Revised Outlook for Zynga

Disclosure: I own shares in Zynga [mainly as a speculative play]. I’d recommend not making investment decisions based off of this post.

A few months ago I wrote a post detailing some thoughts I had on Zynga in light of the lack of progress they had made in the preceding 12–18 months. I’m happy to say that things have changed for Zynga for the better since writing that post — much quicker than I expected. In light of this, I’ve decided to dig into why I’m bullish on Zynga for at least the next 6 to 9 months.

Trimming Some Fat

I’m usually not in favor of cutting a workforce in order to appease investors — however I think the cost reduction plan announced on Zynga’s latest earnings call won’t only help out from a financial perspective, but will also boost efficiency internally with the remaining workforce.

Furthermore, from listening to the earnings call, Mark Pincus specifically stated that none of the layoffs occurred from the core game development teams. I don’t invest in companies for them to lower their costs but this doesn’t hurt and is the right move.

Empires and Allies & Dawn of Titans are Hits

By all objective measures “Empires and Allies” seems to be a hit. The game is already Top-40 grossing for all iOS apps and continues to rise a week after being generally available world-wide. Zynga has captured the delight of Clash of Clans (the game is more or less a clone) yet the graphics and gameplay are compelling to the point where it will win users over.

Dawn of Titans is yet to be released globally. I’ve spent some time with the game (you can grab it by temporarily switching your iCloud account over to Saudi Arabia) and I think it will be just as large of a hit [if not bigger] than Empires and Allies.

Financial Analysts aren’t product people and are underscoring the magnitude of Dawn of Titans. They did the same thing will missing the boat on what the opportunity was with Empires and Allies until it launched. The stock price is not factoring this game in fully yet.

Farmville Harvest Swap

Farmville Harvest Swap is another yet-to-be-released game that builds off of the infamous Farmville brand. It is clearly going after the success that Candy Crush has had. I’m less bullish on this as a winner, but there may be some surprises here.

Expectations

  1. I suspect there will be a dramatic increase in Average Bookings Per DAU fueled by Empires and Allies for Q2. I also suspect to see an dramatic increase in mobile MAU and DAU count. I think they’ll get mighty close to having a profitable quarter but Q3 is the more likely scenario for that.
  2. Dawn of Titans will surprise with an earlier than expected launch.
  3. We’ll see more traditional advertising coming from Zynga. They’ll use some of the cash on hand to invest in marketing Empires and Allies and other hits as they launch. Zynga will very carefully study the value and profile of a lucrative user, build advertising models off of this and target accordingly. Mark Pincus spoke about the importance of data and measurement on the earnings call — this is all being done as an advertising play for obtaining users. When you have a successful game, it becomes an engine that needs some marketing TLC. We’ve seen it with Clash of Clans, Boom Beach and Game of War.
  4. Mark Pincus has a chip on his shoulder. He isn’t thrilled with Don Mattrick’s speed of execution, understands it was a necessary bump in the road and knows the company should and can do better. He is re-energized after taking some time off and knows what it will take to get the ship pointed in the right direction again. Also, his throat will be cleared for the next earnings call…get some water for the guy.
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