Zynga Beats Q1 Estimates With Revenues Of $321 Million As Mobile Usage Climbs To 21M Daily

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Zynga’s revenues rose 32 percent to $321 million in the first quarter, beating analysts’ estimates of $316.8 million in revenue and earnings of 5 cents a share excluding stock-based expenses. Overall, Zynga posted a net loss of $85.4 million, mostly because of stock-based expenses. Excluding those expenses of $133.9 million, Zynga would have had earnings per share of 6 cents or $47 million. That would be down 38 percent from the year before, as Facebook’s 30 percent revenue share and infrastructure investment ate into the company’s margins.

The company said revenue growth was driven by the launch of games like Hidden Chronicles and Castleville and its increasing footprint on mobile platforms. Bookings* came in at a record $329 million, up 15 percent over the year before, and up 7 percent compared to the previous quarter — meaning Zynga didn’t see that seasonal decline in revenues that Facebook did. The company also raised its annual guidance to $1.425 billion to $1.5 billion in bookings, up from $1.35 to $1.45 billion, largely because of what OMGPOP will contribute to the company’s bottom line. Shares are down 1 percent in after-hours trading to $9.33.

What’s notable is how Zynga has gotten its user numbers up on a quarterly basis, even though gaming companies usually see seasonal trends that help them during the holiday season.

The $180 million acquisition of New York-based OMGPOP and maker of “Draw Something” helped. Zynga chief executive Mark Pincus said the game helped the company grow its mobile userbase to 21 million daily active users from 12 million in the fourth quarter. This makes Zynga the “largest mobile gaming” network on iOS and Android, according to Pincus.

Monthly unique users, which doesn’t double count consumers who play more than one game, rose slightly to 182 million from 153 million in the fourth quarter. Zynga’s number of daily active users rose to 65 million from 54 million in the holiday season. Monthly active users got a huge tick up to 292 million from 240 million in the fourth quarter.

In one other positive sign, Zynga’s number of monthly unique payers rose 21 percent quarter-over-quarter to 3.5 million. Most of the company’s bookings growth is coming from mobile platforms now, not Facebook. The iOS and Android platforms, along with Zynga’s recent launch of a new gaming destination, will help it decrease its dependence on Facebook. Facebook said yesterday that Zynga accounted for 15 percent of its revenues in the first quarter, including virtual currency purchases and advertising, down from 19 percent the year before.

The downside though is that average bookings per user are down on quarter-over-quarter basis to $0.051 from last quarter’s record high of $0.061. So like Facebook, user growth has compensated for stagnant quarterly growth in revenue per user.

Like for Google and Facebook, mobile usage is a mixed bag in the short-term. It converted more users into paying, but it’s also driving down some key financial metrics for Zynga. The company said the decline in average bookings per user was because mobile bookings per user is actually lower than it is on the web. That’s partially because of the game mix Zynga has with very casual, more advertising-dependent titles like Words With Friends and Draw Something. But the company added that its “Dream” games like Dream Zoo and Dream Heights monetize at similar levels to Zynga’s canvas games. Plus, Words With Friends has had a long lifespan, and continues to post record bookings every quarter even though its three years old.

“We think mobile is in the same place as where we saw the web in terms of business opportunities several years ago,” Pincus said. “We’re focused on getting the product right… and getting to where we can repeatably produce successful games. We’re excited about monetization opportunities on mobile, but with the advertising experience, it’s still very early days.”

One other thing to watch out for is the fact that Zynga’s lock-up period for employees will end about a week from now. That’s when the companies rank-and-file will be able to offload their shares. Zynga executives including chief executive Mark Pincus and chief operating officer John Schappert already liquidated some of their holdings earlier this month in a secondary offering. Pincus sold about $192 million in stock in the offering.

*Just to note: Bookings measure what users pay for upfront and revenues measure how they might consume that virtual currency or those virtual goods over time, especially if they play a game for months or years.

Here’s the release. We’ll be analyzing it as we go so stay tuned for updates:

SAN FRANCISCO, Calif. – April 26, 2012 – Zynga Inc. (NASDAQ: ZNGA), the world’s leading provider of social game services, today announced financial results for the quarter ending March 31, 2012.

  •          Q1 record bookings of $329 million, up 15% year-over-year
  •          Q1 revenue of $321 million, up 32% year-over-year
  •          Q1 adjusted EBITDA of $87 million, down 23% year-over-year driven primarily by increased investment in new game development
  •          Q1 non-GAAP EPS of $0.06 and GAAP EPS of ($0.12) 

Business Highlights

  • Daily active users (DAUs) increased from 62 million in the first quarter of 2011 to 65 million in the first quarter of 2012, up 6% year-over-year.
  • Monthly active users (MAUs) increased from 236 million in the first quarter of 2011 to 292 million in the first quarter of 2012, up 24% year-over-year.
  • Monthly unique users (MUUs) increased from 146 million in the first quarter of 2011 to 182 million in the first quarter of 2012, up 25% year-over-year.
  • Average daily bookings per average DAU (ABPU) increased from $0.051 in the first quarter of 2011 to $0.055 in the first quarter of 2012, up 8% year-over-year.
  • Monthly Unique Payers (MUPs) increased from 2.9 million in the fourth quarter of 2011 to 3.5 million in the first quarter of 2012, up 21% sequentially.
  • Zynga experienced growth in both mobile and web bookings year-over-year and quarter-over-quarter, with the majority of bookings growth coming from mobile.
  • Zynga added six games during the first quarter of 2012, including two titles on web-based platforms: Hidden Chronicles, our first game in the hidden object category, and Zynga Slingo, our first game in the arcade category. Zynga added four titles on mobile platforms: Scramble with FriendsDream PetHouseDream Heights, and Draw Something, which we acquired in March 2012.
  • As of March 31, 2012, Zynga held eight of the top ten games on Facebook, based on DAUs, including CastleVille, launched in the fourth quarter of 2011, and Hidden Chronicles, launched in the first quarter of 2012.
  • In March, we launched the Zynga Platform, which includes Zynga.com (beta release), a new destination for social games, and Zynga Platform Partners, a program that enables third-party developers to publish their games through Zynga.

First Quarter 2012 Financial Summary

  • Bookings: Bookings were $329.2 million for the first quarter of 2012, an increase of 15% compared to the first quarter of 2011 and an increase of 7% compared to the fourth quarter of 2011.
  • Revenue: Revenue was $321.0 million for the first quarter of 2012, an increase of 32% compared to the first quarter of 2011 and an increase of 3% compared to the fourth quarter of 2011. Online game revenue was $292.8 million, an increase of 27% compared to the first quarter of 2011 and an increase of 3% compared to the fourth quarter of 2011. Advertising revenue was $28.2 million, an increase of 117% compared to the first quarter of 2011 and an increase of 3% compared to the fourth quarter of 2011.
  • Adjusted EBITDA: Adjusted EBITDA was $86.8 million for the first quarter of 2012, a decrease of 23% compared to the first quarter of 2011 due primarily to increased investment in developing new games.  Adjusted EBITDA was up 28% from the prior quarter. 
  • Net income (loss): Net loss was $85.4 million for the first quarter of 2012 compared to net income of $16.8 million for the first quarter of 2011. $133.9 million of stock-based expense was included in the net loss for the first quarter of 2012 compared to $14.5 million of stock-based expense included in the first quarter of 2011.
  • Non-GAAP net income:  Non-GAAP net income was $47.0 million for the first quarter of 2012, a decrease of 38% compared to the first quarter of 2011 and an increase of 27% compared to the fourth quarter of 2011.
  • EPS:  Diluted EPS was ($0.12) for the first quarter of 2012 compared to $0.00 for the first quarter of 2011.
  • Non-GAAP EPS:  Non-GAAP EPS was $0.06 for the first quarter of 2012 compared to $0.11 for the first quarter of 2011 and $0.05 for the fourth quarter of 2011.
  • Cash and cash flow: As of March 31, 2012, cash, cash equivalents and marketable securities were $1.5 billion, compared to $995.6 million as of March 31, 2011 and $1.9 billion as of December 31, 2011. Cash flow from operations was $78.8 million for the first quarter of 2012, compared to $103.7 million for the first quarter of 2011.  Free cash flow was $43.8 million for the first quarter of 2012, compared to $53.4 million for the first quarter of 2011.
  • Secondary offering: On April 3, 2012 Zynga completed an underwritten public offering of 49,414,526 shares of its Class A common stock. As part of the offering, all selling stockholders, as well as all officers and directors, agreed to lock-up agreements that extend the transfer restrictions on their shares until at least 90 days following the offering.  The principal purposes of the offering were to facilitate an orderly distribution of shares and to increase the company’s public float. Zynga did not receive any proceeds from the sale of shares in the offering.

2012 Outlook

As of today, we’re updating our outlook for 2012 as follows:

  • Bookings are projected to be in the range of $1.425 billion to $1.5 billion.  We expect that growth will be weighted towards the second half of the year with slower sequential growth in the first half of the year.
  • Adjusted EBITDA is projected to be in the range of $400 million to $450 million.
  • Stock-based expense is projected to be in the range of $420 million to $445 million excluding the impact of equity awards that may be granted in connection with potential future acquisitions.
  • Capital expenditures are projected to be in the range of $390 million to $410 million which includes the purchase of our corporate headquarters building in April 2012.
  • Our effective tax rate for non-GAAP net income is projected to be in the range of 25% to 30%.
  • Non-GAAP weighted-average diluted shares outstanding are projected to be approximately 880 million shares in the fourth quarter of 2012.
  • Full year 2012 non-GAAP EPS is projected to be in the range of $0.23 to $0.29.