Analysis: Can Zynga return to growth?
CEO Mattrick predicts profitable 2013 and says growth will return next year
After Zynga released its third quarter 2013 financials last week, a brief skim through the results would suggest a company that had a successful three months. The social gaming firm certainly had reasons to be cheerful, with the most impressive news being a substantial fall in GAAP net losses from $52.7m in Q3 2012 to $68,000 in Q3 2013.
It was also able to boast beating market, as well as its own, expectations on certain financial indicators. Analysts had predicted revenues of $190m but the numbers only fell 36% year-on-year from $317m to $203m. Adjusted EBITDA also declined from $16m in Q3 2012 to $7m, but beat a guidance range of negative $30m.
But while Zynga may have exceeded the expectations of investors, and not announced any further job losses, the fact that these results were treated with such positivity shows just how far the company has fallen in recent times.
This, after all, is the company which saw revenues fall substantially from $311m in Q4 2012 to $264 million back in Q1 of this year. In 2013, just becoming profitable once more is the real goal. Chief executive Don Mattrick said he expected the company to return to profit by the end of the year and would soon return to growth.
“I am confident that Zynga is rewiring itself in a meaningful way that will strengthen the core of our business and put us back on track to achieve significant long term growth and profits,” he said.
Mattrick went on to say that the company was poised for growth as early as 2014. But with a shrinking customer base and revenues continuing to fall, where is this growth going to come from?
Shortly before releasing its results, Zynga announced it had appointed Clive Downie to take up the position of chief operating officer. Looking at Downie’s CV, the reasons for his appointment appear quite obvious as Zynga’s difficulty with transitioning to the stronger monetising platform, mobile, is no secret and Downie has a wealth of experience in this area.
He joins from Tokyo-based mobile software company DeNA where he led its American and European operations and will have been pleased to see mobile bookings only fell from $50m to $46m quarter-on-quarter, exceeding earlier market predictions.
But one of Zynga’s main problems lies in its rapidly declining customer base. DAU fell 49% year-on-year to 30 million (web DAU fell 7 million quarter-on-quarter to 16 million, mobile DAU by 2 million to 14 million) and MAU decreased 29% quarter-on-quarter and 57% year-on-year to 133 million.
Zynga is still licking its wounds from its over-reliance on Facebook, with a change in the social network’s algorithms thought to be a big factor in the fall in player numbers. Compare this to King which launched an incredibly addictive game with cross-platform features on Facebook and shortly followed by a launch on mobile devices, and it looks as if Zynga finds itself continuing to play catch-up with its competitors.
However, the San Francisco-based company has gone on the front foot since Mattrick took the reigns and launched two new games in Q3 2013: Hit It Rich! Slots on the web and CastleVille Legends on mobile. Initial reaction to Hit It Rich! has been particularly positive due to its strong user growth on Facebook with limited marketing spend and a planned release of the game on mobile in the near future.
But Zynga is still falling behind in the race. According to boutique research firm Eilers Research, it is now only the third largest social casino company after a strong performance from DoubleDown boosted IGT into second place following a 5% revenue increase in Q3. In comparison, Zynga recorded double-digit revenue decline with its Texas Hold’Em Poker product losing more market share.
And despite some promising signs for mobile and its new games, Zynga is currently still far too focused on Facebook and is over reliant on its two flagship products Farmville and Zynga Poker. Until it gets mobile right and develops new unique products which attract new players, the game publisher will continue to face an uphill battle to really turn things around.