Zynga still failing upward as acquisition earn-outs eat profits


zynga-social-slots-game-thronesSocial gaming outfit Zynga reported record revenue in the first quarter of 2020 thanks to pandemic isolation but the company still managed to book a nine-figure net loss.

This week, Zynga reported record revenue of nearly $404m in the three months ending March 31, a 52% gain over the same period last year. But rising costs, including significant earnout payments associated with its numerous acquisitions, resulted in a net loss of nearly $104m, which is actually an improvement over Q1 2019’s $128.8m loss.

Gaming revenue shot up 72% to $344.3m thanks to some new titles and bored players stuck at home because of the COVID-19 pandemic. But advertising revenue dipped nearly 9% to $59.4m as companies reined in their marketing due to the pandemic.

Zynga said its primary gaming growth engines were its Empire & Puzzles, Merge Magic! and Merge Dragons! titles, as well as the new Game of Thrones: Slots Casino. The company said its Social Slots portfolio achieved record revenue and bookings in Q1, with Hit It Rich! Slots given a shoutout for overperforming.

The venerable Zynga Poker product had a ‘great’ but unquantified quarter, as the company no longer breaks out poker’s share of the overall revenue pie, lumping it in with the other ‘Forever Franchises’ like Words with Friends. Social Slots’ share is similarly hard to quantify, as it is now paired with ‘Casual Cards’ titles in the pie charts.

Zynga said it recognized the wind-assist it got from all the people deprived of most other forms of entertainment under pandemic lockdown, and it realizes that the pandemic won’t last forever. But it’s banking on a full slate of new releases, including a licensed Harry Potter game, and it isn’t ruling out further acquisitions, despite the damage the last ones did to Q1’s bottom line.

Zynga expects the current quarter’s revenue to hit $400m, with adjusted earnings of $32m and a net loss of $60m. For 2020 as a whole, revenue is tipped to hit $1.65b, earnings of $210m and a net loss of $245m. Who knew being successful was so costly?