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Zynga CEO: "We'll be profitable in the very near future"

Q1 2017 loss narrowed to $9.5m as Frank Gibeau tells us that Zynga will be "in the same conversation with the Activisions and EAs" of the world

It's been a little over a year since former EA executive Frank Gibeau took over as CEO of Zynga. The last year was a tough one with a $108 million net loss, that demonstrated the need for continued improvement, and with the first quarter of Fiscal 2017 in the books, Zynga believes it's taken another big step forward. The company saw a net loss of $9.5 million (versus guidance of $16 million) and CEO Frank Gibeau noted that the company not only beat guidance on "all key measures" but posted some of its best results in years.

Total revenue climbed 5% to $194.3 million while bookings increased 9% to $207.4 million. The company stressed the fact that it enjoyed the highest mobile revenue (up 19% y-o-y) and bookings (up 27% y-o-y) in Zynga's history. Its mobile audience jumped up 16% y-o-y with 18 million DAUs, and indeed Zynga's transition from web to mobile continues as mobile revenue of $161.6 million represented 83% of overall revenue, while mobile bookings of $176.1 million accounted for 85% of overall bookings.

Aside from mobile, what's really driving the business, Zynga said, is a focus on live ops and services and better overall efficiency at every level of the company. Zynga Poker was held up as a shining example of what can happen when you dedicate your resources to live ops. The game enjoyed its highest quarterly mobile performance in franchise history, with mobile revenue up 63% y-o-y and mobile bookings up 76% y-o-y. Moreover, even though the game will be 10 years old in July, it saw average mobile DAU up 78% y-o-y, which Zynga noted was its strongest audience growth in the last two years. The company considers it a "forever franchise."

"I think our long-term goal of being in the same conversation with the Activisions, and EAs and Take-Twos and others on a profitability level... Zynga will be right there"

In a call with prior to the earnings release, Gibeau assured us that the company is now on the path to profitability. Zynga hasn't issued guidance for the full year so Gibeau stopped short of promising that it would happen in Fiscal 2017.

"We're in a turnaround, so you kind of put one foot in front of the next and drive improvements across the board," Gibeau said. "I think Q1 is really starting to show us pick up speed and momentum. In Q1 we lost on a GAAP level, which includes stock-based comp; we lost $9.5 million but we narrowed that from $26.6 million last year this quarter. We're making progress and I expect that we will be profitable in the very near future. For example, stock-based comp is down 40-plus percent y-o-y, and we're also starting to tighten up the fundamentals of the company. We're operating much more efficiently, and our focus on mobile growth and mobile live ops and services is really, really paying dividends for us.

"We had a great quarter on Poker, CSR2, [and] our Words with Friends business is in pretty good shape, so if we can keep doing that and keep the discipline of the turnaround, I think our long-term goal of being in the same conversation with the Activisions, and EAs and Take-Twos and others on a profitability level... Zynga will be right there."

While Zynga was quick to point out the success of Poker, CSR2 and Words With Friends (which also just launched on Facebook's Instant Games platform on Messenger), one of the company's bigger titles only briefly got a mention: Dawn of Titans from NaturalMotion. The game was in soft launch for 20 months and finally just had its first full quarter on the market, but Gibeau acknowledged that it's nowhere close to its full potential yet.

"I'm very bullish on Dawn of Titans long-term," he said. "One of the cool things about the mobile market versus console or PC is the fact that a game can find its way into the charts over a couple of years, and you can build on it. While Dawn of Titans is out, it's doing well, it still hasn't reached its full potential; we haven't really cracked the code yet on how the Elder game, and the PvP and the alliances, the Titans, all come together and create magic. That's what we're really going after; we're trying to get to that right blend of features and content and services so that the game can reach its full potential.

"We're one quarter in on the title. It's one game in our lineup and if you look at what we've done with CSR and Poker, Poker is 10 years old and it's up 76% this year on bookings and up 78% on audience. That's 10 years later, and I'm not saying it's going to take 10 years for Dawn of Titans, but that's what's so beautiful about the mobile business is if you stick with it and you keep investing and innovating, you will find the market and you will find your full potential. The fact that there's not a lot of commentary on it isn't [a bad signal] - there's a lot of good stuff on other things. We love Dawn of Titans, we're investing in it, we're not giving up on it, and that's the perspective."

"In mobile, it can take a year or a couple years for a game to break into the top of the charts"

Being a brand-new IP, of course, brings its own challenges, and Gibeau fully admitted that could be a factor in the somewhat slow start.

"Absolutely, it's harder to release new titles than ever before," he remarked. "If you look at the number of new titles in the top 25, I think it's three titles over the last 12 months. It's difficult, and a lot of them are known brands or sequels. From our perspective, if you look at the time that our development teams have and you look at the money that it takes to invest, it's a lot more interesting to invest in an audience that's already at scale like Words With Friends or Zynga Poker because it's a lot more leveraged, it's a lot higher probability of success.

"It doesn't mean that you shouldn't invest in new titles, but it's just a lot harder. And it can take longer periods of time to find its market. That's why when you look at a lot of businesses on console and PC, by Thursday you have your call with GameStop and you know if it's a success or not. In mobile, it can take a year or a couple years for a game to break into the top of the charts. There's plenty of examples of that in mobile, and a game can be very profitable and grow along the way, and be high quality. How games [perform] in their early windows, I don't sweat in terms of it being terminal or not. I think of it more like, 'OK, what did we learn?' Because when you move from development mode to live ops mode, you make much better, faster decisions, because of the player feedback that's coming in... You want to make sure you're in position to really leverage, as opposed to spending too long in development before you get out live."

Before Gibeau took over at Zynga last March, there was a bit of a chaotic feeling in the air, as leadership went back-and-forth between Don Mattrick and Mark Pincus. With Gibeau at the helm, the goal is to offer stability and focus to the teams.

"I think when you do have an organization that has swung as you described, the most important thing you can come and do is present a calm, steady, focused strategy, and one that's doable, one that builds confidence. When you look at a pro sports team, for example, if you've had a losing record, it's important to think, 'One game at a time, one win at a time,' and you build momentum and you build confidence. That's vital in an entertainment business," Gibeau said.

"If your creative organization feels confident, if they feel secure, if they feel good, you're going to get better games, better features and better quality. From my perspective, mainly one of the first steps was kind of being steady and calm things down and get focused. I spent probably the first six months doing that here, and the focus for us was, 'Hey our live services are awesome. We have millions of players everyday playing our games. Let's spend more time on them. Entertaining them, building features for them, rather than trying the next new thing or pivoting over here or moving over there. Let's focus on Poker, let's focus on Words With Friends,' and that has been liberating for a lot of the people at Zynga and certainly been great for me, because we're starting to see the results accrue. It's a great base to build a turnaround off of."

As Zynga looks to build momentum, there's a certain irony that the company could actually find itself aligning more heavily with Facebook again. It's spent years moving in the mobile direction, but now Facebook is very mobile as well and its newly launched Instant Games platform on Messenger could be a potentially appealing area for companies like Zynga.

"As we fix the fundamentals of the company and start to move out of that mode, we're going to be much more aggressive about growth mode"

"I look to what the vision of the company is and that's to connect the world through games; it's a social gaming vision. That's what Zynga was founded on, that's what makes it unique. It hasn't reached its potential on that vision but if you look at the mobile devices, the most social, largest audiences on the devices are on in messenger apps, of which Facebook has one," Gibeau commented.

"From my perspective, when I look at turn-based and synchronous and asynchronous and PvP brands that are mass market in nature that can reach those huge audiences, we've got a great set of them. It's a platform transition opportunit;, it's a new platform for us to innovate on, and I'm really excited about it. If I look at it as, 'I'm a big social gaming company with big brands and where can I reach the biggest audiences that are the most social on mobile devices?' and it's on messenger apps.

"And so, we saw this opportunity with Apple and iMessage and then also clearly with the Facebook stuff. It's very early days, so what's most important right now is building high quality experiences that build big audiences and we'll go down that journey with the platform manufacturers and see how that goes. As we fix the fundamentals of the company and start to move out of that mode, we're going to be much more aggressive about growth mode, and this is one of those ideas."

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James Brightman avatar
James Brightman: James Brightman has been covering the games industry since 2003 and has been an avid gamer since the days of Atari and Intellivision. He was previously EIC and co-founder of IndustryGamers and spent several years leading GameDaily Biz at AOL prior to that.
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