From Unicorn to Unicorpse: Is it Game Over for Zynga?

According to a PwC research report on the US gaming industry, social and casual gaming revenues in the country are projected to grow 4.5% annually from $1.88 billion in 2014 to $2.35 billion by 2019. Social and casual games are expected to account for 12% of total $19.6 billion gaming industry in the US by the year 2019. Another report estimates the global mobile game market to grow from $25 billion in 2015 to $45 billion by the year 2020. Social gaming provider Zynga (Nasdaq: ZNGA) is trying all tricks to improve its market value.

Zynga’s Financials

Last month, Zynga reported its fourth quarter earnings, and the company’s user and financial metrics continue to disappoint. Q4 revenues fell 3% to $185.8 million, ahead of the market’s forecast of $178 million. Loss per share came in at $0.05 compared with a break-even quarter projected by the market.

During the quarter, bookings grew 3% over the quarter to $182 million. Mobile bookings grew 21% over the year and 10% over the quarter to $134 million.

By segment, online game revenues fell 4% to $130 million. Advertising and other revenue fell 2% over the year to $56 million. Zynga Poker, FarmVille 2, Hit It Rich! Slots and Wizard of Oz Slots were the biggest games with 18%, 17%, 17%, and 15% of online game revenue share, respectively.

It ended the year with revenues growing 10% to $765 million and a loss of a penny per share.

Zynga’s user metrics continue to be a cause for worry. Zynga hit its peak in 2011 when it recorded 56 million Daily Active Users (DAU) and 225 million Monthly Active Users. But the numbers have been on a decline since then. For the quarter, average DAU came in at a mere 18 million of which 15 million were mobile users. MAU numbers weren’t better either. MAU for the quarter was 68 million with 55 million of them being mobile users. The only silver lining has been the improvement in monetization rates. Last quarter, average booking per DAU grew to a record high of $0.11.

For the current quarter, Zynga projected revenues of $150 million-$165 million, significantly short of the Street’s view of $172.3 million. It estimates to end the quarter with a non GAAP loss of $0.01 per share compared with the break even quarter that the market was forecasting.

Zynga’s Turnaround Strategy

Zynga is trying to deliver a turnaround by changing its leadership, yet again. Mark Pincus, founder and CEO, has stepped down from the leadership and was replaced by EA alumnus Frank Gibeau. In his last role at EA, Frank was heading its mobile business and was responsible for delivering successful mobile versions of The Simpsons: Tapped Out and Plants vs. Zombies for EA. He was with EA for over 20 years. Mark will continue to serve as Zynga’s Executive Chairman. This is the second time that Mark has stepped down. He had moved out of the CEO position in 2013 to help Zynga recover lost ground. He was replaced by Microsoft’s former head of Xbox and PC games Donald Mattrick. Last year, Mark regained his title as the CEO, amid much market unrest.

Analysts believe that this time round, Zynga appears to be more serious with its cost control action. It has already put up its prestigious San Francisco headquarters building for sale as part of non-headcount related cost control measures. The company is also counting on new games to help take it out of its troubles. This year Zynga is looking to release 10 games of different genres. The biggest genre change is expected to be in the release of Dawn of Titans which will integrate battle games with the format of a casual mobile friendly game. Much is expected from Dawn of Titans, but the game release has been delayed so far. It is currently in its Beta stage.

Earlier this quarter, Zynga announced the acquisition of Camarillo-based mobile gaming company Zindagi Games. Zindagi Games is the studio responsible for games like Crazy Kitchen, Yummy Gummy, and several PlayStation titles such as Sports Champions and Medieval Moves: Deadmund’s Quest. Zindagi was working on releasing Crazy Cake Swap this year and the title will be released through Zynga post the acquisition. Terms of the deal were not disclosed.

Zynga’s stock is trading at $2.22 with a market capitalization of $2.07 billion. It touched a 52-week high of $3.13 in May 2015 and has recovered from the 52-week low of $1.78 it fell to in February 2016 after its result announcement. It is still a far cry from the $11 list price back in December 2011.

This Unicorn, technically, is still valued at over a billion. But the fundamentals are weak and further decimating. How much longer before this one turns into a Unicorpse?

This segment is a part in the series : From Unicorn to Unicorpse