It’s time for Zynga’s first quarterly earnings report as a public company!Looks like a solid beat on the top and bottom lines.
We’ll be covering the full conference call below.
Its stock is down about 3 per cent right now.
Sterne Agee’s Arvind Bhatia said traders were expecting something north of $310 million in bookings to sustain its earlier stock level before earnings, even though it beat consensus.
Traders are going to be pretty sceptical of Zynga because the 2012 predicted growth is weighted in the back end too, Bhatia said.
Here’s the full breakdown, versus estimates from J.P. Morgan:
- Q4 Bookings: $306.5 million vs. $290 million estimates, up 26 per cent YOY from $243.5 million in Q4 2010
- 2011 Cash Flow: $389.2 million for FY2011 vs. $326.4 million for FY2010
- Q4 EPS: $0.05 vs. $0.03 estimates
- Q4 EBITDA: $67.8 million, down 34% YOY from $103.2 million in Q4 2010
- 2012 Bookings Outlook: $1.35 billion to $1.45 billion, up from $1.16 billion bookings in 2011
- Daily active users increased from 48 million in Q4 2010 to 54 million in Q4 2011, up 13 per cent
- Monthly active users increased from 195 million in Q4 2010 to 240 million in Q4 2011, up 23 per cent
- 2012 EBITDA Outlook: $390 million to $440 million vs. $465 Million estimates
- Expect growth to be weighted towards the back-half of the year, with slower sequential growth in the first half of the year.
Zynga accounts for 12 per cent of Facebook’s revenue, according to Facebook’s S-1 filing. The stock has also shot up on speculation that Zynga will branch into online gambling.
Expect some comments on both of those during the earnings call, which we’ll be covering live.
Here are the full details for the call:
5:01 PM — It’s starting. Mark Pincus (CEO) and John Schappert (COO) are both on the call. Pincus is speaking first.
5:02 PM — Pincus: The world is starting to embrace “play,” social gaming is becoming the new TV. According to InStat, the global market for virtual goods was $9 billion in 2011 and will grow to $15 billion in 2014. Most of that growth will be in the west, he says.
5:03 PM — Pincus: Advertising revenue tripled YOY in Q4 2011. (It’s at $27 million for Q4 2011.)
5:05 PM — Pincus: Paying users up to 12.2 million in 2011.
5:06 PM — Pincus: Zynga has 15 million daily mobile game users.
5:07 PM — Schappert: Advertising growth came from in-game advertising opportunities and partnerships.
5:08 PM — Schappert is walking through the updates to its existing games. Major updates to FarmVille, Café World and many other games.
5:09 PM — Schappert: By the end of the year, nearly 80 per cent of Zynga’s daily users were hosted in its proprietary server infrastructure called zCloud.
5:10 PM — Schappert: We’re a metrics driven company, and we use data to make just about every decision in our games.
5:11 PM — Schappert: CastleVille came in above expectations, Mafia Wars 2 came in below expectations.
5:13 PM — Schappert touches on Hasbro partnership, but he didn’t offer any significant details. Says “we’re very excited.”
5:22 PM — GAAP Net Income was impacted due to vesting of outstanding restricted stock (that’s the $510 million expense on its balance sheet), CFO Dave Wehner says. Stock expenses will continue into 2012, which will affect GAAP earnings.
5:26 PM — Q&A is now starting.
Bookings growth appeared quite strong, where is the upside coming from? Monthly unique payers seemed very strong, what are you doing in driving that strength?
Dave Wehner: Saw strong bookings growth from CastleVille even though it came late in the quarter. We also saw good bookings performance from mobile which put up a record quarter, with strong performance from CityVille and Poker.
Mark Pincus: At a product and game level especially around new game launches like CastleVille, I think the team has gotten a lot better at driving new buyer conversion with all kinds of packages and offers that are getting players — long time or new — to be first time payers.
Dave Wehner: (interrupting Mark Pincus) Seeing strength on the pair conversion — good growth on mobile payers as well. On the web side we’re getting better with different types of pair conversion packages and great content.
Can you reconcile sequential growth with unique payers and a sequential decline in online game revenues? Can you give us some sense for the differences in monetization of mobile and web users? In terms of ad revenue growth, is that mainly coming from the mobile games side?
Dave Wehner: We’re seeing good growth in both user pay and advertising bookings. It’s not so much a mix issue related to online and mobile. We’re seeing good growth in both online and mobile advertising, we’re doing more online.
Can you talk about the trajectory of CityVille and how that compares to FarmVille. The DAU trends are a little different from a trajectory standpoint, how does that translate to monetization — are you monetizing sooner? You included the mobile payers in your unique payer in this report, can you come up with a number excluding mobile?
John Schappert: I would first say that do not draw the same conclusion when you look at DAUs and say they’re directly related to monetization. When games launch, DAUs go up and they go down over time, and monetization goes up over time. CityVille and FarmVille are doing well, CityVille had a record quarter last quarter and both are top-6 games on Facebook right now. As long as we can continue to deliver great bold beats and expansions, they’re gonna keep playing and paying.
We’re not going to go into that level of detail, but I caution you that every game is different — different geographies, different graphics. From a standpoint from health, CityVille was a top performer last quarter and continues to be a top performer on Facebook.
We’re not breaking out the web and mobile numbers at this time, I don’t have that number.
First, how do you judge a game’s success internally, what are you looking for, when you see the success of Hidden Chronicles and the seeming failure of Mafia Wars 2. And then, how do mobile games monetise on a relative basis versus your core PC games?
John Schappert: Every game is different and we have different goals — some going after monetization or reach. Our data and analytics tell us new things every single day, so when we launch a new game, we are often going after new categories. Hidden Chronicles was going after the hidden objects genre, and its’ the number 2 on Facebook. Mafia Wars 2 was another take in another crime category that didn’t resonant with users.
Mark Pincus: We’re constantly learning and improving the process in which we bring new games to market. We’re continuously adding more early checkpoints to test what we call the very fun rating of our games against our target audiences so by the time we turn on a game, our hope is that it already has a high likely hood of being a hit, but we’re spending the time after turning it on for tuning.
Dave Wehner: The bigger question is whether something is ad-based or pay-based. Words With Friends is an ad model that monetizes at a lower-level then pay-based games. In addition, we’re working to introduce new monetization techniques into With Friends games like we did with Scramble With Friends. Coins and power ups, we’re seeing those games monetise at a higher rate.
BTIG: Mark, can you respond to the views of your management style?
Mark Pincus: I don’t know if I can answer that in one sentence. I think that we had a long quiet period and we, as a company if you look back on our track record, we pride ourselves on being an open and transparent company with our employees and investors. So it was a difficult period for us when only competitors and people who didn’t know us well could talk about us. We’re happy to be past that period and sharing more about our approach.
Whether you read interviews with me, I think my values, Zynga’s values are on the wall here and they’re on the web. If you read those values, that is my management style.
Your Z-platform you talked about last year, how should we think about this platform opportunity for Zynga and I’d love to hear your thoughts into third-party developers.
Dave Wehner: We think about growing the audience size, so that’s a big focus and that’s a big opportunity. There’s a billion social networkers out there, there’s a real opportunity to continue to increase our presence there. We’re very much focused on continuing to grow our unique audience and continue to increase our payer conversion rates.
Mark Pincus: At a high level, we really want to see “play” become a mainstream behaviour in the west for everyone. We think it’s a very popular, large-scale behaviour, but we’d like to see “play” reach the level of search, shop and share. We think the monetization opportunity will follow that. We think the growth in the next two years will be driven more by the world making “play” part of their day than the next brilliant monetization mechanic.
John Schappert: With respect to Project Z, that is a destination site for social gaming, we’re trying to create a place for people to enjoy social games and always have an endless supply of friends. That is in closed beta internally. I don’t have a release date to tell you other than we continue to make good progress and we’ll bring it out when it’s ready — hopefully soon.
I’m not gonna go into depth on third parties, but it’s a goal for everything. We’d like to attract new people who haven’t played social games, and we’d like it to be a place where people who currently enjoy social games can play. If you’re in our closed beta and you have a list of everyone playing games at your disposal, you can play with friends. We want to provide a great experience that is Facebook connected.
You were pretty upbeat on the bookings benefit that you’re getting early on from CastleVille, trying to get a sense that it’s a surprise to you or if it’s following the same monetization path.
Dave Wehner: CastleVille has been an upside surprise in terms of its performance both in terms of DAUs and bookings. We’re very excited about what the team has built there and we think that has got some longevity and will be a good helpful part of the growth story in 2012.
I think there’s a couple factors, we’re excited about the pipeline of games that are launching in 2012. Bookings in DAUs, bookings can pick up after DAUs pick up. You won’t necessarily get the best booking performance in the first quarters of a game. In addition, our advertising businesses are growing much more quickly than our overall businesses and they will contribute more in the back half of the year.
There’s been a lot of press about opportunity in gambling — what’s your view on that market opportunity?
John Schappert: It’s a very interesting opportunity because we are unique positioned. We have the world’s largest social online poker game and we’ve been running it for the last four years. It continues to post record results, I think we’re in a good position and it’s a category that’s interesting to us.
Can you help us understand the key metrics you use internally for performance pay?
Dave Wehner: We use a variety of targets that we’ve outlined in our S-1 for our management team ranging from audience size to financial performance, bookings, EBITDA.
Mark Pincus: I’d say if you look, you can see historically that the vast majority of management compensation is in RSUs and stock. We do as a company have a cash bonus for the whole company, but for everyone in the company the majority is made up of stock compensation.
If you look at the progression of MAUs and DAUs on a new launch and take something like CastleVille, if you talk about the progression among the payers within that, does that group of people churn more often? Second, a lot of publishers have looked at the success of mobile gaming and made acquisitions, is there an opportunity for you to bring core gamers into you?
Dave Wehner: We do retain our paying audience very well, we’re able to continue to engage players over a long period of time. They’ve built equity in that game and we see them staying with us for a longer term than non-payers. Something like 93 per cent of payers in one quarter are paying with us the next quarter. That plays out in the longevity of the games, games we see like FarmVille — 9 quarters after launch delivering record bookings. We hope to see that with a game like CastleVille.
John Schappert: I would say we actually really do welcome folks coming in and making great games in our space. Social gaming and mobile gaming is still very early. We want to have the leading games in every major category in “play” — we’re happy with Hidden Chronicles. We have Zynga Bingo coming out. But don’t hold us back on what we’re doing today.
Each game is different as far as target and monetization. It appears the hidden object genre monetizes pretty well, can you talk about how user engagement with Hidden Chronicles may differ from the Ville games?
John Schappert: Hidden Chronicles is a new game for us, so we are seeing it bring people back who stopped playing our games. We’re seeing some new players come back and we’re seeing fans in the hidden object come to Facebook as well. More casual gamers are entering the mix and are playing our games, and we’re happy about that.
Are there any numbers about OpEx savings we can see from the transition from public hosting to zCloud?
Dave Wehner: It’s assumed in our guidance, we’re gonna see savings in the back half of the year.
Can you comment on some of the changes Facebook is doing to improve promotions and payments in games and if you’re seeing any impact in your games so far? On Mobile, as social mechanics become more important on games, do you see an opportunity on that basis to more quickly launch games on multiple platforms?
Mark Pincus: we are happy to see the kinds of changes Facebook is making to their platform. We think they have been on a path always to be innovating on the broader social experience on sharing. In recent quarters they have focused on and partnered with us and other major partners to innovate, we think you’re starting to see the benefits in terms of increasing user engagement. I point you to in January, if you look at AppData, it looks like the ecosystem grew somewhere in the range of 12 per cent. Some of our game launches were a good part of that.
John Schappert: With respect to mobile, it’s yet another canvas to bring our games there. That’s why you’ve seen our mobile DAUs grow almost 5-fold. We’re really excited about the advent of the pads, with respect to having more games come out and be connected, you’ve seen us do cool things like FarmVille express where you can use your mobile device to tend to your farm. We’re certainly seeing mobile as a big area of opportunity and for our games, we have some good technologies and have more coming.