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

“In terms of our financial scorecard, for 2015, we made good progress in our transition to mobile on a bookings level but, due to the lack of significant new releases, we saw an overall decline in our audience. While our total bookings grew 1%, our core live mobile franchises – Slots, Words With Friendsand Poker – were up 63% and all of mobile grew 35%. We ended the year with mobile now representing 73% of total bookings up from 60% in Q4 2014. We saw our web business continue to decline with bookings down 32% and audience down 53%. Overall for the year, we managed to support a relatively large slate of new game development and user acquisition while remaining profitable,” said Mark Pincus, CEO and Founder of Zynga.

“Our mobile audience was down 1% in 2015. Within the quarter, it was down sequentially by 5% driven by a lack of significant new releases. However we’ve stemmed these declines for our core live mobile franchises – Slots, Words With Friends and Poker – which were up 1% for the quarter versus a loss of 6% in Q3. This was led by Slots, which accelerated its audience growth rate from 6% in Q3 to 15% in Q4. Words With Friends moved from a loss of 7% in Q3 to flat in Q4 and a 9% increase in the beginning of Q1. Poker has moved from a 10% decline in Q3 to a 4% decline in Q4 and has flipped to positive growth of 12% in the beginning of Q1,” Pincus continued.

“For 2016 and beyond, growth and profits will be driven by our ability to continue our momentum with live franchises and execute on new game launches. While we get that Zynga has been a show me story, in 2016, we have better visibility into our slate than ever before, with 6 new games already in soft launch. While we have high conviction in our ability to launch these games, the biggest challenge will be delivering on long-term retention and the LTV to support user acquisition at scale,” said Pincus.

“We expect to launch 10 new games in 2016. In Social Casino in the first half of this year, we plan to launch Spin It Rich!, Willy Wonka Slots, True Vegasand Vegas Diamond Slots. In Match-3, we expect to launch 2 new games in the first half of this year with Zindagi’s Crazy Cake Swap and a branded game leveraging the Wizard of Oz license. In Invest Express, we expect to launch a sequel to FarmVille 2: Country Escape as well as CityVille Mobile in the second half of 2016. Finally, in Action Strategy, we also expect to launch CSR2 and Dawn of Titans in the second half of the year. As we exit the year with this slate of new games launched and in the market, we expect to have changed our mix of R&D and unlaunched slate to live, revenue generating games which will improve our company’s predictability, profitability and growth,” said Pincus.

2015 Performance Summary

  • Ended 2015 with $700 million in reported bookings; up 1% year-over-year.
  • $17 million in Adjusted EBITDA; down 57% year-over-year.
  • Grew mobile bookings 35% year-over-year; web bookings declined 32% year-over-year.
  • Delivered strong player monetization growth; ABPU up 26% year-over-year.
  • Strongest advertising year to date; 2015 ads and other bookings up 22% year-over-year.
  • DAU declined 20% year-over-year with mobile DAUs declining 1% and web DAUs declining 53%.
  • Launched a $100 million cost reduction plan; $45 million in annualized savings from workforce reduction and $55 million in annualized savings from reduction in centralized services costs and spend.

Q4 Performance Highlights

Financial Highlights

  • Bookings of $182 million; above the high end of the guidance range, flat year-over-year and up 3% sequentially.
  • Adjusted EBITDA of $1.7 million; within the guidance range.
  • Mobile bookings of $134 million or 73% of overall bookings, up 21% year-over-year and up 10% sequentially.
  • Advertising and other bookings up 23% year-over-year and 24% sequentially; best advertising quarter to date.
  • $987 million in cash, cash equivalents and marketable securities.
  • Began $200 million share repurchase program which we completed in the first quarter of 2016.

Product Updates

  • Slots – Delivered highest quarterly bookings in franchise history; bookings up 78% year-over-year and 7% sequentially.  LaunchedPrincess Bride Slots and Black Diamond Casino, now in the top 30 grossing Casino charts in the Apple App Store.
  • Words With Friends – Delivered strongest quarterly bookings performance in the history of the game; up 28% year-over-year and 29% sequentially. Consumers played 11% more words as a result of fun new features.
  • Dawn of Titans – On track to launch in 2016; continuing to see strong potential with an average Apple App Store rating of 4.4 stars. Scaled to 14 test markets and ABPU remains strong.
  • CSR2 – On track to launch in 2016; now testing across 10 markets with an average Apple App Store rating of 4.6 stars.
  • CityVille – Entered into geo-lock with new CityVille Mobile in the fourth quarter of 2015; worldwide launch expected in 2016.

Announces Acquisition of Zindagi Games

Today, Zynga announced its Q1 2016 acquisition of Zindagi Games. Zindagi is made up of world-class engineers, game designers, product managers and artists who have delivered high quality games with small teams. Led by founders Umrao Mayer and George Simmons, the Zindagi team has delivered high quality Match-3 games, in addition to developing second party mobile titles.

Announces Completion of Share Repurchase Program

Today, the company announced the completion of our last repurchase program of $200 million. In aggregate, 80.2 million shares were repurchased under the plan at an average price of $2.50.

Financial Highlights (in thousands, except per share data)

Quarter ended   Year ended
  December 31,2015   September 30, 2015   December 31,2014   December 31,2015   December 31,2014
GAAP Results                            
Revenue $   185,769     $ 195,737   $   192,547     $   764,717     $   690,410  
Net income (loss) $   (46,869 )   $ 3,052   $   (45,126 )   $   (117,181 )   $   (225,900 )
Diluted net income (loss) per share $   (0.05 )   $ 0.00   $   (0.05 )   $   (0.13 )   $   (0.26 )
                             
Non-GAAP Results                            
Bookings $   182,104     $ 175,979   $   182,352     $   699,955     $   694,300  
Adjusted EBITDA $   1,656     $ 12,415   $   9,432     $   17,127     $   39,932  
Non-GAAP net income (loss) $   375     $ 3,681   $   (2,451 )   $   (10,235 )   $   (12,582 )
Non-GAAP earnings (loss) per share $   0.00     $ 0.00   $   0.00     $   (0.01 )   $   (0.01 )
                                           

Player Metrics (users and payers in millions)

The company tracks operating metrics using internal systems which rely on internal company data and third party data. We rely on the veracity of data provided by individuals and reported by third parties to calculate our metrics and reduce duplication of data.  In the first quarter of 2015, the company modified its calculations 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. In the third quarter of 2015, the company made a subsequent modification to its calculations of MUU to further reduce duplication. For comparative purposes, all of these key operating metrics have been revised for the fourth quarter of 2014 to reflect the company’s current definitions and calculations for all periods presented. Please refer to our Quarterly Report on Form 10-Q for the quarters ended March 31, 2015, June 30, 2015, September 30, 2015 and, when filed, our Annual Report on Form 10-K for the year endedDecember 31, 2015 for a full explanation of the changes and the comparison of the revised and as reported numbers for 2014 and 2015.

         
  Three Months Ended        
  December 31,
2015
  September 30,
2015
  December 31,
2014
  Q4’15
Q/Q
  Q4’15
Y/Y
Average daily active users (DAU)     18         19         24       (5 %)     (24 %)
Average mobile DAUs     15         16         18       (5 %)     (14 %)
Average web DAUs     3         3         6       (7 %)     (49 %)
                         
Average monthly active user (MAUs)     68         75         98       (9 %)     (30 %)
Average mobile MAUs     55         61         70       (9 %)     (21 %)
Average web MAUs     13         14         28       (11 %)     (54 %)
                         
Average daily bookings per average DAU (ABPU) $   0.110     $   0.100     $   0.084       9 %     31 %
Average monthly unique users (MUUs)(1)     48         51         64       (5 %)     (24 %)
Average monthly unique payers (MUPs)(1)     0.8         0.9         1.0       (7 %)     (19 %)
Payer conversion(1)     1.7 %       1.7 %       1.6 %     (2 %)     7 %
 
(1) MUUs, MUPs and payer conversion exclude NaturalMotion legacy games (CSR Racing, CSR Classics and Clumsy Ninja) and games from recently acquired Rising Tide as our systems are unable to distinguish whether a player of these games is also a player of other Zynga games. We exclude players of these games to avoid potential duplication.
 

Fourth Quarter 2015 Financial Summary

  • Revenue: Revenue was $186 million for the fourth quarter of 2015, a decrease of 5% compared to the third quarter of 2015 and a decrease of 4% compared to the fourth quarter of 2014. Online game revenue was $130 million, a decrease of 14% compared to the third quarter of 2015 and a decrease of 4% compared to the fourth quarter of 2014. Advertising and other revenue was $56 million, an increase of 26% compared to the third quarter of 2015 and a decrease of 2% compared to the fourth quarter of 2014. Zynga Poker, FarmVille 2,Hit It Rich! Slots and Wizard of Oz Slots accounted for 18%, 17%, 17% and 15% of online game revenue, respectively, for the fourth quarter of 2015 while FarmVille 2, Zynga Poker, Hit It Rich! Slots, FarmVille 2: Country Escape and Wizard of Oz Slots accounted for 21%, 17%, 16%, 14% and 12%, respectively, for the third quarter of 2015.
  • Bookings: Bookings were $182 million for the fourth quarter of 2015, an increase of 3% compared to the third quarter of 2015 and flat compared to the fourth quarter of 2014.
  • Net income (loss): Net loss was $47 million for the fourth quarter of 2015, compared to net income of $3 million for the third quarter of 2015 and net loss of $45 million for the fourth quarter of 2014. The quarter-over-quarter change in net loss was primarily due to higher costs and expenses (primarily, in order of significance, restructuring expense, marketing costs and third party hosting costs) as well as a tax benefit recorded in the third quarter of 2015 in connection with our acquisition of Rising Tide Games.
  • Adjusted EBITDA: Adjusted EBITDA was $2 million for the fourth quarter of 2015, compared to $12 million in the third quarter of 2015 and $9 million for the fourth quarter of 2014. The quarter-over-quarter decrease in adjusted EBITDA was primarily due to higher marketing costs due to seasonality and, to a lesser extent, higher third party hosting costs due to our data center migration.
  • Non-GAAP net income (loss): Non-GAAP net income was $0.4 million for the fourth quarter of 2015, compared to non-GAAP net income of $4 million in the third quarter of 2015 and non-GAAP net loss of $2 million in the fourth quarter of 2014.
  • Net income (loss) per share: Diluted net loss per share was $0.05 for the fourth quarter of 2015, compared to diluted net income per share of $0.00 for the third quarter of 2015 and diluted net loss per share of $0.05 for the fourth quarter of 2014.
  • Non-GAAP earnings (loss) per share: Non-GAAP earnings per share was $0.00 for the fourth quarter of 2015, compared to  non-GAAP earnings per share of $0.00 for the third quarter of 2015 and non-GAAP loss per share of $0.00 for the fourth quarter of 2014.
  • Cash and cash flow: As of December 31, 2015, cash, cash equivalents and marketable securities were approximately $987 million, compared to $1.07 billion as of September 30, 2015. In the fourth quarter of 2015, we repurchased 37.9 million shares of our Class A common stock at a weighted average price of $2.60 per share for a total of $98.9 million. Cash flow from operations was $7 million for the fourth quarter of 2015, compared to ($5) million for the third quarter of 2015 and $4 million for the fourth quarter of 2014. Free cash flow was $7 million for the fourth quarter of 2015 compared to ($7) million for the third quarter of 2015 and $2 million for the fourth quarter of 2014.

2015 Annual Financial Summary

  • Revenue: Revenue was $765 million in 2015, an increase of 11% on a year-over-year basis. Online game revenue was $591 million, an increase of 10% on a year-over-year basis. Advertising revenue was $174 million, an increase of 14% on a year-over-year basis.
  • Bookings: Bookings were $700 million in 2015, an increase of 1% on a year-over-year basis.
  • Net income (loss): Net loss was $117 million in 2015, which included $132 million of stock-based expense, $32 million of restructuring expense and a $9 million income tax benefit, compared to net loss of $226 million in 2014.
  • Adjusted EBITDA: Adjusted EBITDA was $17 million in 2015, a decrease of 57% year-over-year, primarily due to an increase in payment processing fees due to our increased mobile bookings mix and, to a lesser extent, an increase in royalty expense for licensed intellectual property.
  • Non-GAAP net income (loss): Non-GAAP net loss was $10 million in 2015, compared to non-GAAP net loss of $13 million in 2014.
  • Net income (loss) per share: Diluted net loss per share was $0.13 for the full year 2015, compared to diluted net loss per share of $0.26for the full year 2014.
  • Non-GAAP earnings (loss) per share: Non-GAAP loss per share was $0.01 for the full year 2015, compared to non-GAAP loss per share of $0.01 for the full year 2014.
  • Cash and cash flow: As of December 31, 2015, cash, cash equivalents and marketable securities were approximately $987 million, compared to $1.15 billion as of December 31, 2014. In the fourth quarter of 2015, we repurchased 37.9 million shares of our Class A common stock at a weighted average price of $2.60 per share for a total of $98.9 million. Cash flow from operations was ($41) million for the year ended December 31, 2015, compared to ($5) million for the year ended December 31, 2014. Free cash flow was ($48) million for the year ended December 31, 2015 compared to ($14) million for the year ended December 31, 2014.

Restructuring Charges From Our Cost Reduction Plan in the First Quarter of 2015

We incurred a restructuring charge of $17 million in fourth quarter of 2015 related to our first quarter of 2015 cost reduction plan. This charge was offset by $2 million of credits from prior period cost reduction plans, primarily related to executing a sublease agreement in a data center facility we had previously vacated.

First Quarter Outlook

Zynga’s outlook for the first quarter of 2016 is as follows:

  • Revenue is projected to be in the range of $160 million to $175 million
  • Net loss is projected to be in the range of ($40) million to ($30) million
  • Net loss per share is projected to be in the range of ($0.05) to ($0.03) based on a share count projected to be approximately 866 million shares
  • Bookings are projected to be in the range of $150 million to $165 million
  • Adjusted EBITDA is projected to be in the range of ($10) million to break-even
  • Non-GAAP loss per share is projected to be in the range of ($0.01) to $0.00, based on a share count projected to be approximately 866 million shares. (Original Source)

Shares of Zynga are falling nearly 11% in after-hours trading. ZNGA has a 1-year high of $3.13 and a 1-year low of $2.06. The stock’s 50-day moving average is $2.44 and its 200-day moving average is $2.48.

On the ratings front, Zynga has been the subject of a number of recent research reports. In a report released yesterday, The Benchmark Company analyst Mike Hickey reiterated a Buy rating on ZNGA, with a price target of $3.15, which represents a potential upside of 52.2% from where the stock is currently trading. Separately, on February 3, Wedbush’s Michael Pachter maintained a Buy rating on the stock and has a price target of $5.50.

According to TipRanks.com, which ranks over 7,500 financial analysts and bloggers to gauge the performance of their past recommendations, Mike Hickey and Michael Pachter have a total average return of 7.6% and -11.4% respectively. Hickey has a success rate of 57.4% and is ranked #401 out of 3560 analysts, while Pachter has a success rate of 32.6% and is ranked #3505.

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