Company Update (NASDAQ:ZNGA): Zynga Inc Announces First Quarter 2015 Financial Results


Zynga Inc (NASDAQ:ZNGA)ZNGA, a leading social game developer, announced financial results for the first quarter ended March 31, 2015.

“In Q1, we delivered results above our guidance generating $167 million in bookings and Adjusted EBITDA of $2 million. Our Q1 results reflect the progress we have made in our transition to mobile which now represents 63% of total bookings – up 84% year over year,” said Mark Pincus, CEO ofZynga. “Zynga remains focused on our mission of connecting the world through games, which is even more relevant and possible today. Our execution is focused in three areas – our products, where we’re backing proven teams against the most valuable game categories; our people, to foster creative entrepreneurs; and our plan in order to fund our future with focus and simplicity.”

“I’m proud of Mark Skaggs and team for launching Empires & Allies – a great new Action Strategy game with encouraging early player feedback,” continued Pincus. “In terms of our overall products, we have narrowed our focus to five categories: Action Strategy, Social Casino, Invest & Express, Casual and Racing. We now expect to launch between 6 to 8 new mobile games in 2015 with a continued investment in our future pipeline for 2016 and beyond.”

Business and Audience Highlights

  • Outperformed high end of Q1’15 outlook with bookings of $167.4 million, Adjusted EBITDA of $2.1 million and Non-GAAP net loss of$6.7 million in the first quarter of 2015.
  • Continued to make progress in our transition to mobile, with mobile bookings now 63% of total bookings in the first quarter of 2015 – up 84% year over year.
  • Grew average daily bookings per average DAU (ABPU) 18% year over year.
  • Drove mobile audience growth, with first quarter mobile daily users up 18% year over year and 9% sequentially and mobile monthly audience up 29% year over year and 9% sequentially.
  • Ongoing efforts to grow and sustain Zynga’s core franchises – FarmVille, Zynga Casino and Words With Friends – resulted in 28% aggregate growth year over year in terms of first quarter bookings across the franchises.
  • Zynga Casino franchise delivered bookings growth of 55% year over year and 14% sequentially.
  • In the first quarter 2015, we entered into the mobile Action Strategy and mobile Match 3 categories with the geo-lock launches of Dawn of Titans, Empires & Allies and FarmVille: Harvest Swap.
Financial Highlights (in thousands, except per share data)
Quarter ended
March 31, 2015 March 31, 2014
GAAP Results
Revenue $ 183,293  $ 168,020
Net income (loss) $ (46,496) $  (61,183)
Diluted net income (loss) per share $ (0.05)  $ (0.07)
Non-GAAP Results
Bookings  $ 167,410  $ 161,358
Adjusted EBITDA  $ 2,093  $ 13,846
Non-GAAP net income (loss)  $ (6,713)  $ (6,258)
Non-GAAP net income (loss) per share $ (0.01)  $ (0.01)

Cost Reduction Plan

Today, Zynga announced a cost reduction plan expected to generate pre-tax savings of approximately $100 million, excluding an estimated $18 millionto $22 million pre-tax restructuring charge in the second quarter of 2015. As part of the plan, Zynga expects to complete a reduction of approximately 18% of our current workforce across its studios, including contractors, and implement additional cost reduction measures, including lowering costs and eliminating spend on outside and centralized services. Zynga expects the workforce reduction to be complete in the fourth quarter of this year and generate approximately $45 million in annualized savings. Zynga expects the reduction in centralized services costs and spend to be complete by the third quarter of 2016 and generate approximately $55 million in annualized savings. All savings estimates exclude restructuring charges.

“For our people, we need to create an empowered, entrepreneurial culture that fosters more creativity and innovation. Over the years we’ve seen that tighter, more nimble teams can drive faster innovation and deliver more player value,” said Pincus. “As a result, today we announced a cost reduction program to focus, simplify and align us against our most promising opportunities. We expect these cost reductions to generate $100 million in annualized savings. We are reducing our workforce by 364 people or approximately 18%, decreasing our outside services and reducing our central functions. This was a hard but necessary decision and I believe this plan puts us in the best long term position for success.”

Launches First Mobile Action Strategy Game, Empires & Allies, Worldwide on the App Store and on Google Play

On May 5, 2015, Zynga launched Empires & Allies, its first mobile Action Strategy game, to global audiences. Empires & Allies is a new, modern military strategy game where players design their perfect army and deploy the weapons of modern war in a never-ending battle to save the world. Developed by a seasoned team of developers, and led by real-time strategy (RTS) and social games pioneer Mark Skaggs, Empires & Allies gives players new levels of strategic choice and control in every battle.

First Quarter Operational Metrics

The company tracks operating metrics using internal systems which rely on internal company data and third party data. In the first quarter of 2015, the company modified its calculation to take into account our business’s transition to mobile and updates to our operating metrics which utilize additional third party data to help us identify whether a player logged in under two or more accounts is the same individual. As a result of these changes, we revised the definitions for DAUs, MAUs, MUUs, and MUPs in the first quarter of 2015. We rely on the veracity of data provided by individuals and reported by third parties to calculate our metrics and reduce duplication of data. For comparative purposes, these key operating metrics have been revised for the first quarter of 2014 and fourth quarter of 2014 to reflect the updated definitions. The following comparisons are based on the revised numbers for 2014. Please refer to our first quarter of 2015 investor presentation available at http://investor.zynga.com for a full explanation of the changes and the comparison of the revised and as reported numbers for 2014.

  • Average daily bookings per average DAU (ABPU) increased from $0.064 in the first quarter of 2014 to $0.076 in the first quarter of 2015, up 18% year over year. On a consecutive quarter basis, ABPU was down 10% from $0.084 in the fourth quarter of 2014.
  • Monthly unique payers (MUPs) in the first quarter of 2015 were 1.1 million, compared to 1.3 million in the first quarter of 2014. On a consecutive quarter basis, MUPs were up 8% from 1.0 million in the fourth quarter of 2014.
  • Daily active users (DAUs) in the first quarter of 2015 were 25 million, compared to 28 million in the first quarter of 2014. On a consecutive quarter basis, DAUs were up 4% from 24 million in the fourth quarter of 2014. Web DAUs and Mobile DAUs were 6 million and 19 million in the first quarter of 2015, respectively.
  • Monthly active users (MAUs) in the first quarter of 2015 were 100 million, compared to 119 million in the first quarter of 2014. On a consecutive quarter basis, MAUs were up 3% from 98 million in the fourth quarter of 2014. Web MAUs and Mobile MAUs were 24 million and 76 million in the first quarter of 2015, respectively.
  • Monthly unique users (MUUs) in the first quarter of 2015 were 73 million, compared to 79 million in the first quarter of 2014. On a consecutive quarter basis, MUUs were up 10% from 66 million in the fourth quarter of 2014.

First Quarter 2015 Financial Summary

  • Revenue: Revenue was $183 million for the first quarter of 2015, an increase of 9% compared to the first quarter of 2014 and a decrease of 5% compared to the fourth quarter of 2014. Online game revenue was $148 million, an increase of 12% compared to the first quarter of 2014 and an increase of 10% compared to the fourth quarter of 2014. Advertising and other revenue was $35 million, a decrease of 1% compared to the first quarter of 2014 and a decrease of 39% compared to the fourth quarter of 2014. FarmVille 2, Zynga Poker, FarmVille 2: Country Escape and Hit it Rich! Slots accounted for 20%, 19%, 16% and 15% of online game revenue, respectively, for the first quarter of 2015 compared to FarmVille 2, Zynga Poker, and Hit it Rich! Slots accounted for 23%, 20%, and 16%, respectively, for the fourth quarter of 2014.
  • Bookings: Bookings were $167 million for the first quarter of 2015, an increase of 4% compared to the first quarter of 2014 and a decrease of 8% compared to the fourth quarter of 2014.
  • Net loss: Net loss was $46 million for the first quarter of 2015, compared to net loss of $61 million for the first quarter of 2014 and compared to net loss of $45 million for the fourth quarter of 2014.
  • Adjusted EBITDA: Adjusted EBITDA was $2 million for the first quarter of 2015 compared to $14 million for the first quarter of 2014 and$9 million in the fourth quarter of 2014.
  • Non-GAAP net loss: Non-GAAP net loss was $7 million for the first quarter of 2015, compared to non-GAAP net loss of $6 million in the first quarter of 2014 and non-GAAP net loss of $2 million in the fourth quarter of 2014.
  • Net loss per share: Diluted net loss per share was $0.05 for the first quarter of 2015 compared to a diluted net loss per share of $0.07for the first quarter of 2014 and diluted net loss per share of $0.05 for the fourth quarter of 2014.
  • Non-GAAP loss per share: Non-GAAP net loss per share was $0.01 for the first quarter of 2015 compared to a non-GAAP net loss per share of $0.01 for the first quarter of 2014 and a non-GAAP net loss per share of $0.00 for the fourth quarter of 2014.
  • Cash and cash flow: As of March 31, 2015, cash, cash equivalents and marketable securities were approximately $1.10 billion, compared to $1.15 billion as of December 31, 2014. Cash flow from operations was ($47) million for the first quarter of 2015, compared to($24) million for the first quarter of 2014 and $4 million for the fourth quarter of 2014. Free cash flow was ($49) million for the first quarter of 2015 compared to ($25) million for the first quarter of 2014 and $2 million for the fourth quarter of 2014.

Second Quarter Outlook

Zynga’s outlook for the second quarter of 2015 is as follows:

  • Revenue is projected to be in the range of $175 million to $190 million
  • Net loss is projected to be in the range of $54 million to $50 million
  • Net loss per share is projected to be $0.06 based on a share count projected to be approximately 905 million shares
  • Bookings are projected to be in the range of $145 million to $160 million
  • Adjusted EBITDA is projected to be in the range of ($20) million to ($10) million
  • Non-GAAP net loss per share is projected to be $0.02 based on a share count projected to be approximately 905 million shares (Original Source)

Shares of Zynga Inc closed today at $2.61, up $0.11 or 4.4%. ZNGA has a 1-year high of $3.85 and a 1-year low of $2.20. The stock’s 50-day moving average is $2.60 and its 200-day moving average is $2.56.

On the ratings front, Zynga has been the subject of a number of recent research reports. In a report issued on April 30, Wedbush analyst Michael Pachter maintained a Buy rating on ZNGA, with a price target of $6, which implies an upside of 129.9% from current levels. Separately, on April 9, BTIG’s Richard Greenfield reiterated a Hold rating on the stock .

According to TipRanks.com, which ranks over 7,500 financial analysts and bloggers to gauge the performance of their past recommendations, Michael Pachter and Richard Greenfield have a total average return of -0.5% and 6.6% respectively. Pachter has a success rate of 42.5% and is ranked #2888 out of 3590 analysts, while Greenfield has a success rate of 62.9% and is ranked #1142.

Overall, 5 research analysts have assigned a Hold rating and 2 research analysts have given a Buy rating to the stock. When considering if perhaps the stock is under or overvalued, the average price target is $2.61 which is 40.6% above where the stock opened today.

Zynga Inc provides social game services. The Company develops, markets and operates social gamesas live services played on mobile platforms such as iOS and Android and social networking sites such as Facebook.