InvestorsHub Logo
Followers 9
Posts 846
Boards Moderated 0
Alias Born 05/22/2013

Re: None

Monday, 07/24/2017 8:14:53 PM

Monday, July 24, 2017 8:14:53 PM

Post# of 10371
ZNGA: CFO GRIFFIN SAID, …SAME MISTAKE (EA) USED TO MAKE








BY NAOMI GRAY | JUL 24, 2017 1:51 PM EDT

POKER’S MOBILE METRICS SOARED IN 1Q17


TRANSFORMING THE OPERATING MODEL INVOLVES FIXING THE BUSINESS AND RIGHTSIZING THE COMPANY FOR SUSTAINABILITY.

ZYNGA IS WORKING TO TURN AROUND ITS FORTUNES SO THAT IT CAN CREATE MORE VALUE FOR SHAREHOLDERS.

ACCORDING TO GRIFFIN, WHAT WAS AILING ZYNGA WAS THE COMPANY’S EXCESSIVE FOCUS ON CREATING NEW GAMES WHILE DOING LITTLE TO IMPROVE ENGAGEMENT WITH EXISTING PLAYERS. THIS WAS THE SAME MISTAKE THAT ELECTRONIC ARTS USED TO MAKE.

1. UNDERSTANDING ZYNGA’S STRATEGY SHIFT

ZYNGA WON’T FORSAKE PORTFOLIO DEVELOPMENT

2. A LOOK AT ZYNGA’S 3 PILLARS

3. THE DRIVERS BEHIND ZYNGA POKER’S SUCCESS

4. WHY ZYNGA IS PRIORITIZING ITS RESEARCH AND DEVELOPMENT BUDGET

5. WHY ZYNGA RELIES ON INNOVATION

NEW WAYS TO ENTERTAIN PEOPLE

6.A CLOSER LOOK AT ZYNGA’S VALUATION



SHAREHOLDER RETURNS AND STOCK TRENDS

LEAGUE STRUCTURE IN THE POKER FRANCHISE


OUTSMARTING THE COMPETITION

CREATING NEW GAMES ISN’T ENOUGH

SMARTPHONE COMPETITION IS BENEFICIAL FOR GAME PUBLISHERS

STRONGER RELATIONSHIP
REDUCES CHURN







Will Zynga's New Strategy Work in Its Favor?
PART:
1 2 3 4 5 6

Will Zynga's New Strategy Work in Its Favor? PART 1 OF 6

UNDERSTANDING ZYNGA’S STRATEGY SHIFT

BY NAOMI GRAY | JUL 24, 2017 1:51 PM EDT
CREATING NEW GAMES ISN’T ENOUGH

ZYNGA (ZNGA) BROUGHT IN EXECUTIVES WHO PREVIOUSLY WORKED FOR ITS RIVAL, ELECTRONIC ARTS (EA), to try to turn around its fortunes. THESE EXECUTIVES INCLUDE CEO FRANK GIBEAU AND CFO JAMES GERARD GRIFFIN.

SPEAKING EARLY THIS MONTH AT A TECHNOLOGY, MEDIA, AND TELECOM INDUSTRY CONFERENCE ORGANIZED BY COWEN, GRIFFIN DISCUSSED HOW THEY’RE CHANGING ZYNGA’S BUSINESS APPROACH AND WHY THE SHIFT IS IMPORTANT.
ACCORDING TO GRIFFIN, WHAT WAS AILING ZYNGA WAS THE COMPANY’S EXCESSIVE FOCUS ON CREATING NEW GAMES WHILE DOING LITTLE TO IMPROVE ENGAGEMENT WITH EXISTING PLAYERS.

THIS WAS THE SAME MISTAKE THAT ELECTRONIC ARTS USED TO MAKE.


STRONGER RELATIONSHIP REDUCES CHURN

GRIFFIN argued THAT IF THE RELATIONSHIP WITH PLAYERS IS WEAK, THERE’S HEIGHTENED RISK OF PLAYER CHURN, which leads to a cycle where a company spends money to acquire players, loses them again, and then spends more money to bring them back.
IN CONTRAST, IF THE RELATIONSHIP IS STRONG, GRIFFIN SAID, CHURN IS MINIMIZED, WHICH IMPROVES MONETIZATION.
So ZYNGA’S MANAGEMENT IS KEEN TO FOSTER DEEPER ENGAGEMENT WITH EXISTING PLAYERS. ZYNGA CONCLUDED 1Q17 WITH 72.0 MILLION MONTHLY ACTIVE USERS. THE ABOVE CHART SHOWS THE TREND-LINE FOR ZYNGA’S MONTHLY USER BASE.
ZYNGA WON’T FORSAKE PORTFOLIO DEVELOPMENT

Griffin said that building stronger relationships with players doesn’t mean Zynga will forsake its portfolio. He noted that, FOR ZYNGA TO FLOURISH IN LIVE SERVICES—A POTENTIALLY LUCRATIVE SEGMENT FOR THE COMPANY—IT WILL CONTINUE TO INVEST IN NEW GAMES.
ZYNGA IS VYING FOR THE ATTENTION OF PLAYERS AGAINST THE LIKES OF ELECTRONIC ARTS, ACTIVISION BLIZZARD (ATVI), GLU MOBILE (GLUU), AND TAKE TWO INTERACTIVE (TTWO).


PART 2

WILL ZYNGA'S NEW STRATEGY WORK IN ITS FAVOR? PART 2 OF 6

A LOOK AT ZYNGA’S 3 PILLARS

BY NAOMI GRAY | JUL 24, 2017 1:51 PM EDT

OUTSMARTING THE COMPETITION

TO TURN AROUND ITS PROSPECTS, ZYNGA (ZNGA) IS OPERATING WITH THREE STRATEGIC PILLARS.
ONE OF THE PILLARS IS TRANSFORMING THE COMPANY’S OPERATING MODEL. SPEAKING EARLY THIS MONTH AT AN INDUSTRY CONFERENCE ORGANIZED BY COWEN, ZYNGA’S CFO, JAMES GERARD GRIFFIN,
explained that TRANSFORMING THE OPERATING MODEL INVOLVES FIXING THE BUSINESS AND RIGHTSIZING THE COMPANY FOR SUSTAINABILITY.
As competition in the games publishing industry continues to heat up, business sustainability is never far from the company’s thoughts. Zynga is trying to outsmart competitors such as Electronic Arts (EA), Activision Blizzard (ATVI), Glu Mobile (GLUU), and Take Two Interactive (TTWO) in the digital games business.

DOUBLING DOWN ON LIVE SERVICES
Zynga’s other pillar concerns doubling down on live services and the mobile platform. The company views live services as a lucrative market that’s also core to its operations and revenue growth potential. Zynga’s 1Q17 revenue came to $194.3 million, up from $186.7 million a year earlier and above the consensus estimate of $191.5 million, as the chart above shows.
THE THIRD PILLAR IS ABOUT DRIVING GROWTH AND INNOVATION IN NEW AND EXISTING PRODUCTS.
MAKING THE MOST OUT OF PLAYERS
WHEN GRIFFIN AND FRANK GIBEAU, ZYNGA’S CEO, JOINED THE COMPANY LAST YEAR, THEY REALIZED THAT IT WAS FOCUSING MORE ON DEVELOPING NEW HIT GAMES AND NOT DOING AS MUCH TO BOLSTER ENGAGEMENT WITH EXISTING PLAYERS. THIS MISTAKE MEANT THAT ZYNGA WASN’T GETTING MAXIMUM VALUE FROM ITS USERS.

The three pillars Zynga has outlined are meant to ensure that the company doesn’t lose focus on developing new games while, at the same, working on maximizing value from its existing portfolio.


PART 3

WILL ZYNGA'S NEW STRATEGY WORK IN ITS FAVOR? PART 3 OF 6

THE DRIVERS BEHIND ZYNGA POKER’S SUCCESS

BY NAOMI GRAY | JUL 24, 2017 1:51 PM EDT
LEAGUE STRUCTURE IN THE POKER FRANCHISE
ZYNGA POKER, ONE OF ZYNGA’S (ZNGA) LIVE SERVICES, WAS A STAR PERFORMER IN 1Q17. THE RECORD PERFORMANCE OF THE POKER FRANCHISE LAST QUARTER
was attributed to changes Zynga’s new management team has been implementing to maximize income from its existing portfolio.
SPEAKING AT A COWEN INDUSTRY CONFERENCE EARLY THIS MONTH, ZYNGA’S CFO, JAMES GERARD GRIFFIN, SHARED ILLUMINATING DETAILS ABOUT THE ADJUSTMENTS THAT CONTRIBUTED TO THE RECORD SUCCESS OF THE POKER FRANCHISE.
GRIFFIN’S EXPLANATION REVEALED
that improving player engagement lied at the center of Poker’s record numbers in 1Q17. HE CITED SCALING EVENTS AND BRINGING A LEAGUE STRUCTURE INTO THE GAME AS DRIVERS OF THESE GAINS.

POKER’S MOBILE METRICS SOARED IN 1Q17

ZYNGA REPORTED THAT POKER’S MOBILE REVENUE JUMPED 63.0% YEAR-OVER-YEAR AND 23.0% SEQUENTIALLY. THE GAME’S MOBILE BOOKINGS ROSE 76.0%, AND ITS DAILY MOBILE AUDIENCE ROSE 78.0%. AS A RESULT, 1Q17 MARKED POKER’S BEST QUARTERLY MOBILE PERFORMANCE IN HISTORY.

The featuring of the game in Apple’s (AAPL) App Store for the first time also contributed to the gains. Zynga also launched the Poker franchise on Snap’s (SNAP) Snapchat social platform.
Zynga reported online game revenue of $153.0 million in 1Q17, with Poker contributing 23.0%, as the chart above shows.
A boost to the top line amid feeble ad sales
Though Poker contributes only a small portion of Zynga’s overall revenue, the game is vital for the company. For example, it’s making up for weak advertising sales.
BY BOLSTERING PLAYER ENGAGEMENT, ZYNGA HOPES TO IMPROVE CUSTOMER RETENTION AND BOOST ITS COMPETITION against rivals such as Electronic Arts (EA) and Glu Mobile (GLUU).

Part 4

Will Zynga's New Strategy Work in Its Favor? PART 4 OF 6

WHY ZYNGA IS PRIORITIZING ITS RESEARCH AND DEVELOPMENT BUDGET

BY NAOMI GRAY | JUL 24, 2017 1:51 PM EDT

Boosting the value of existing products
Zynga (ZNGA) funneled $69.2 million into R&D (research and development) in 1Q17. It turns out the company is tweaking how it spends its R&D budget.
ACCORDING TO ZYNGA’S CFO, JAMES GERARD GRIFFIN, AT A COWEN INDUSTRY CONFERENCE EARLY THIS MONTH, the company is trying to prioritize its R&D resources. The idea is to search for new revenue sources while squeezing the maximum value possible from the existing product line. GRIFFIN REVEALED THAT ZYNGA’S R&D DEPARTMENT IS ALLOCATING RESOURCES, WHICH INCLUDE TALENT, TO BOOST THE VALUE OF EXISTING PRODUCTS AS THE SEARCH FOR NEW ASSETS CONTINUES.

PAID FEATURES FOR WORDS WITH FRIENDS

In boosting the value of existing products, Griffin said Zynga is testing a series of new features for its multiplayer game Words With Friends. According to Griffin, for a long time, Words With Friends hasn’t had meaningful feature improvements, and Zynga is working on new features for the game that would enhance player engagement and sales.
GRIFFIN HINTED THAT THE FEATURES COMING TO WORDS WITH FRIENDS MAY BE THE PREMIUM TYPE THAT ATTRACT CHARGES. WORDS WITH FRIENDS IS LARGELY FREE, AND ZYNGA MONETIZES THE GAME THROUGH ADVERTISING.
BESIDES WORDS WITH FRIENDS, ZYNGA IS ALSO KEEN TO MAXIMIZE THE VALUE IT GENERATES FROM CSR.
R&D ALLOCATION
THOUGH ZYNGA IS TALKING ABOUT PRIORITIZING R&D RESOURCES, A LOOK AT THE PAST FEW QUARTERS SHOWS ZYNGA’S R&D ALLOCATION HAS BEEN ON A DECLINE, AS THE ABOVE CHART SHOWS. IT REMAINS TO BE SEEN HOW THE COMPANY’S R&D ALLOCATION CHANGES AS IT EXECUTES ON THE THREE PILLARS OF ITS TURNAROUND PLAN.
TACKLING COMPETITION
ZYNGA IS WORKING TO TURN AROUND ITS FORTUNES SO THAT IT CAN CREATE MORE VALUE FOR SHAREHOLDERS.
The company has to navigate competition from rivals like Electronic Arts (EA), Activision Blizzard (ATVI), Glu Mobile (GLUU), and Take Two Interactive (TTWO) as it pursues a turnaround.




PART 5

Will Zynga's New Strategy Work in Its Favor? PART 5 OF 6

WHY ZYNGA RELIES ON INNOVATION

BY NAOMI GRAY | JUL 24, 2017 1:51 PM EDT
NEW WAYS TO ENTERTAIN PEOPLE
ZYNGA’S (ZNGA) MOBILE SUCCESS IS, TO AN EXTENT, CONNECTED TO SMARTPHONE INNOVATION. SPEAKING AT A COWEN INDUSTRY CONFERENCE EARLY THIS MONTH, ZYNGA’S CFO JAMES GERARD GRIFFIN TALKED ABOUT THE BENEFIT THAT GAME PUBLISHERS ENJOY FROM MOBILE TECHNOLOGY UPGRADES.
ACCORDING TO GRIFFIN, ANY TIME THERE’S A MOBILE TECHNOLOGY ENHANCEMENT, GAME PUBLISHERS GET THE ABILITY TO COME UP WITH DIFFERENT WAYS TO ENTERTAIN MOBILE USERS THROUGH GAMES. NEW WAYS TO ENTERTAIN MOBILE USERS CAN ALSO MEAN NEW REVENUE FOR PUBLISHERS.


SMARTPHONE COMPETITION IS BENEFICIAL FOR GAME PUBLISHERS

GRIFFIN’S COMMENT IMPLIES THAT ZYNGA AND PEERS LIKE ELECTRONIC ARTS (EA) AND ACTIVISION BLIZZARD (ATVI) ENJOY SMARTPHONE COMPETITION THAT’S FORCING THE LIKES OF APPLE (AAPL), SAMSUNG (SSNLF), AND GOOGLE, AN ALPHABET (GOOGL) COMPANY, TO UPGRADE THEIR DEVICES MORE FREQUENTLY.
EMERGING TECHNOLOGIES SUCH AS AR (AUGMENTED REALITY) AND VR (VIRTUAL REALITY) ARE PROMISING TO EXPAND REVENUE OPPORTUNITIES FOR THE ENTERTAINMENT INDUSTRY. APPLE EXECUTIVES HAVE RECENTLY SPOKEN POSITIVELY ABOUT AR, LEADING TO SPECULATION THAT APPLE’S FUTURE IPHONES COULD COME WITH AR CAPABILITIES, POTENTIALLY UNLOCKING MORE CAPABILITIES FOR GAME PUBLISHERS.
ZYNGA’S MOBILE SUCCESS
MOBILE IS ONE OF ZYNGA’S BRIGHT SPOTS. THE COMPANY’S MOBILE REVENUE ROSE 19% YEAR-OVER-YEAR TO $161.6 MILLION IN 1Q17. MOBILE CONTRIBUTED 83% OF OVERALL REVENUE AND 85% OF OVERALL BOOKINGS IN THE QUARTER, AS THE ABOVE CHART SHOWS.

Griffin’s view is that Zynga’s mobile metrics have room to continue improving as long as mobile technology innovation continues.
When Cowen upgraded Zynga to “outperform” from “market-perform” last year, Zynga’s consistent mobile growth was one of the impressive factors.

PART 6
WILL ZYNGA'S NEW STRATEGY WORK IN ITS FAVOR? PART 6 OF 6
A CLOSER LOOK AT ZYNGA’S VALUATION
BY NAOMI GRAY | JUL 24, 2017 1:51 PM EDT
SHAREHOLDER RETURNS AND STOCK TRENDS
ZYNGA (ZNGA) GENERATED INVESTOR RETURNS OF 3.9% IN THE TRAILING-ONE-MONTH PERIOD AND 36.5% IN THE TRAILING-12-MONTH PERIOD. THE COMPANY’S STOCK PRICE ROSE 3.6% IN THE TRAILING-FIVE-DAY PERIOD.

In comparison, FireEye (FEYE), Microsoft (MSFT), Salesforce (CRM), and Oracle (ORCL) generated returns of -1.9%, 32.2%, 9.8%, and 23.7%, respectively, in the trailing-12-month period.




EXAMINING ZYNGA’S CASH FLOW METRICS

Zynga has $720 million in cash in hand. Its price-to-cash flow and price-to-free cash flow multiples come in at 55.5x and 66.8x, respectively. For the trailing 12 months, the company’s enterprise value-to-cash-flow was 43.2x and enterprise value-to-free cash flow was 52.0x.
WHERE DO ZYNGA’S EBITDA RATIOS STAND?
Zynga’s EBITDA (earnings before interest, tax, depreciation, and amortization) margin for last year was -5%, which yielded EBITDA of -$37.3 million—down 47% from the prior year. FOR THE CURRENT YEAR, WALL STREET IS EXPECTING EBITDA OF $117.6 MILLION.
EV (enterprise value)-to-adjusted EBITDA for 2017 is expected at 21.5x. Zynga stock is trading at a price-to-EBITDA multiple of -87.3x.
INSIDE ZYNGA’S PRICE AND VALUATION MULTIPLES
Zynga’s current book value per share of ~$1.78 for 2016 compares with expected book value per share of ~$1.79 for 2017. Zynga stock is trading at a price-to-book value of ~2.09x.
In comparison, FireEye, Microsoft, Salesforce, and Oracle’s current book values per share are ~$4.7, $9.4, ~$11.2, and ~$13.04, respectively.
Zynga’s price-to-sales of ~4.3x for 2016 also compares with an estimated price-to-sales of ~3.9x for 2017.
Earnings and sales
The EPS for last year of -$0.12 came on total sales of $749 million, down 2% annually. Sales for this year are expected to expand to ~$842.9 million–$920.9 million next year.

Source:

marketrealist.com/2017/07/understanding-zyngas-strategy-shift/