Zynga pins hopes on ad revenue potential and high-end Dawn of Titans strategy game

Zynga beat Wall Street’s estimates for bookings for its fourth quarter, and it also announced 10 games that will launch in 2016. But its stock price fell in after-hours trading, partly because of a weak outlook for the first quarter and falling overall user numbers.

As we noted in our earlier earnings story, the quarterly earnings highlight Zynga’s fundamental challenge of elbowing competitors out of the way in the $34 billion mobile game market, as its audience on Facebook desktop dwindles. The company is showing signs that it’s stabilized its most valuable games, and it is making money from its core users. But the overall number of users is down, and Zynga knows it needs to ship some new big games to offset those declines.

Zynga said that its 10 upcoming games include four social casino slots games, FarmVille and CityVille titles, the action-strategy game Dawn of Titans, and the racing title CSR 2. Dawn of Titans and CSR 2 are hardcore games that come from NaturalMotion, the company that Zynga bought in 2014 for $527 million. Zynga pushed the their launches back as it continues to operate them in test markets.

Mark Pincus, chief executive of San Francisco-based Zynga, said in a conference call with analysts that Dawn of Titans and CSR 2 are monetizing well in test markets and have high quality ratings. But the company has delayed those games to the second half of the year and has only promised that they will come out sometime in 2016. Asked why the company hasn’t launched them yet, Pincus said that engagement is good and sessions per day are going up in the test markets. But the company is working on retaining players for the long term and increasing average payer revenues. The company is trying to add more social features up front, as it saw that it improved the performance of Empires & Allies after it added alliances.

“Dawn of Titans is the highest [potential hit] opportunity of the year and we have chosen to delay it,” he said. “It continues to show high monetization rates and is in 14 [regions] now. CSR 2 will also launch in the second half of the year and it also offers a big opportunity for organic installs given the 130 million installs of the original CSR,” as well as high anticipation and ratings.

Above: Dawn of Titans

Image Credit: Zynga

PIncus said that advertising had a record quarter in the fourth quarter, but he did not break out any numbers. He said there was strong engagement with Words With Friends and that the game’s audience is valuable to advertisers: it’s mainly North American, middle age, and female. He said the Zynga Studio E team is innovating with new kinds of ad units aimed at increasing engagement, but he didn’t have more to say on those results.

Pincus said the company would spend more on user acquisition as it launches its games, but the company would only do that if it saw an obvious return for the bottom line.

“If the games deliver high enough LTV [lifetime value], then we will spend on those as well,” he said. “We will continue to make UA investments when we see a payback.”

Over time, Zynga wants the marketing spend to come down relative to percentage of margin and investments.

The San Francisco maker of social mobile games reported breakeven results, or 0 cents per a share, on bookings of $182 million. Analysts had expected breakeven results on bookings of $177 million. The results show that the company is doing a good job monetizing existing games with its live operations and that it is still getting a good result from its social slots and core mobile games. In the fourth quarter of 2014, Zynga reported almost the exact same results of 0 cents a share on bookings of $182 million.

In after-hours trading, Zynga’s stock price has fallen to $1.98, down 7 percent. Its market value is now $1.99 billion.

The stable performance is a win for Pincus, who returned as chief executive in April when he replaced his hand-picked successor, Don Mattrick. But Zynga is still having challenges growing its number of users, and it still needs to ship some new games.

Zynga said on the call that it paid $15 million up front for its acquisition of game startup Zindagi. Zynga has completed its workforce reduction plan and exited its data centers. The company said it is on track to do that by the end of the third quarter.

Asked if the company was up for sale, Pincus didn’t directly answer. He said the company is focused on its current plan of launching new titles and executing on live operations in existing games.

Above: McLaren car in CSR2.

Image Credit: Zynga