Why King looks better than Zynga in the casual game market

By reporting their earnings today, Zynga and King Digital Entertainment invited a comparison for how they are both doing in the social-mobile game business. And clearly, based on the third quarter results, King looks better as the leader of the casual game market.

Investors place a higher value on King than Zynga. At the close of the market today, King’s stock price was $13.19 a share, well be low its $22 a share IPO price earlier this year. That values King at $4.22 billion. Zynga’s stock price is $2.36 a share, compared to its $10 a share IPO price in 2011. Zynga is valued at $2.11 billion. And while Zynga isn’t buying back its stock now, King said today it would spend $150 million buying back its shares.

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“We see that casual is the No. 1 genre in the game market, and we are No. 1 within casual,” said Riccardo Zacconi, chief executive of King, in an interview with GamesBeat after the earnings call. “We have increased our audience and our share. We want to cement our leadership by revinventing the ways to play our casual games.”

Both companies had good quarterly results, but King is showing that it has a much stronger overall business, even if it is overly dependent on one game: Candy Crush Saga.

King is also bigger than Zynga at the moment in revenues and earnings. It reported non-GAAP gross bookings of $543.9 million, down from $648.2 million a year ago. Zynga had non-GAAP bookings of $175.5 million, up from $152.1 million a year ago. Adjusted profit for King was $177.4 million, down from $229.2 million a year earlier. Zynga’s non-GAAP net loss was $6.7 million. Both King and Zynga expect revenue to growth in the fourth quarter, but Zynga expects another loss.

Zynga still has about 1,929 employees, down slightly from the previous quarter. But King has only 1,100 employees, a number that is up and is expected to grow. That means that King is a lot more efficient in generating revenue per employee. This quarter, Zynga generated $90,979 per employee, while King generated $494,454 per employee.

King had 495 million monthly active players in the quarter, compared to 112 million for Zynga. The picture is pretty different from a couple of years ago.

The change shows the benefits of King’s dominance in casual games with Candy Crush Saga, which has generated more than $2 billion over the last couple of years and is currently No. 2 behind Supercell’s Clash of Clans in the top-grossing list of mobile apps. Zynga once had an enviable position with FarmVille, which peaked in 2011 at 83 million monthly active users. Candy Crush Saga generated $264 million in gross bookings for King, amounting to 51 percent of revenues.

But King is also making progress on diversification, as it now has four titles in the top 20 games on iOS, and it is launching more non-Candy titles. It recently launched Candy Crush Soda Saga to reverse the decline in the Candy Crush Saga audience, and it is also making some non-Saga games for 2015, Zacconi said. In the most recent quarter, King had 49 percent of its revenue come from non-Candy games, compared to 41 percent in the previous quarter.

King’s advantage is that it can promote its new games to Candy Crush Saga users for no extra marketing costs. On top of that, King is taking its profits and pouring some of it into additional marketing, including TV and offline ads. King is also still thriving on the desktop version of Facebook, while Zynga has been heavily focused on moving to mobile.

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The question for both companies is what strategy should they pursue to grow. Zynga has been busy working on reboots of its mobile games, but it has had some hiccups with Zynga Poker, and it was slow to launch the final version of Words With Friends on mobile. The company has launched a new NFL sports game, but it hasn’t gotten traction yet. Zynga has a Looney Tunes endless runner in the works, and its Natural Motion division is working on hardcore games for mobile and tablets.

Zynga chief executive Don Mattrick said in an analyst conference call that the company is optimistic about its new ventures, including the Natural Motion projects. That’s why you shouldn’t count Zynga out yet.

“We are seeing bright spots across the company,” Mattrick said.

King, meanwhile, sees more opportunity in casual. While casual games account for most of the top hits in the mobile download charts, they are not dominating the top-grossing ranks. If companies figure out how to get that right, the casual share of revenue should grow. Zacconi said that was an opportunity.

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