Zynga Inc (ZNGA)

[Trevor11]

ZNGA: NOT GIVING A SPECIFIC 2016,(DAWN,OF,TITANS),DATE,FOR,COMPETITIVE,REASONS(Transcript)












Dave Lee, JPMorgan - Analyst 20

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Great and then as a follow-up, could you tell us when during holiday season we could expect to see Dawn of Titans? Will it be closer to the end of the quarter or maybe closer to the mid?
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Frank Gibeau, Zynga, Inc. - CEO 21
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...In terms of your question about when it is specifically going to drop.
I'm not going to give you a specific date for competitive reasons, we don't want to reveal too much there. It is a very competitively intense category, however we will say that it is going to have a positive impact on the quarter...











Edited Transcript of ZNGA earnings conference call or presentation 2-Nov-16 9:00pm GMT
Thomson Reuters StreetEvents•November 2, 2016
Q3 2016 Zynga Inc Earnings Call

San Francisco Nov 3, 2016 (Thomson StreetEvents) -- Edited Transcript of Zynga Inc earnings conference call or presentation Wednesday, November 2, 2016 at 9:00:00pm GMT
TEXT version of Transcript
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Corporate Participants
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* Rebecca Lau
Zynga, Inc. - Manager of IR and Corporate Finance
* Frank Gibeau
Zynga, Inc. - CEO
* Ger Griffin
Zynga, Inc. - CFO
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Conference Call Participants
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* Tim O'Shea
Jefferies & Co. - Analyst
* Eric Sheridan
UBS - Analyst
* Mike Olson
Piper Jaffray - Analyst
* Heath Terry
Goldman Sachs - Analyst
* Dave Lee
JPMorgan - Analyst
* Chris Merwin
Barclays Capital - Analyst
* John Lanterman
Morgan Stanley - Analyst
* Doug Creutz
Cowen and Company - Analyst
* Jason Mitchel
Bank of America - Analyst
* Mike Hickey
The Benchmark Company - Analyst
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Presentation
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Operator [1]
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Good day, ladies and gentlemen, and what thank you for your patience. You joined the Zynga third-quarter 2016 results conference call.
(Operator Instructions)
As a reminder, this conference may be recorded. I would now like to turn call over to your host, Rebecca Lau, with the Investor Relations. Ma'am, you may begin.
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Rebecca Lau, Zynga, Inc. - Manager of IR and Corporate Finance [2]
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Thank you and welcome to Zynga's third-quarter earnings call. As you've seen, we published our press release, earnings letter and earnings slides on our investor relations website. On the call with me today are Frank Gibeau, our Chief Executive Officer and Ger Griffin, our Chief Financial Officer.
Shortly we will open it up for live questions. During the course of today's call we will make forward-looking statements related to our business plan and strategy, as well as expectations for our future performance, including our guidance for Q4 and our plans for our game slate and operations. Actual results may differ materially from the results predicted.
Factors that could cause or contribute to such differences are detailed in our press release, earnings letter, investor presentation and under the caption Risk Factors in our Form 10-Q and 10-K as well as elsewhere in our SEC filings. We will also discuss non-GAAP financial measures. As we discussed in our call on October 27, beginning with Q3 earnings we will no longer exclude GAAP revenue deferrals in our calculation adjusted EBITDA.
In addition, we will provide adjusted EBITDA under the previously reported methodology one last time in order is provide transparency with regard to how we did against Q3 guidance. Our press release, earnings letter, investor presentation and, when filed, our 10-Q will include reconciliations of our GAAP and non-GAAP financial measures. Please be sure to look at these reconciliations as the non-GAAP measures are not intended to be a substitute for our GAAP results.
This conference call is being webcasted and will be available for audio replay on our Investor Relations website in a few hours. Now I'll turn the call over to Frank for his opening remarks.
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Frank Gibeau, Zynga, Inc. - CEO [3]
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Good afternoon and thank you for joining us for Zynga's Q3 earnings call. Earlier today we released our quarterly earnings letter which details our progress and performance over the last quarter. Our teams executed well in Q3 and we are gaining momentum in our turnaround.
We beat our guidance on bookings and adjusted EBITDA for the third consecutive quarter and our mobile audience grew by 7%. We saw improved execution in three key areas. First, delivering new, high-quality mobile games, second, growing our existing live mobile franchises and third, unlocking more operating leverage.
In terms of our new products, we are proud of the NaturalMotion studio for delivering a high-quality game to Racing fans with CSR2. The game has had a strong start achieving the number eight top grossing game in the iOS App Store during it's launch period. CSR2 has received more than 1 million five-star reviews to date it and is currently the number one grossing racing game in over 50 countries. Our focus now is to drive growth in live operations through new content, features, and live events to increase long-term retention and improved repeat payer monetization.

As we entered Q4, we are excited to launch Dawn of Titans this holiday season. This title will complete our committed 10 game slate for 2016. NaturalMotion is known for pushing the creative and technical boundaries of what's possible on mobile devices. We continue to iterate the game as we conclude soft launch testing prior to the worldwide launch.
Turning to our live operations, we are pleased to see the focus in our existing live mobile franchises pay off. Words with Friends grew mobile bookings 33% year-over-year. Social Slots grew 26% year-over-year and Zynga Poker was up 16%.
A key factor in delivering this performance has been our commitment to driving organic growth through social innovation in these live franchises. Last month we became one of the first gaming companies to launch on Apple's iMessage App Store with Words with Friends. While it is early days, we created a dynamic new channel for Zynga to acquire and engage players.
As a team we are focused on sharpening our operating model and driving profitability. We've upgraded our user acquisition teams and raised the bar on our paid acquisition ROI as we shifted towards a higher quality booking strategy. This has already started to pay dividends with an improved margin performance in Q3 despite an increase in marketing spend against our new releases.

Finally[color=green] I'm excited to welcome Ger Griffin and as our Chief Financial Officer of Zynga. Ger is going to drive and increased focus on profitability and unlock more operating leverage across the Company. He will also be spending time with our shareholder and analyst community.
With that I would like to turn call over to Ger.
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Ger Griffin, Zynga, Inc. - CFO [4]
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Thanks, Frank. Firstly, I want to take a moment to express my enthusiasm for Zynga. Zynga has an incredible opportunity in front of it.
Our social gaming vision plays very well in and increasingly mobile world. We have talented developers and a strong portfolio of brands. We have a robust balance sheet and we have the Management Team in place to unlock this potential.

We are also a company in turnaround and to date we are showing progress in the number of key areas: delivering new high quality mobile games, growing our existing live services and unlocking operating leverage and improving the Company's profitability. Before I get into the results,[/color] I want to remind you that we hosted a call last week to outline changes to external non-GAAP reporting in response to the SEC staff's updated interpretation on non-GAAP performance measures.
I encourage you to review these materials if you have not done so already. Now to our results. Our Q3 GAAP revenues were above our expected range at $182.4 million.
Our GAAP net loss was $41.7 million, below the low-end of our guidance. The higher than expected net loss was due to the net write-off of acquisition-related intangible assets. The change in deferred revenue was $14.3 million, above the expected level of $10 million.
Our bookings were at the high end of our guidance range at $196.7 million, up 12% year-on-year, and 13% sequentially. Our adjusted EBITDA under the new methodology, which includes the change in deferred revenue was $3.6 million. Our adjusted EBITDA as previously defined, which excludes the change in deferred revenue, was $17.9 million, above the high-end of our guidance, up 44% year-on-year and 54% sequentially.
As noted earlier, our bookings and adjusted EBITDA beat was driven by stronger than expected performance from CSR2 and our advertising bookings. Finally, we generated operating cash flow of $21 million in Q3 and ended the quarter with a $871 million in cash, cash equivalents and marketable securities, up $2.4 million from the prior quarter. Turning to our guidance.
Our outlook for Q4 is as follows, GAAP revenue in the range of $180 million to $190 million. GAAP net-loss in the range of $27 million to $25 million, GAAP earnings per share loss of $0.3 on 889 million shares. The net increase in deferred revenue, $5 million. Bookings in the range of $185 million to $195 million, adjusted EBITDA, new methodology, between $12 million and $14 million.
There are several key puts and takes to think about when looking at our Q4 guidance relative to our Q3 performance. Our bookings will benefit sequentially from a full quarter of FarmVille Tropic Escape and we expect Dawn of Titans be a positive contributor to Q4 but to minimal impact due to its holiday release. We also believe our advertising bookings will grow sequentially but expect to be slightly down year-on-year.
This sequential growth is driven by seasonal strength in our mobile advertising, in particular Words with Friends. On the year-over-year basis, growth in mobile advertising will be more than offset by declines in our web advertising. In the near-term, we expect bookings from CSR2 to be lower than launch highs as the team strengthens the content pipeline and player engagement.
We also expect continued bookings and audience declines in our web and older games. We expect our non-GAAP operating expenses to be down from the $126.5 million we reported in Q3 driven by lower marketing spend and the continued focus on operational efficiency.
As previously stated, our long-term objective is to deliver operating margins that are more in line with our peers. As we look for opportunities to create shareholder value we continue to assess our capital allocation strategy. As an initial step we are today announcing a two-year $200 million share repurchase program.
The program will give us the flexibility to execute share repurchases in a measured fashion, taking into consideration equity dilution, market conditions, share price and other factors. In closing, we are very pleased with a very strong Q3 performance and look for it to maintaining this momentum into Q4. With that, I'd like to turn back to it back to the operator to get started with questions.
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Questions and Answers
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Operator [1]
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(Operator Instructions)
[color=green]Brian Fitzgerald, Jefferies.
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Tim O'Shea, Jefferies & Co. - Analyst [2]
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Yes. Hi, it is Tim O'Shea on for Brian. Thank you for taking my question. Advertising continues to look like a bright spot for you and by our math, you are earning around $2.68 per daily active user in ad revenue and that compares to around $7.46 in online game revenue per daily user,[/color] and that gap has been narrowing over time.
My question is, how do you think about that ad business over time and is there a point where advertising could approach or even overtake online game revenue in the future? Thanks.
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Frank Gibeau, Zynga, Inc. - CEO [3]
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Thanks for your question, Tim. We are very comfortable with the current 75% in-app purchase, 25% advertising mix. We think that, that's the right mix for our business overall. We have a lot of brands that are in live ops right now that we think can benefit from more premium services and more premium content.
We like the 75/25 split in advertising but over time if IEP goes the way we think it will, it is possible that the percentage of the business against advertising will decline as we see more growth there. I think when you look at advertising overall, we are expected to grow but at maybe a slower rate year-over-year as we manage through the web declines in audience.
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Tim O'Shea, Jefferies & Co. - Analyst [4]
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Great, thank you.
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Operator [5]
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Eric Sheridan, UBS.
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Eric Sheridan, UBS - Analyst [6]
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Thanks for taking the questions. Focusing on the mobile part of the business, as we move through this year the percentage of the business that's coming from mobile continues to surprise to the upside, good growth on the mobile side.
How should we think about where mobile, on both the engagement side and the revenue side, can go as we move out of 2016 and into 2017 and what that means for the economics, broadly, or the platform, as you move out of this year and into next year? Thanks, guys.
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Frank Gibeau, Zynga, Inc. - CEO [7]
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I cannot really give you too much color on the forward look other than what we've said on guidance. But in general if you look at our performance over the last couple quarters, yes, the mobile performance has been strong in terms of audience, in terms of engagement. As we get more predictable in our release cadence, that's also proven to be very beneficial to how our mobile business comes together.
MUU and MUP are both headed in the right direction. Player conversions heading in the right direction. We like how CSR has started and how it reached its audience. We'd still honestly like to see better performance and long-term engagement across our portfolio and we are really looking at how we are building our studio to get into position to be able to deliver better performance over a long-term engagement standpoint, elder game features.
We really like the early results on player-versus-player and how we see the cooperation and competition components of games come together. So overall we think that we have room to grow in mobile. The challenge is we still working through some legacy mobile games like Looney Tunes products, like Empires & Allies, as we transition to more of the new wave of products that we're looking at.
There's some puts and takes in terms of how you think about it moving forward. So there could be a little bit of fluctuation as you think about the overall business, but in general the changes we are making to our studios to get -- to improve quality, to drive long-term engagement, to increase predictability, should all be very beneficial.
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Eric Sheridan, UBS - Analyst [8]
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Thank you.
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Operator [9]
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Mike Olson, Piper Jaffray.
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Mike Olson, Piper Jaffray - Analyst [10]
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Good afternoon. Wondering for Dawn of Titans, can you talk about your plans for marketing the title and getting players engaged when the game is launched? Is your strategy there going to be any different from what you've done with prior titles? Thanks.
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Frank Gibeau, Zynga, Inc. - CEO 11
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Thanks, Mike. The Dawn of Titans launch is shaping to be a pretty interesting one. We have a game that is really pushing the envelope technically and creatively on the device. We think it is going have a lot of talk factor, in terms of show-off when you look at the game on a phone or on a tablet. It just is -- there's nothing else out there that looks like it.
And so I think that, that will drive a lot of organic interest in the game. In addition to that, we believe that it's got a lot of anticipation with our channel partners and others so we are hopeful that we are going to get good placement with the game at holiday. We did try some new things on CSR2 in terms of trying out some of the new user acquisition teams that we put in place so we will balance that initial launch, organic positioning with some really sharp paid acquisition behind it.
So we think that we have a really good window. We like the fact that there's going to be a lot of new devices opened up on Christmas and that we're going to have a game that is going to show off the capabilities of those devices in amazing new ways. So we are very excited about the reception. In the weeks we have left before launch, we are continuing to polish and optimize the game against the user feedback that we've been getting.
We've opened up a few new soft launch markets to increase our coverage and get a sense of how some of the changes to user interface, long-term engagement, PDP is going and we are very encouraged by it.
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Mike Olson, Piper Jaffray - Analyst [12]
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Great, thank you.
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Operator [13]
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Heath Terry, Goldman Sachs.
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Heath Terry, Goldman Sachs - Analyst [14]
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Great, thanks. Understand there is a difference in the target audience, but any early learnings from CSR2's last engagement after the launch window that going to inform your strategy -- launch strategy for Dawn of Titans? And then with the major update that you had to Dawn of Titans in the beta back in July, curious how that impacted monetization?
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Frank Gibeau, Zynga, Inc. - CEO [15]
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Sure, quick question on the CSR Dawn of Titans part. I think there -- we learn from every new launch and Dawn of Titans and CSR, while they are not exactly the same genre, they are mid-core games and they come from the same developers. So we are constantly refining our models and our expectations for how Dawn of Titans release versus what we learned on CSR2. Having said that, Action Strategy games typically have a different curve shape in terms of how they come out relative to Racing games.
So it is too early to really be definitive about it, but we expect that they'll -- Dawn of Titans will probably have a different shape to the curve in terms of how the comes out, relative to CSR2. But as we look at conversion and how people move through [V2Es], we are constantly using that learning to optimize Dawn of Titans.
With regards to the July update on Dawn of Titans, we did see positive impacts on monetization as well as in engagement, but we also have made changes since then as well that continues to refine our view and our KPIs on some of those key metrics. And it is a very dense game, it's got a lot of content, it's got a lot of features, it is technically advanced so we are consul in learning from the game and we still have on or two more updates to go before release.
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Heath Terry, Goldman Sachs - Analyst [16]
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Great. Thanks, guys.
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Operator [17]
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Douglas Anmuth, JPMorgan.
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Dave Lee, JPMorgan - Analyst [18]
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Hi, this is Dave Lee on for Doug Anmuth. Thank you for taking me question. The first one on ARPU and payer conversion.
In 3Q I saw a nice jump there and I assume CSR2 was a big driver for that but could you give us some color on recent trends, in those key metrics and your expectation going forward as you invest in CSR2 and launch Dawn of Titans? And I have a follow-up.
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Frank Gibeau, Zynga, Inc. - CEO [19]
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Sure, you are right, the jump in player conversion was driven by the CSR2 launch. It's a game that does a very good job on creating value for players that they want to engage with so we are pleased with that. We have seen that the player conversion has been steady with that game.
What we are concentrating on right now is giving players more content, more events, more ways to compete on a PDP level for the game so we are just getting started with CSR2. We'd like to be in this business for years and we have a long-term orientation on how we are going to conduct live ops there.
In terms of player conversion on Dawn of Titans, we see a range of percentages there depending on the soft launch territory we are in and on which build that we are on. So there's not a lot of color I can add to that particular part, other than it's something that we are constantly looking at.
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Dave Lee, JPMorgan - Analyst [20]
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Great and then as a follow-up, could you tell us when during holiday season we could expect to see Dawn of Titans? Will it be closer to the end of the quarter or maybe closer to the mid?
And then on the title itself, I like the quality of the CSR2 but also recognize that quality converts to bigger app size and the I understand that game is probably [triple the size of] CSR2 is different but can you give us some color on your expectation for audience overlap between the two titles? And if there are any potential for cannibalization, given that there's limited storage on mobile devices?
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Frank Gibeau, Zynga, Inc. - CEO [21]
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We don't foresee a great deal of cannibalization between the two titles. For high-end games on devices that are console-level graphics on a phone, we think that there's networking cross promotion opportunities but we don't see them as cannibalistic. In terms of your question about when it is specifically going to drop.
I'm not going to give you a specific date for competitive reasons, we don't want to reveal too much there. It is a very competitively intense category, however we will say that it is going to have a positive impact on the quarter but you believe it is a minimal contribution. We really want to think about Dawn of Titans on a more long-term basis beyond just the Q4 timeframe., And I'm afraid I did not quite remember the middle question.
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Dave Lee, JPMorgan - Analyst [22]
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I think you covered everything I asked.
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Frank Gibeau, Zynga, Inc. - CEO [23]
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Okay, great.
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Operator [24]
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Chris Merwin, Barclays.
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Chris Merwin, Barclays Capital - Analyst [25]
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Thank you. So, Frank, I think in your prepared remarks you talked about shifting to a higher quality booking strategy so was wondering if you could talk little bit more about what that entails? Are you trying to target higher-quality users with better long-term engagement and if that's the case how do you go about doing that?
And then just a second question for Ger now that you've joined, what are some of the key areas that stick out to you as opportunities for cost reductions and how else do you think about driving operating leverage in the business? Thanks.
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Frank Gibeau, Zynga, Inc. - CEO [26]
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Chris, what I mean by higher-quality bookings are bookings that are more sustainable and profitable than what Zynga has traditionally gone after. There unfortunately was a lack of, I believe, discipline and, frankly, science and math behind how we were opening new channels, how we were looking at new customers. We also raised the level of expectation on ROIs.
They were little lower than I was comfortable with. And so as we pursue this early stages of the transition, we are really try to generate a lot more profitability inside the business and part of that means that we have to raise the level of our game, in terms of not only paid acquisition but also put more emphasis on organic.
But some of the tactical things that we've done on the UA front, is we brought in a new team, we have a new head of UA, we have a new CMO. We've change the standards at which we will spend and invest in acquiring customers. We've opened up some new channels. We closed out some less productive ones.
The team has also started to build some new algorithms and new ways to look at it. So overall, we are just increasing the effectiveness of the capability. Increasing the effectiveness of the leadership and I think that reflects a little bit in that, in the quarter we increased marketing spend because we have new-launch heavy quarter but we also saw an improvement of margin on the bottom.
So we actually saw the yield. Now, it's very early days but we'd like to continue to see that progress on KPIs across the board. We are very bullish on being able to get more with less in our marketing function going forward because of these increases in leadership and capability. Ger?
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Ger Griffin, Zynga, Inc. - CFO 27
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From my perspective, as I said in the prepared remarks, I'm really excited with what I see in front of me. There's some amazing people here, some really talented people, just building on what Frank said in terms of UA. I think for me, driving a higher level of marketing effectiveness and having the data and analytics to prove that out is vitally important and I've been really impressed with the UA teams here at Zynga.
Going more broadly to your question of how are we are going to look to unlock that operating leverage and get a little bit more fine tuned in terms of the fiscal side. My challenge has been to my team and to the rest of the Management team is to -- nothing is sacred. We need to take a hard look at everything we do, do more with less sounds obvious but it is definitely a matter we have internally within the Company.
Take a look at each discretionary spend and make sure that if it is necessary is it at the right level and if there's anything that's either redundant or duplicative, and myself and the Chief Operating Officer, Matt Bromberg, have been going through every line. If it is not necessary, kill it.
And -- I guess my mom used to say to me, it is common a lot of what we're doing but we are really putting a fine focus on making sure that for every dollar we make on the top that we are not leaking any money to the bottom. And it's going to take time. We are in a turnaround. But that's basically my insight after six weeks.
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Chris Merwin, Barclays Capital - Analyst [28]
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All right, thank you.
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Operator [29]
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Brian Nowak, Morgan Stanley.
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John Lanterman, Morgan Stanley - Analyst [30]
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Hi, this is John Lanterman on for Brian. Quick question that piggybacks on Chris' question on the cost reductions. You guys talked earlier about getting your margins closer to competitors. Just on how you get there, is this a combination of headcount reductions or if you look at the OpEx line items you guys talked about marketing increasing the ROI on is there additional efficiencies you can get in R&D and Product and Development or it is a lot of this also coming through incremental revenues and high incremental margins? Thanks.
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Frank Gibeau, Zynga, Inc. - CEO [31]
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Yes, I will start and Ger can add color. My perspective is that we can get some distance towards our peers' margins through just a sharper operating model of an improved cost structure and continuing to be focused on execution. Hitting dates. There's nothing that drives costs higher than missing dates on products. So from our perspective that focus would get us some ways towards our goal.
It will also require us to continue to put out some breakout hits like CSR2. And that is something that our Management Team has some experience with and we are excited in the studios to push the envelope on what's possible in our games. So a combination of those two things, we believe will get us into that conversation and stay but as you look at G&A, as you look at R&D, as you look at our marketing and sales, I would have to say we have made most of our early progress in the marketing and sales line item.
But as you look at R&D and as you look at G&A, we believe that there are opportunities through redeployment, remixing, not doing things that we don't need to do anymore to really start to get us into a position where we have a much more efficient organization, much more sharp operating model so that when we do generate the top line revenue and we're starting to grow our audiences it is not watered down as it moves through the P&L. And so from our perspective, I'm seven months in and Ger is six week in, we think we have made good progress so far but we've got a lot more to do.
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Ger Griffin, Zynga, Inc. - CFO 32
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Yes, just reinforcing what Frank said. Both of us have been through this before in previous lives, me more recently, seven weeks ago. I think that the simple point is, you really need to take a look at everything you do on a day-to-day basis and we will be looking at every line item in the P&L.
And not just the P&L, but just operationally how we work, getting stronger in terms of cadence, in terms of beats and looking at our revenue, our player data and essentially looking to drive efficiency, both from a process perspective and also from and investment and spend perspective. The one thing I would say is what I've seen is there's nothing unusual here.
It truly is going to be a case of focusing our rigor and building a stronger framework around how we operate and making sure that we do drive that. Once we produce these great games and we drive that player engagement of monetization that we are bringing it through to the bottom line.
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John Lanterman, Morgan Stanley - Analyst [33]
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Thanks and then if I have a follow-up just on early slate for 2017. I know it is early but you guys had a goal for 10 games this year with -- early on, do think that's about the right number or are you going to narrow that down and try to go for bigger games with fewer titles? Thanks.
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Frank Gibeau, Zynga, Inc. - CEO [34]
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This is Frank. I will reserve our remarks for what 2017 is going to look like for Q4 earnings call. So we will get more detailed with you guys at that time, in terms of how many games and which ones. But I can tell you that our bias is towards quality over quantity. We look -- when I came into the role and we looked at the 10 games this year, we felt like that was the right number for this year.
But as we go into the next year and we start to see the rewards that we are getting from investment in games that have been around for 6, 8, 10 years, as you look at Words with Friends and Poker, for example, that's recurring, evergreen business is where we want to be. And so making sure that you have maximum quality and you are delivering that long-term engagement and the product fits with our vision of mass-market-social, those are going to be our criteria that we go through as we look at which titles will we commit to on a slate-basis. But we will give you guys a lot more color and detail hopefully on our Q4 call.
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Ger Griffin, Zynga, Inc. - CFO 35
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I'd just like to briefly add to that. Again going back to six weeks in, I think what excites me about the leverage that we have in the Company is that if we fundamentally focus on the games we have in market right now with our players and we focus on unlocking the operating leverage we referred to already, that story alone is really compelling to me. And then you add to that new launches, I think it is going to be an exciting year.
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John Lanterman, Morgan Stanley - Analyst [36]
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Great, thank you.
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Operator [37]
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Doug Creutz, Cowen.
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Doug Creutz, Cowen and Company - Analyst 38
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Yes, thanks. Frank, on of the things I've noticed about you guys for long time is that your revenue tends to skew pretty heavily to the US, close to 70%. A lot of your larger peers are able to get it closer to 50/50 because obviously the gaming market as global.
We think about sources of operating leverage is that something you guys are focused on in trying to broaden your revenue base of outside of the US more? And to the extent that it is, what do you think the challenges are?
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Frank Gibeau, Zynga, Inc. - CEO 39
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Thank you, Doug. I absolutely looked at geographic dispersion when I came in and we are way too concentrated North America. As you know, most of the mobile business is in Asia. There's a sizable business in Europe and I'm used to businesses that are a lot more balanced 50/50 domestic and international and we are way over-weighted to North America.
Some of that has to do with our Social Casino business is more North American oriented, Poker is nice blend of international. Words with Friends is an English Language game so there's some reasons within the brands why you see that concentration. But as you start to release more products like Tropic Escape, Dawn of Titans, CSR2, that have broad appeal globally that's definitely our orientation as we look at our future slate.
I'm really not interested in a regional-only appeal game, I'm really looking for globally-appealing game. And in addition to that we did not have a business of any significance in Asia and what was encouraging about the release of CSR2 is we reached China for the first time. We actually had an audience there that was larger than expected and the content appealed to the audience. And so we're very encouraged by that result and we think that we can do more in Asia. Certainly we are growing from a very low base so, from my perspective, that's a priority for us for sure.
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Doug Creutz, Cowen and Company - Analyst [40]
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Great, thanks.
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Operator [41]
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Justin Post, Bank of America.
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Jason Mitchel, Bank of America - Analyst [42]
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This is Jason Mitchell here for Justin. I guess there are some other big titles coming out in December for mobile, like Mario Run, how are you guys thinking about competition on mobile in terms of your titles and your Dawn of Titans release? And is there any title you've had historically that you might liken to your expectations for Dawn the Titans?
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Frank Gibeau, Zynga, Inc. - CEO [43]
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THERE'S NOTHING REALLY LIKE DAWN OF TITANS that Zynga has produced before so it is been rough finding a like-title comparison internally. That's not necessarily a negative, it's just we don't have anything to compare about. And it is position in the market is unique when you start to stack it against some of the titles from Supercell or Machine Zone and others, it really looks different, plays different, feels different. It is innovative so we like our chances for standing out this holiday in that category.
In terms of competition, we have some categories that are -- have very high competitive intensity. If you look at Social Casino, we compete directly with companies like Caesar's and others in slots as well as in poker. And competition, I believe, brings the best out in our teams and it is a point of emphasis for us to bring that more into the conversation internally. But at the same time we launched CSR2 essentially in the same window as Pokemon GO and that brought a lot of new customers into mobile gaming, which we loved.
And we also did not see a major impact on our business. So as you start to see some of these titles, like Mario or Pokemon, hit the market we actually are inspired by the innovation there. I think the market benefits from a lot of these new users coming into mobile gaming and that overall -- that helps us indirectly. So I like competition because I think it is pro ball. You got to compete.
And so for my perspective, we are not worried about it. We just make sure that we are in a good position against it.
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Jason Mitchel, Bank of America - Analyst [44]
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Great, thanks.
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Operator [45]
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Mike Hickey, Benchmark Company.
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Mike Hickey, The Benchmark Company - Analyst [46]
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Frank, great quarter, congratulations. I'm late to the call so I apologize. I don't think these have been asked. But your audience metrics for the quarter, looking at MAU and DAU, looks like sequentially they've rebounded a bit.
Just curious, when we think about Q4 and 2017, maybe that's too much of a stretch, but if we expect -- if you expect that trend to continue? And then I'm also curious, there's a lot of ways to cut up a business. There's a lot of different metrics. Wondering what you think or the feel would the key metrics we should pay attention to when we try to model your business for it? And I have a quick follow-up.
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Frank Gibeau, Zynga, Inc. - CEO 47
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Thanks, Mike. In terms of audience, yes, we definitely saw a rebound in Q3. Mobile overall, on our DAU, MAU our MUU and MUPs were all up this quarter which was positive. In general, on the last call I did say that our mobile audience will fluctuate as we move through some legacy businesses in terms of some traditionally high DAU, low monetization games and we start to move into a greater focus in our core mobile franchises.
A long-term imperative for us internally and what we challenge our creative and publishing teams is, simply put, we need more people playing Zynga games tomorrow than they are today. And so audience growth is absolutely vital to us and we want to get into the right configuration from a portfolio standpoint so that we're looking at audience growth in Words with Friends or Poker or the NaturalMotion titles. So again I just ask you as we turn the Company around, you will still some little bit of fluctuations on a quarter-over-quarter basis but we are absolutely 100% focused on growing audience over the long-term.
In terms of the audience metrics or Company business metrics that we look at, Zynga is a very data-rich company. It's got excellent capabilities in data science and in product management so we look at a lot of stuff. Some of it we communicate externally, some of it we reserve internally but DAU, MAU, MUU, MUP, player conversion, looking at the ARPU and advertising rates, we report a lot of data more so than a lot of other companies in this peer group. So there's an enough data there in terms of what we are reporting that I think gives you a good sense of what we are looking at internally.
There's a few proprietary things that we look at that we reserve, mainly really focused in on engagement metrics and conversion and churn dynamics.
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Mike Hickey, The Benchmark Company - Analyst 48
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Okay, thanks. The last one for me. I realize expense control has been a big mantra for you and obviously your orbit of growth has been welcomed. But I'm wondering if you could give us some visibility on dev expense, especially when you -- maybe over your 2017 slate. I guess in general the average development expense you see moving forward because it feels like at least that piece of the puzzle is on the rise.[color=red][/color]
And I'm also, beyond just a general game, I'm curious about mid-core because it looks like that category in particular is one of your competitors is positioned to put more monies in to the initial development of those games to have as much playable content, call it week one, to drive long-term retention. And I'm wondering if you feel the same and if the framework on mid-core is in fact -- to compete you basically have to put more monies in? Anything there would be hopeful. Thanks, Frank.
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Frank Gibeau, Zynga, Inc. - CEO [49]
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Sure. Look, I think overall as we benchmark our Company on development expenses or G&A or Marketing and Sales, we are really trying to get the Company fit for purpose against that long-term growth that we are trying to achieve. So we look at dev expenses today versus what they are going to be tomorrow, what's critical for us is to make sure that we get into a place where we have a world-class studio, where we have the talent that can deliver hit products that deliver around our social vision for the mass-market.
And then what's important to that is putting into place processes that are relatively new to the organization like a fairly tight green-light process, a lot more check ins on development that free the game teams up for innovation but remove a lot of the distractions and noise, a concentration of talent on big ideas as opposed trying to do too many games. There's a whole laundry list of things on an efficiency and an operating model basis that were going to bring to bear on the development expenses so that over time we get more yield from those investments than we are currently experiencing.
On your question with regards to mid-core, in my career I have a fair bit of experience in those type of games and I'm really excited about the opportunity at Zynga in working with NaturalMotion. I think that they are the type of brand and studio that can compete with the best in the world. And I think if you look at the performance on CSR2, I think that's indicative on a quality level of what's possible. Could be due a better job on long-term engagement with NaturalMotion? Yes.
And to your point, having that in a better position at launch is exactly one of the things that we are thinking about. But the NaturalMotion brand, studio, talent, the intellectual property that they build, I think that can build a strong position for us in mid-core that will be broadly appealing, highly social, engaging from a long-term standpoint and ultimately high-quality and I'm excited to be working with those guys.
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Mike Hickey, The Benchmark Company - Analyst [50]
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All right. Thanks, guys, good luck.
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Rebecca Lau, Zynga, Inc. - Manager of IR and Corporate Finance [51]
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All right. Great. I think that was our last question so we just wanted to thank everyone for joining today and we look forward to speaking with you on our next earnings call.
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Operator [52]
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Thank you, ma'am. And thank you, ladies and gentlemen, that does conclude your call. You may disconnect your lines at this time. Have a wonderful day.


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