Zynga raises full-year guidance despite wider losses in H1

Social games developer Zynga has increased its full year revenue guidance for its 2020 financial year, despite reporting an increased net loss for the first half of the year.

Overall revenue for the six months through to 30 June amounted to $855.5m (£650.0m/€720.0m), an year-on-year increase of 49.6%, while bookings were also up 28.1% from $735.9m to $943.0m.

Online gaming was again the primary source of income for Zynga, with this area of the business generating $732.5m in revenue in the first half, 66.1% more than in 2019.

However, despite this growth, Zynga noted a decline in advertising and other revenue, which fell 6.2% to $122.9m. Zynga said this was partially down to lower advertising yields due to reduced demand in the current environment – caused by the novel coronavirus (Covid-19) pandemic, but this as partially offset by strong player engagement.

In terms of spending, total costs and expenses during the first half amounted to $1.08bn, an increase of 38.9% on last year, as spending rose across the board.

Cost of revenue hiked 30.1% to $325.4m, while research and development spend jumped 61.3% to $425.8m, and sales and marketing expenses 19.6% to $257.8m. Zynga also reported an increase in general and administrative costs, which were up 45.0% year-on-year to $67.7m.

As spending totalled more than revenue for the fist half, this meant Zynga posted an operating loss of $221.0m, above the prior year's $202.9m loss.

After taking into account other expenses, loss before tax amounted to $227.5m, compared to $197.7m in 2019. Zynga paid $26.7m in taxes during the first half, which in turn meant it ended the period with a net loss of $254.2m, compared to $184.7m last year.

However, when analysing the results, Zynga focused primarily on the increase in revenue, saying the shutdown of land-based venues around the world due to the Covid-19 pandemic pushed more players online.

“We are living in unprecedented times and more people than ever before are turning to games for entertainment and a sense of community,” Zynga said. “With so many of us staying at home, we saw heightened levels of player engagement, social connection and monetisation in our portfolio.”

This impact was most felt in the second quarter, during which the pandemic was at its peak in many countries around the world.

For the three months to 30 June, Zynga reported $451.7m in revenue, a rise of 47.4% on last year and setting a record quarterly revenue total, while bookings were also up to new quarterly record of $518.0m.

Looking more closely at product performance, Zynga saw widespread success in Q2. The developer said its CSR2 and Merge Magic! products had strong quarters, while Empire & Puzzles outperformed, seeing record revenue and bookings.

There was also record revenue for Merge Dragons!, Words With Friends and its Zynga Poker products, while the developer said its social slots portfolio achieved all-time record revenue and bookings, driven by strong features and updates on all titles.

However, with spending increasing 17.3% year-on-year to $581.0m, this meant the story of the second quarter was similar to that of the first half, with Zynga reporting an operating loss of $129.3m.

Loss before tax totalled $132.1m, and after paying $18.2m in income tax, this meant Zynga ended the three-month period with a net loss of $150.3m, which was greater than the $103.9m loss posted at the same point last year.

Chief executive Frank Gibeau (pictured) remained upbeat, highlighting Zynga’s recent acquisition deals, including mobile gaming business Peak in July and a new agreement to acquire Turkish outfit Rollic.

“We delivered tremendous results in Q2, achieving our highest quarterly revenue and bookings and generating Zynga’s best quarterly operating cash flow in more than eight years,” he said.

“We executed our transformational acquisition of Peak and are now entering Q3 with eight forever franchises, adding significant scale to our live services foundation.”

As such, Zynga has increased certain guidance for the full year, with revenue now expected to amount to around $1.80bn, which is $110.0m more than previously stated. Bookings guidance has also been increased by $360.0m to $2.20bn for the full year.

In addition, Zynga published its forecasts for the third quarter, during which it said revenue is set to increase 29.0% year-on-year to $445.0m, while bookings are also expected to jump 57.0% to around $620.0m.

However, Zynga also said it expects to post further losses, with net loss set to amount to $160.0m for the three-month period, compared to net income of $230.0m last year. Zynga noted that the Q3 2019 result included a one-time gain of $314.0m related to the sale of its headquarters in San Francisco, California.

“We remain incredibly excited by the growth and innovation ahead for interactive entertainment as more people around the world come together to connect and socialize through gaming experiences,” Zynga said.

“As the industry continues to expand and evolve, Zynga is uniquely well positioned as a leading mobile-first, free-to-play, live services game company on the largest and fastest-growing gaming platform.

“We remain confident in the execution of our multi-year growth strategy and our potential to drive top-line growth and margin expansion over the coming years.”