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Zynga on impact of pandemic re-opening, Apple privacy changes

COO Matt Bromberg believes "choppiness" in business is temporary, discusses plans for hybrid remote/in-person office model and how to get Merge series growing again

Unlike many publishers, Zynga's most recent quarterly financial report hit all the company's forecasts, and it showed record results with both top-line and bottom-line growth year-over-year -- despite going up against a difficult comparison from the first full quarter of the pandemic in 2020.

Yet the publisher's stock price dropped 18% the day after amid heavy trading, and it hasn't quite recovered yet. So what did investors hear in the results that they didn't like?

bromberg3

Matt Bromberg

It seems likely they were dismayed by the company's acknowledgement that it saw some "choppiness" late in the quarter that it attributed to users leaving as COVID-19 restrictions began lifting in various markets and the impact Apple's recent privacy policy changes -- which required users to have to opt-in to apps tracking their behavior-- have had on user acquisition costs.

Speaking with GamesIndustry.biz after the earnings report, Zynga chief operating officer Matt Bromberg said the company doesn't expect either to be a persistent drag on results, and emphasized that the company is still expecting full-year revenues to be up 38% year-over-year.

"At the beginning of the third quarter, we did see that players who recently joined us were not behaving exactly like the cohorts who joined us before," Bromberg says. "So there was some softness related to the most recent cohorts. But these are trends we expect will normalize over time. And if you pull back the camera, I think you'll see both our company and mobile gaming as a whole are going to be growing substantially.

"If you pull back the camera, I think you'll see both our company and mobile gaming as a whole are going to be growing substantially"

"We're going to end up in a place significantly higher than where we were prior to COVID. So the steady state will be much better than it was, even if in this quarter it was a little choppy."

The pandemic is also yielding some cost savings for the company, as it announced in its results that it would start sub-leasing its San Francisco headquarters to other companies.

"It didn't make a lot of sense for us to maintain that space," Bromberg explains. "It was very expensive and far too large for our needs."

Zynga's old San Francisco headquarters

Zynga's old San Francisco headquarters

While Zynga is abandoning that headquarters entirely, it has some smaller locations elsewhere in San Francisco that it will maintain as it shifts to a different kind of office model.

"When we come back to the office, we expect to be using all our offices in a very different way," Bromberg says. "We're really proponents of a hybrid model of returning to work, which means generally speaking, we don't expect anybody to be in the office more than two or three days a week, max. It'll be a combination of working from home and then coming into the office for group meetings and interactions. But we're moving away from a model where everyone has a desk and a space, so our space needs are very much reduced by the new model we want to pursue."

"We're moving away from a model where everyone has a desk and a space, so our space needs are very much reduced by the new model we want to pursue"

He adds that this solution has been "heavily influenced" by feedback from its various teams saying what would work best for them.

While there's hope that COVID-19 will become a thing of the past, there less optimism that Apple's privacy policy will be reversed anytime soon, and Zynga's answer to that problem -- spending less on user acquisition so it can ensure what it does spend sees a good rate of return -- seems less feasible as a long-term solution.

Still, Bromberg is confident that the elevated cost of user acquisition is a temporary setback rather than a new normal.

"The ecosystem is adapting to these changes a little bit more slowly than we expected," Bromberg says of the Apple privacy policy, "but we do believe over time it will normalize and return to a more regular level.

"Having said that, we're also investing really heavily in deeper advertising and data technology -- and the closing of the Chartboost acquisition is evidence of this -- to be able to get the more out of our own first-party network as well, so we're not entirely dependent on third-party networks."

While it wasn't a focus of the earnings report, we also ask Bromberg about word that the Merge series is experiencing declines.

Zynga wants to recapture the magic of the Merge games

Zynga wants to recapture the magic of the Merge games

In recent years, Merge Dragons and Merge Magic have helped drive many of the company's best quarters from a revenue and bookings perspective. However, in doing so, they also led it to post deep losses because the 2018 acquisition of Merge maker Gram Games had loads of contingent consideration expenses triggered by the game's unexpectedly strong performances.

"The Merge team is working on some really exciting new games in the space as well. They're particularly working on a pirate-themed game we're really excited about"

Needless to say it would be less than ideal for the series to start an inexorable decline as soon as their success stopped hurting the bottom line, so we ask Bromberg whether the plan is to spur Merge Dragons and Merge Magic back to growth, or it makes more sense to reinvigorate the Merge business with a new game, much like Zynga is planning to do with the launch of Farmville 3.

"We're working on both," Bromberg says. "The first thing is to continue to invest and innovate in the game itself. We've got new feature sets and bold beats coming out in the Merge titles, and we're accelerating the pace of development on that.

"But also, the Merge team is working on some really exciting new games in the space as well. They're particularly working on a pirate-themed game we're really excited about."

Long-running games like Words With Friends and Zynga Poker have posted some of their best quarters ever in recent years, and Bromberg thinks Merge Magic and Merge Dragons are more similar to those games than they are different.

"Both Zynga Poker and Words With Friends have had down quarters before over the course of their 10-plus year lives," Bromberg says. "And they've also both had really enormous growth spurts late in their existence. And the key in all three circumstances is continuing to invest in the core experience, because that brings players back and that's how you operate a live service."

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