Has Zynga Lost its Charm?

According to the 2014 Global Games Market Report by Newzoo, global game revenues are projected to grow 8% in 2014 to $81.5 billion. The market will be dominated by growth in the Asia Pacific and Latin America regions. Asia Pacific revenues will see their share increase from 42% in 2013 to 45% this year. Latin-America’s shares will grow 14% and will account for $3.3 billion revenues. The growth in these markets is attributed to improving Internet penetration and an increasing adoption of mobile devices in the regions. However, Zynga continues to struggle.

Zynga’s Financials
Zynga’s (Nasdaq: ZNGA) third quarter revenues fell 12% over the year to $176.6 million, ahead of the market’s projections of $171.7 million. Loss per share of $0.01 was also in line with market expectations. However, this was the first quarter in the last three quarters that Zynga reported an increase in bookings as they grew 15% to $175 million. Mobile bookings accounted for 55% of the quarter’s bookings and grew 111% over the year and 5% over the quarter.

By segment, online game revenues fell 20% to $140 million and advertising and other revenues improved 32% to $37 million. Among their key game titles, FarmVille 2 accounted for 27% of their game revenues. Zynga Poker brought in 22% revenues and Hit it Rich! Contributed 12% of online game revenues.

Among operating metrics, daily active user (DAU) base fell 13% to 26 million from 30 million a year ago. Web DAUs stood at 8 million and mobile DAUs were at 18 million for the quarter. Average daily bookings per average daily active user increased 34% over the year to $0.073. Monthly unique payers fell 19% to 1.3 million users. Monthly active users (MAUs) fell 16% over the year to 112 million with web MAUs at 38 million and Mobile MAUs at 74 million. Monthly unique users (MUUs) also fell 21% over the year to 77 million.

For the current quarter, Zynga projected revenues of $170 million-$200 million with earnings ranging from a loss of $0.01 per share to EPS of $0.01 per share. The Street was projecting revenues of $199 million and a break even quarter. Zynga expects to end the year with revenues of $695 million-$725 million.

Zynga’s Game Titles
Zynga has been struggling to engage its audience and that is reflected in their waning user base. Newer versions of games like Farmville, Zynga Poker, and Words With Friends have sparked interests, but not as significant, especially in the mobile segment. For instance, Zynga Poker’s new design and style failed to appeal to their customers and the new version was also not compatible on several older devices. Zynga was forced to release the classic version of the game to support these devices. Similarly, recently released NFL Showdown and revamped Zynga Poker have also not delivered as strong a performance. Zynga continues to work on newer titles and is soon releasing a Tiger Woods golf game and a game inspired by Looney Tunes’s runner character, which is expected to be released to a wider audience in the current quarter.

Zynga needs a hit soon if it wants to regain its lost glory. For now, their stock is trading at $2.43 with a market capitalization of $2.18 billion. It touched a 52-week high of $5.89 earlier this year.