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Zynga can do a hell of a lot more with the resources it has - Gibeau

As company beats first quarter forecast, CEO Frank Gibeau sees momentum in turnaround, emphasizes cost control without layoffs

Zynga today released its first quarterly earnings report since Frank Gibeau took over as CEO, and the company posted modest improvements on a number of fronts while outperforming its initial guidance.

For the three months ended March 31, Zynga reported revenues of $186.7 million and a net loss of $26.6 million, both substantially improved over its forecast revenues in the $160 million to $175 million range and expected net loss between $30 million and $40 million.

On a non-GAAP basis, the company reported bookings of $181.6 million and adjusted EBITDA of $10.9 million, compared to guidance of $150 million to $175 million in bookings and adjusted EBITDA somewhere between a $10 million loss and flat year-over-year.

"It's certainly not the beginning of the turnaround, and it's not the end, but we're well underway, and momentum feels good."

Other key metrics showed less improvement. Zynga's daily active users were up from 18 million to 19 million quarter-over-quarter, but down from 25 million year-over-year. Meanwhile, monthly active users were flat quarter-over-quarter at 68 million, but down from 100 million year-over-year.

Speaking with GamesIndustry.biz today, Gibeau said the results were very encouraging, and that Zynga is gaining momentum, something that feels familiar from his time at Electronic Arts.

"A couple things that jump out at you when you go through a successful turnaround is you'll feel it internally before it's seen externally," Gibeau said. "There's a certain kind of vibe and momentum you feel inside the teams and the culture that feels like you're moving from defense to offense."

Gibeau noted that the company's live products are doing well (Words With Friends just had its best quarter in six years as far as bookings and audience are concerned), it's releasing games again (four already this year, with six more before 2017), and the mobile push is bearing fruit, with Apple having recently replaced Facebook as Zynga's largest platform partner in terms of bookings.

Positive signs aside, the company's guidance clearly shows there's more work to be done before Zynga can return to consistent profitability. For the second quarter, Zynga is projecting revenues of $170 million to $180 million and bookings between $160 million and $170 million, both of which would be down sequentially as well as year-over-year. The projected net loss between $20 million and $26 million would represent a slight improvement when compared against either Q1 2016 or Q2 2015.

"It's certainly not the beginning of the turnaround, and it's not the end, but we're well underway, and momentum feels good," Gibeau said.

"It's how you run the business and the yields you get from the resources and the talent you have. And I think by any measure, Zynga has not delivered against that in the past."

One thing Gibeau has emphasized in his short time as CEO is cost reduction and operational discipline, though he acknowledges those phrases may carry some unintended baggage.

"It's more about operating leverage than it is about layoffs or risks or anything like that. It's how you run the business and the yields you get from the resources and the talent you have," Gibeau said. "And I think by any measure, Zynga has not delivered against that in the past. What I've been surprised by in the last 60 days is how much operating leverage we have.

"If you come in and say 'Let's talk about cost discipline' to a game team, it's not their most motivating day. What you want to do is create an environment for them to do the best work of their careers, to do really innovative risky things, but there is a way to do that and run a really good, disciplined organization where we're getting the most out of our resources and our people, which is not where we're at right now. And it just means you need to be more disciplined and sharper about how you operate the business."

For Gibeau, that means making sure the company's best people are working on the biggest ideas. It means ensuring people are working without distractions, not duplicating efforts, and focusing on projects that fit within the company's overall portfolio.

"I think if we do those things, we'll drive a lot of the costs out of the business without having to do layoffs," Gibeau said. "And I always recognize and understand that when [people] say 'cost control' that means layoffs, but that's not what I'm saying here. What I'm saying is I want to drive operational leverage. I think we can do a hell of a lot more with the resources we have than we're currently doing. And that's frankly why this job is so exciting. I see a lot of low-hanging fruit from an operating standpoint that will not just lead to better operating metrics, but better EBITDA, better return on our investment, and also free up the team to focus on what's most important: making high quality experiences that connect with our customers over the long term."

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