Photo: Flickr, CC / incase
Zynga—the company behind Zynga Poker, FarmVille and Words With Friends—has been working hard to sustain its revenues as it enters a period in which the company expects slower sequential growth. So hard, in fact, that it doubled its Q4 2011 promotional budget sequentially from Q3, a period in which revenues grew sequentially only 1 per cent.The company is becoming less efficient, in other words, and not just because of one-off expenditures on R&D.
Zynga did us all a favour in its Q4 2011 earnings release by breaking out its advertising sales from its overall revenue for the first time.
Although most of Zynga’s business comes through sales of game credits, it has an increasingly large advertising business, mostly from companies placing sponsored toys and avatars in its games.
In 2011, Zynga took in $74 million worth of in-game advertising. More than $27 million of that came in Q4. The total take for the year was 226 per cent more than in 2010. (To put that in perspective, Zynga’s total revenue for the year was $1.1 billion.)
However, Zynga’s sales and marketing budget is growing even faster. Zynga advertises constantly for new players (“player acquisition costs,” in official parlance) and also has a traditional above-the-line ad budget. Last year it spent $234 million on sales and marketing.
Its ballooning promotional budget comes at the same time its revenues are level ling off: Sequential quarterly sales growth at the company was just 1 per cent in Q4. Meanwhile, the sales/marketing dollars Zynga spent to get that growth went from 14 per cent of sales to 36 per cent of sales in a single quarter.
That indicates Zynga is finding it harder and harder to sustain its growth.
Zynga doesn’t break down exactly what it spent that money on, but it did give some clues as to how its marketing budget is divided in an earlier disclosure regarding its 2010 numbers. The company spent $114 million that year attracting new customers:
Sales and marketing expenses increased $71.9 million from 2009 to 2010. The increase was primarily attributable to an increase of $44.5 million in player acquisition costs, an increase of $18.7 million in headcount-related costs and an increase of $5.5 million in general marketing expenses related to new marketing and brand programs.
Ad sales at Zynga declined in 2010 by $12.9 million because Zynga reduced the number of in-game offers available in order to improve the game-playing experience.
Zynga massively increased its sales and marketing budget in Q4 2011. It now spends 36 cents to earn $1 in sales, up from 14 cents in Q3 2011.
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