of total mobile games revenues, respectively.
Mobile DAUs reached a record 22 million, a 4% increase year-over-year, while mobile MAUs remained unchanged at 70 million. Strong audience engagement increased mobile average bookings per mobile DAUs to $0.248, a 32% increase year-over-year.
However, Zynga’s net loss increased further to US$150 million, a 169% increase year-over-year, mainly attributed to a significant increase in R&D expenses to US$228 million, a 123% increase year-over-year.
Zynga Financial Highlights Q2/2020
- Revenue of US$452 million, a 47% increase year-over-year, which includes Online game sales of US$388 million and Advertising and other sales of US$63.5 million.
- Costs and expenses of US$581 million, a 57.9% increase year-over-year, which includes Cost of revenue of US$179 million, R&D costs of US$228 million, Sales and marketing costs of US$135 million, and General and administrative costs of US$39.2 million.
- Net loss of US$150 million compared with a net loss of US$55.8 million the prior year.
- Balance sheet consists of Cash and cash equivalents of US$1.34 billion, Current liabilities of US$984 million, and Long-term liabilities of US$964 million.
Zynga Financial Guidance Q3/2020
- Revenue of US$445 million, a 29% increase year-over-year, with bookings of US$620 million a 57% increase year-over-year.
- Net increase in deferred revenues of US$175 million from the acquisition of Peak, which is expected to reduce gross margins significantly.
- Net loss of US$160 million compared with a net loss of US$84 million the prior year, excluding a one-time gain of US$314 million related to the sale of its headquarters building.
Zynga FY2020 Guidance
As user activity and revenue surged beyond their expectations, Zynga raised its 2020 guidance to US$1.8 billion in revenue, US$110 million higher than its previous guidance and 36% higher year-over-year.
In addition, Zynga also raised its 2020 guidance for bookings to US$2.2 billion, US$360 million higher than its previous guidance and 41% higher year-over-year.
Zynga expects strong growth through its portfolio of live service games, with full contributions from the Peak acquisition, starting next quarter and the Rollic acquisition, starting in the fourth quarter.
Zynga’s stock is currently trading at US$9.73, a decrease of 4.2% since the earnings announcement and an increase of almost 60% over the last year.
Other recent eResearch articles related to gaming and Esports:
- July 2020: “Vindex Announces Acquisition of Belong Gaming and Plans to Spend $300M to Open 1,500 Physical Gaming Arenas”
- July 2020: “Video Games & eSports Betting Update – Sony Invests US$250M in Fortnite and Embracer buys Sweden-based Saber Interactive for US$525M”
- June 2020 “eSports Betting Industry Update as Capital Markets Activity Increases & Companies innovate to Grab Market Share”.
- June 2020: “Electronic Arts Live Fireside Chat – CEO Speaks on Three Pillars of Growth for the Future”
CHART 1: NASDAQ 100 (orange) vs Zynga (blue) – LTM Stock Performance
