Zynga Shows Strength

By Brandy Betz - February 17, 2012 | Tickers: AMZN, HAS, ZNGA | 0 Comments

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In its fourth-quarter earnings announced this week, Zynga (NASDAQ: ZNGA) reported that it fell short of some analyst expectations, but the company's recent investments negated the associated dip in shares. There was a 56 cents per share loss reported and earnings fell 44% year over year, but revenue was up nearly 60% to $311.2 million for the quarter. Ninety-one percent of that revenue was due to purchases made within the company's online games while a mere 8.8% came from advertising. Those figures represent a 51.4% and 229% increase, respectively.

The associated conference call, and this week's well-timed announcements, showed that Zynga does have a vision for its future. It's a plan that involves increasing active users, lessening third-party dependence, and furthering the company's brand recognition.

DAUs and MAUs

Zynga traffic is measured in daily active users (DAUs) and monthly active users (MAUs). The company reported a 43% increase of DAUs year-over-year, for a total of 48 million in the fourth quarter. MAUs increased 23% to 240 million. Those numbers don't reveal that the majority of players are returning for older, rather than newer, games.

This table offers a data comparison for the titles Zynga currently considers "Featured Games," using numbers compiled by AppData:

The nearly five-year-old Zynga Poker is nearly matching the users of the two newest titles, CastleVille and Hidden Chronicles. The non-gambling casual titles see a drop of players over time because the gameplay is repetitious and without a defined end goal. Gambling games, like poker, carry an assumption of repetition that doesn’t turn off users in the same way.

Zynga seems to have seen the writing on the wall as two new gambling games were recently announced. Zynga Bingo is now in beta and the company purchased a license for Slingo, an immensely popular hybrid-slot machine game that debuted in 1995, to rebrand it as Zynga Slingo.

Moving Forward

Facebook's IPO announcement revealed that its deal with Zynga accounts for 14% of the social network's revenue, a dependent relationship that Zynga is moving to lessen. The Slingo deal followed the announcement of a Hasbro (NASDAQ: HAS) license that will open the door for games and toys tailored to the games. Hasbro is paying Zynga for the license, hoping to repeat the best-selling success of Mattel's partnership with Rovio, maker of Angry Birds. 

Zynga is also moving away from the need to use the Amazon (NASDAQ: AMZN) cloud storage system to store its data. The company mentioned during its earnings call that it has put into place a ZCloud architecture that has already begun to serve as partial storage. The move will save the money it takes to rent space from Amazon.

Today saw the announcement of plans to turn publisher, much like Electronc Arts. Third-party game developers will be able to host the games on Zynga's platform for a fee and Zynga titles are allowed to be advertised.

Final Word

Zynga appears to have recognized its weaknesses and is attempting to move in a stronger direction. Zacks currently has the stock at a long-term Neutral rating but changed the short-term rating from Hold to Buy following today's announcement. 

Shares were up over 5% late Friday to $12.67, a nearly 27% increase from the IPO price of $10. The 52-week range has been $7.97 to $14.55.

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