Zynga Moves Farther from Facebook with Several Acquisitions

According to the Global Online Gaming Report released by yStats.com, global online gaming revenues are projected to grow at an annual growth rate of more than 10% from 2010 through 2016. Within the U.S., social gaming will continue to grow and account for more than 40% of Internet users in the country. This is obviously good news for game developers like Zynga.

Zynga’s Financials
Zynga (Nasdaq:ZNGA) saw Q1 revenues Zynga grow 32% over the year to $321 million with non-GAAP EPS of$0.06. The market was expecting revenues of $317 million with earnings of $0.05 per share.

By segment, online game revenues grew 27% over the year to $293 million. Advertising revenues of $28 million were 117% higher than the previous year. Among other user statistics, monthly active users grew 24% to 292 million and daily active users grew 6% over the year to 65 million. Zynga is also growing within mobile devices and reported 22 million monthly users for the previous quarter, compared with 12 million reported a quarter ago. Zynga’s FarmVille and CityVille remained their biggest attractions. FarmVille brought in 29% of revenues during the quarter, compared with 27% reported a year ago. CityVille now accounts for 17% of their revenues.

Zynga expects to end the year with bookings of $1.425 billion-$1.5 billion with EPS of $0.23-$0.29. The Street was looking for bookings of $1.42 billion with EPS of $0.27.

Zynga Diversifies Revenue Stream
To continue to become independent of Facebook’s platform and to build on a new revenue stream, Zynga recently launched their own gaming platform. They tied up with game developers, including Mob Science, Row Sham Bow, and Sava Transmedia, to launch new games on their platform. They are now working on promoting third-party games by some of these developers to their existing user base. They will launch this promotion with Row Sham Bow’s Woodland Heroes, which will be promoted using their zBar, the tool bar on top of every Zynga game. Analysts believe that Zynga may be able to generate significant revenues by driving traffic to games by its platform partners.

Zynga on an Acquisition Spree
Of late, Zynga has been on an acquisition spree. Last quarter, they announced the big acquisition of Draw Something maker, OMGPOP. Zynga acquired OMGPOP for a hefty sum of $180 million. OMGPOP is best known for their mobile version of the Pictionary, Draw Something. However, analysts believe that Zynga may have bought the game maker at a rather exorbitant price. The game was released earlier this year and had amassed a following of 37 million installations with 20.5 million daily active users. Since its initial success, Draw Something’s popularity has waned significantly. Following the acquisition, Draw Something’s daily active users have fallen to 9.1 million and the game seems to have been just a fad.

However, Zynga is improving monetization of Draw Something’s waning user base with the introduction of branded words. Instead of words for objects, users can now draw products for brands as well. Zynga claims to have received significant advertising interest from organizations such as the National Hockey League.

Zynga’s focus on mobile is also seen in some of the other acquisitions they made this year. They recently bought Wild Needle, a mobile game developer that focuses on the female users with games such as Shoptown Hero. They acquired Germany-based game maker Gamedoctors, best known for their game Zombie Smash. Other mobile acquisitions include San Francisco–based Page44 Studios, known for their World of Goo game; Android-focused game developer HipLogic; and New York–based Astro Ape, known for Monsterz Revenge. Terms of these deals were not disclosed.

Zynga’s stock is trading at $8.27 with a market capitalization of $6.09 billion. Its stock reached a high of $15.91 soon after listing over six months ago.