After years of struggle, shares of Zynga (NASDAQ:ZNGA) are showing signs of life on improving results from its mobile games. When the company reports second-quarter results on Aug. 2, investors will want to listen for progress on new mobile games, mobile booking numbers, and progress on cost savings.
Connecting people via video games
In early 2016, Zynga brought in a new CEO, Frank Gibeau, to help the company refocus on the social gaming experience. Zynga got its start developing desktop games for use on social networks such as Facebook, but since its beginnings, the world has shifted to mobile.
The company needed to get its still popular legacy games, such as Words With Friends and Zynga Poker, optimized for mobile devices while simultaneously developing new mobile games. Gibeau was picked for his work at Electronic Arts‘ mobile division, where he managed popular titles such as Plants vs. Zombies and Bejeweled.
That transition has been successful, as 83% of Zynga’s revenue came from mobile operations during the last quarter. The next item of work involves promoting live services, events, and challenges that players can participate in with each other in a live, virtual setting. Last quarter, Zynga highlighted its success in driving live services with Zynga Poker, which grew mobile revenue and mobile players by 63% and 78% year over year, respectively.
This will also be the first full quarter since Zynga acquired Solitaire mobile game applications from Harpan LLC back in March for $42.5 million. Look for details on that, as well as talk about other success stories with mobile games and live events.
An indicator on revenue trajectory
An important metric for Zynga is the total bookings number. “Bookings” combines revenue with deferred revenue, which the company makes from online purchases of gaming content, such as extra lives a player has purchased but hasn’t used yet. The metric provides some insight on the direction revenue could head in subsequent quarters.
In the first quarter of the year, total revenue was up 4% and total bookings increased 14% year over year. Mobile bookings provided the boost, increasing 27% year over year as more Zynga players transition to a handheld device format versus a desktop computer.
That would indicate that revenue could pick up pace, and investors should look for further strength in that area. Management said to expect $205 million in bookings during the second quarter, compared with $175 million a year ago.
The Zynga bottom line
Zynga has been a money loser for a number of years, and another order of business is to cut costs, or “doing more with less.” In the first quarter, operating expenses dropped to 71% of revenue, compared with 84% in 2016. While the bottom line is still negative, cash flow — money left over after basic expenses are paid — is positive again.
Management’s expectations for the second quarter were a net loss of $6 million, more than the $4.4 million loss during last year’s second quarter. However, it was noted that last year a one-time credit of $14.4 million was realized. Factoring that back in, Zynga stands to further narrow its losses as it reaps the rewards from higher revenue.
If the rebound continues, the company could find itself in a much better position to invest in new gaming content and advertising — critical puzzle pieces for an entertainment producer.
Nicholas Rossolillo owns shares of Facebook. The Motley Fool owns shares of and recommends Facebook. The Motley Fool recommends Electronic Arts. The Motley Fool has a disclosure policy.