ZNGA

Zynga Inc. (ZNGA)

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Zynga, Inc. (ZNGA)

Q3 2012 Earnings Call

October 24, 2012 5:00 pm ET

Executives

Krista Bessinger – Senior Director-Investor Relations

Mark J. Pincus – Chairman, Chief Executive and Product Officer

David M. Wehner – Chief Financial Officer

Analysts

Atul Bagga – Lazard Capital Markets LLC

Scott W. Devitt – Morgan Stanley & Co. LLC

Neil A. Doshi – Citigroup Global Markets

Mark Alan May – Barclays Capital, Inc.

Colin A. Sebastian – Robert W. Baird & Co.

Douglas Anmuth – JPMorgan Securities LLC

Heath Patrick Terry – Goldman Sachs & Co.

Justin Post – Bank of America/Merrill Lynch

Doug Creutz – Cowen & Co.

Arvind Bhatia – Sterne, Agee & Leach, Inc.

Ben Schachter – Macquarie Capital, Inc.

Nat G. Brogadir – Stifel, Nicolaus & Co., Inc.

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Zynga Third Quarter 2012 Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions) As a reminder, this call may be recorded.

I would now like to introduce your host for today’s conference, Krista Bessinger, Senior Director of Investor Relations. Ma’am you may begin.

Krista Bessinger

Good afternoon, everyone, and welcome to Zynga’s third quarter 2012 earnings conference call. With us are Mark Pincus, Chief Executive Officer and Dave Wehner, Chief Financial Officer.

Before we begin, I would like to remind you that during the course of today’s call, we will make forward-looking statements, which are subject to various risks and uncertainties. These include statements related to, among other things, our outlook for 2012, our cost reduction plans, our proposed share repurchase program, our plans to explore real money gaming, our launch of successful new games, the growth of the social games market including mobile and advertising growth, and our operational plans and strategy. Actual results may differ materially from the results predicted.

Factors that could cause or contribute to such differences include our relationship with Facebook or changes in the Facebook platform or in our agreements with Facebook; our ability to launch new games in a timely manner, our ability to control and reduce expenses, our ability to anticipate and address technical challenges that may arise, the changing interests of players, our ability to enter the real money gaming market, regulatory or licensing issues, litigation, our ability to retain key employees, acquisitions by us, and possible changes in management or corporate strategy.

More information about factors that could affect our results is included under the captions: Risk Factors and Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Quarterly Report on Form 10-Q, filed with the SEC on June 30, 2012. Also in our registration statement on Form S-1, as amended, filed with the SEC on March 23, 2012 and in our Annual Report on Form 10-K for the year ended December 31, 2011.

Also I’d like to remind you that during the course of this call, we’ll discuss certain non-GAAP financial measures. Reconciliations to the most directly comparable GAAP financial measures are provided in the tables in the press release and on our Investor Relations website. These non-GAAP measures are not intended to be considered in isolation or as a substitute for our GAAP results.

This conference call is being webcast on the Internet and is available through Zynga’s Investor Relations website, investor.zynga.com. An audio replay of this call will also be available on our Investor Relations website in a few hours.

And with that, I’ll turn the call over to Mark.

Mark J. Pincus

Thanks, Krista. I want to thank everybody for joining us on our call today. The last several months have obviously been challenging for us. We announced yesterday that we are implementing a series of steps to drive long-term growth and profitability. Zynga remains well positioned to capitalize on social gaming and the overall worldwide movement to free-to-play gaming.

I want to address three topics with you today. First, the performance of our core business on the web; second, how we are driving new growth on mobile; and third, how we are pursuing additional revenue opportunities.

Social gaming has grown to a large scale audience and business on Facebook, which has already grown to 1 billion users, with 235 million of them playing games. Total game bookings are projected to exceed $2 billion this year on Facebook alone.

Despite this, we’ve failed to meet our own growth expectations. This is primarily due to two factors. First, our game execution. For our live games, such as CityVille and CastleVille, we found it more challenging to maintain the historical levels of player engagement, and consequently we experienced faster declines in bookings than we had expected. We didn’t create enough new heat for our players by innovating on content and features, and we weren’t able to bring new games to market fast enough to offset these declines. The second factor contributing to our web performance was faster than expected player adoption of mobile, smartphones and tablets. This increase the competition for our players’ time and attention.

Despite this weakness, we remain confident that we’ll drive growth and profitability in our core web business. We have great games, a powerful network, and we recently announced a cost reduction program. We know that when we launch great games, our players engage.

We just saw this with our third quarter launches of FarmVille 2 and ChefVille. They are now ranked number one and three on Facebook, and played by over 88 million monthly active users. Our teams created two of the games that represent the state of the art, not just in social gaming, not just in free gaming, but in all gaming. In its first month since its launch, FarmVille 2 has already grown to 61 million monthly active players. It’s converted 500,000 unique buyers, and just this Sunday marked its first day exceeding $950,000 in player purchase volume, including the amount retained by Facebook. That was in a single day.

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