Zynga Inc (ZNGA)

[Trevor11]

ZNGA: THE GREAT TURNAROUND STORY, AND IT'S AMAZING PORTFOLIO OF IP







I LIKE THE SHARPENING THE MODEL IDEA, IT MAKES A LOT OF SENSE, IT REALLY RINGS WELL

IT’S GOING TO EVOLVE, IT'S NOT MATURE YET

THE LEVEL OF TIME PEOPLE SPEND ENTERTAINING THEMSELVES IS GROWING AND WE ARE IN THAT SPACE.

WITH THE CREATIVE TEAMS AND BUILDING NEW GAME PLAY MODELS








ZYNGA'S (ZNGA) MANAGEMENT PRESENTS AT 37TH NASDAQ INVESTOR CONFERENCE (TRANSCRIPT)



Seeking Alpha






37TH NASDAQ INVESTOR CONFERENCE

DECEMBER 05, 2017 04:45 AM ET


EXECUTIVES

GERARD GRIFFIN - CHIEF FINANCIAL OFFICER

ANALYSTS

BRIAN NOWAK - MORGAN STANLEY

PRESENTATION

Analysts
Brian Nowak - Morgan Stanley
Presentation

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Brian Nowak
Good morning, everyone. Thanks for joining us today. MY NAME IS BRIAN NOWAK, I’M HEAD OF U.S. INTERNET RESEARCH HERE AT MORGAN STANLEY. We are pleased to day to have GERARD GRIFFIN WITH US FROM ZYNGA, THE CFO OF ZYNGA.

First the disclosures. Please note that important disclosures, including my personal holding disclosures and Morgan Stanley disclosers all appear in the handout available in the registration area and on the Morgan Stanley’s public website.

© Provided by Seeking Alpha Earnings Call Transcripts

Now your disclosures. Some of the statements that Gerard is going to make today may be considered forward-looking. These statements involve a number of risks and uncertainties that could cause the actual results to differ materially. Any forward-looking statements they make are based on assumptions as of today and Zynga undertakes no obligation to update them. Please refer to Zynga’s Form 10-K for a discussion of the risk factors that may affect results.

Gerard Griffin

So yes, well another disclosure, I’m an arsenal fan. So if there is any [indiscernible] in the audience, you can leave now. Thank you.
Brian Nowak

You have years of experience in the video game industry at EA previously, now you have been part of THE GREAT ZYNGA TURNAROUND STORY. So thanks for coming.

Gerard Griffin

Thank you.

Brian Nowak

I guess I kind of wanted to start with what has happened with the TURNAROUND AND KIND OF WHERE WE GO, because it seems like over the past year we have seen a lot of improvement in the key metrics, whether it is the margin, the operational metrics, the user growth, the monetization. Can you just talk to some of the biggest changes you have made that drove the improvements over the last call it year and what do you see being the biggest drivers for the next couple of years?

Gerard Griffin

YES, I THINK THE FOCUS THAT WE HAVE PUT BACK INTO THE BUSINESS IS THE FOCUS FOR THE FUTURE. It’s starts with the games and it starts with players and if you get that right, if you get the actual - you go really deep with your games and the RELATIONSHIP WITH THE PLAYERS, EVERYTHING ELSE FLOWS FROM THERE AND YOU HAVE TO DO THAT WITH A LITTLE BIT OF COMMON SENSE AND MANAGE IT.
And so when Frank took over as CEO and I joined about a year ago, when I look at the Company, I SAW THIS AMAZING PORTFOLIO OF IP, I SAW VERY TALENTED ORGANIZATION, but I wasn’t seeing the results and so we essentially are operating against three basic principles.

ONE IS SHARPEN THE OPERATING MODEL, WHICH IS EVERYTHING FROM SIMPLIFYING THE ORGANIZATION, GETTING BACK TO BASICS in terms of structure. We are a development organization. We build games, we launch them into the marketplace and then we manage them as a relationship or player base and making sure that that’s as sharp and as simple as possible.

The other thing is we are a creative organization and when you are a creative organization, if you like creativity run wild everywhere it becomes very chaotic. So from a sharpen the operating model, the obvious things were simplifying the organization workflow.

We are relooking at where we are investing, we had a virtual reality lab, which is cool. My daughter came in and she put the goggles on, it was very good fun, but when we looked at our business, where is the real opportunity is, in our core games, it’s in looking at messenger, the chat platforms and augmented reality.

So we refocused what we call our development group, our growth group which looks at forward-looking areas within mobile to focus on that as opposed to be VR. VR is cool, but it’s not really something in the next few years for us.
THE SECOND THING WE DID WHICH IS FUNDAMENTAL is going back to what I said, we have got games like poker, which has been around 10 years, Words with Friends, eight years, OUR SLOTS AND CSO FRANCHISEES OVER FIVE YEARS AND WE WEREN’T GIVING THEM THE LOVE AND ATTENTION THEY NEEDED.

And the interesting thing is we have very strong connection with our players. So it wasn’t like the players are walking away, they were playing the games, but literally giving them attention like if you think about poker, poker hadn’t had a real innovation in a number of years.

And when Mark came back into the CEO role and then Frank took over, one of the first challenge is they said let’s relook at poker, LET’S LISTEN TO OUR PLAYERS, SEE WHAT THEY WANT AND WE PUT A ROADMAP IN PLACE. Well first we changed the organization, we put a new leader in place Monty Kerr who had a very strong background in social casino.

And they put a roadmap together to enhance the game based on player feedback and some of the things that studio wanted to do. It took a year, Q4 of last year we launched the challenges and lead features that put a lot more competition into the game and guess what, players loved it and good things happened. Then the economics turn up.

So focusing on our core strengths in live, all LIVE MEANS THAT WE HAVE GOT A LOT OF QUESTIONS ABOUT LIVE BASICALLY MEANS GAMES THAT ARE IN PLAYERS' HANDS, the relationships we have already created and focusing on those is fundamental.
Because if we are continually promising the future on new, but not focusing on the core business it's a pyrrhic victory. Everyone thinks oh this is great they are going to build all this good stuff in the future, but if we don't focus on what we are doing today it's sort of irrelevant.

THE THIRD PILLAR IS NEW, WE HAVE BEEN BUILDING NEW GAMES, WE HAVE BEEN INNOVATING INTO CHATS AND INTO AUGMENTED REALITY and you know as you think about the Company going forward the only twist will be sharpen become manage, manage the operating model.

WE FEEL GOOD ABOUT THE STRUCTURE OF THE COMPANY NOW, continue to focus on our live, you know in any given year over 90% of our bookings come from live games and then CONTINUE TO INNOVATE INTO NEW GAMES PLATFORMS AND NEW TECHNOLOGY.

And ON THE LAST EARNINGS WE SORT OF OPENED THE COMMONER A LITTLE BIT MORE ABOUT NEW. It wasn't that we weren't building games, there was WE ARE INDEXING MORE INTO THE FIRST TWO PILLARS, BUT WE WILL LAUNCH NEW GAMES IN THE SECOND HALF OF 2018.

Brian Nowak

Got it. You have done a lot of refining, I LIKE THE SHARPENING THE MODEL IDEA, IT MAKES A LOT OF SENSE, IT REALLY RINGS WELL, but the video game industry as we know is there often can be pitfalls and kind of mistakes, whether it is games that you are working on, you have to cancel, or games that don't work as well as you hope et cetera. So maybe can you just talk us through a couple examples of mistakes or hiccups you've had throughout the development or the launch process at Zynga and how have you kind of managed through those to make sure you've fewer of those going forward.

Gerard Griffin

Yes, the one thing we haven't done is stop the ideation. When you are in a creative organization you don't tell creative people not to think about new things, but if you think about a funnel what we have done is we have got a lot sharper in terms of okay, within Zynga we promote creativity so we have what we call hackathons.
So we will take the studios down AND SAY JUST GO BUILD STUFF, INNOVATE JUST TO COME UP WITH FUNKY IDEAS and what Frank has challenged the teams is just don’t do stuff that's completely theoretical, do stuff that potentially you could put in the game on your game or another game.

And so that's an example of LETTING THEM JUST BE CREATIVE, but when it comes to the actual game development if you think about the funnel, we are fine, WE ARE HAPPY HAVING A LOT OF IDEAS PERCOLATE AROUND.

Before I quickly come down to which of those ideas actually stand up from a game concept perspective for target audience and get to smaller number of ideas that you can prototype and then from prototype get to a smaller number of ideas that you can actually bring to self launch and ultimately bring to the players.

In the past as I say, Zynga was A VERY CREATIVE ORGANIZATION, but that sort of funnel was more like a tunnel and a lot of the stuff going on and it was little bit too random and for somebody like me on the operational side and the finance side that’s a little bit stressful, because you have got all of this stuff going on and you can never tell when is something coming to market, what exactly is or what is the potential.

And so we have put a lot more work into the green light process, if you go to EA or uby or any of the major game, actually any Company that's in a development cycle there is A STANDARD SORT OF DEVELOPMENT STRUCTURE, YOU KNOW IDEATION, various milestones through which you progress to see is the initial idea progressing to where we thought.

Does it still resonate for the targeted audience going after, do the economics still make sense and to that process less gains will make it, but we expect more gains will make it that will have a successful impact on the Company.

AND WE ARE IN ENTERTAINMENT SO YOU NEVER KNOW. YOU TEST IT, YOU SELF LAUNCH IT, YOU CHECK, BUT SOMETIMES THE PLAYERS GO ACTUALLY THIS IS REALLY WHAT WE WANT - SOMETHING ELSE OUTSIDE THERE. BUT FOR THE MOST PART THAT GIVES US THE HIGHER LEVEL OF CONFIDENCE THAT THE GAMES WE ARE BRINGING TO MARKET MAKES SENSE.

The other thing we are making sure is that we are leveraging the core value that’s already in Zynga. When I mentioned Zynga to MY DAUGHTER, SHE IS 13 OR SHE GOES YOU ARE THE FARMVILLE GUYS AND I SAID YES, WE ARE FARMVILLE GUYS, but we don't actually have a compelling FarmVille offering on mobile for instance.

So go back to core brands within the Company that people love and build ourselves. SO SOME OF THE GAINS WE ARE BUILDING FOR THE FUTURE IN THE INVEST EXPRESS CATEGORY WHERE WE ARE LEVERAGING OUR EXISTING IP WITH THE CREATIVE TEAMS AND BUILDING NEW GAME PLAY MODELS AND SO AGAIN ITS SORT OF PLAY TO YOUR STRENGTHS.

Innovating to new areas that’s fine, but make sure you are fundamentally focusing on your core strengths and as you are going through the process make sure that its very transparent where you are and be honest when something is not working stop.
WE JUST HAD THE SAME CHALLENGE AT EA where we were doing a lot of stuff and eventually we got to the point where bigger is better. EA is at a different place it's a larger Company, LARGER SCALE BUT IT WAS THE SAME CONCEPT. PRIORITIZE YOUR INVESTMENT WITHIN R&D, MAKE SURE YOU ARE FOCUSING ON YOUR CORE LIFE, AND THEN INNOVATE INTO NEW.

And an example of where it was a hard decision, but we made it was not [indiscernible]. That came under development for a long time, but when we looked at the self launch metrics and we looked at the level of investment we would have to make to compete in not very competitive category, we said do we want to do that or do we want to focus on some of the other opportunities and we said the other opportunities, then we stopped.

Brian Nowak

Alright. After the game launch [indiscernible] marketing how much you are going to spend, I think one of the things really surprised us at least is the leverage you may able to get out of marketing where your efficiency seems to have improved. So could you just maybe talk about some of the main KPIs and the metrics that you use to evaluate your marketing spend now and DO YOU STILL SEE THE POTENTIAL FOR MORE MARKETING LEVERAGE GOING FORWARD?

Gerard Griffin

YES, marketing is interesting, because on a percentage basis its roughly the same year-over-year, but the complexion of it is completely different. When Frank took over, one of the first things he reacted to was our Slots business and WE HAVE A VERY COOL SLOTS BUSINESS AND IT'S VERY COMPELLING, VERY STICKY AUDIENCE.

But the one thing we were doing is we were investing too much in terms of marketing and essentially what we were doing is we were buying bookings. So if you are looking at THE BOOKINGS TRAJECTORY, IT LOOKS GOOD BECAUSE YOU SAW THE BOOKINGS GO UP, BUT IF YOU GO TO THE BOTTOM YOU WEREN’T SEEING THE FLOW THROUGH.

SO I LEARNED A LESSON WHILE I WAS IN EUROPE YEARS AGO, I WAS WITH AN INVESTOR and we were talking about different companies on what you look out for and the core he gave me which I thought was really cool, HE SAID WATCH OUT FOR TOP-LINE VANITY, BUT BOTTOM LINE IN SANITY. So when you are just spending just to push the top-line but it isn’t sustainable YOU GOT TO STOP THAT. SO FRANK DID.

The other thing he saw was, he didn’t have a publishing function and if you go to Disney, NBC any of the media companies in Europe you will generally see a sort what we generally call the church and state publishing and creative. And the reason for that if you want creative people to be creative, you want them focusing the peers building amazing entertainment experiences, but you also want to have people who think how do I take that, market it to that player base and ultimately monetize it.
And we didn’t have 1a Head of Publishing. We had publishing embedded in each of the studios and so he hired Bernard Kim who was previously the Head of Mobile Publishing at EA. And from there BK took the capabilities we had in the building, brought in some more capable leadership, a lady by the name of Kimberly Corbett who runs a user acquisition.

And what Kimberley does is, she does a lot of what all of you do in the room. SHE HAS GOT MONEY UNDER MANAGEMENT AND THEN SHE LOOKS AT WHERE SHE WANTS TO INVEST THAT AGAINST HER PORTFOLIO OF INVESTMENTS WHICH ARE OUR GAMES. And so it’s a smarter dynamic now, because we are actually looking at games that are at different stages of evolution, they have got different players dynamics, different audiences.

So if you take our Slots business, it’s very much a long cycle. You invest today and you will see the return over a number of years. When you looked at some of the more dynamic categories like action strategy even poker, you can actually get a return quicker in terms of those areas. And that’s not to say you take all the money and put it in all the quick stuff. You need your line cycle and need your games that are in a faster growth phasing in terms of their timeline.

AND SO FOR ME, MY FIRST MEETING WITH KIMBERLEY SHE SAID, HEY EXPLAIN HOW YOU THINK ABOUT THE BUSINESS AND HOW MUCH MONEY DO I HAVE TO INVEST AGAINST THESE GAMES, she didn’t come in and sort of already asked for more. And so the way I manage marketing is certainly the way I manage development. I tell them what the overall shape is.

And then I say you guys come back to me and tell me how you want to prioritize within that. And IF YOU COME BACK FOR MORE, EXPLAIN HOW THAT’S GOING TO HELP ME DRIVE SUSTAINABILITY WITHIN THE COMPANY and more is okay, but if more is just for the sake of it, it’s not.

Brian Nowak

Right. And leverage going forward I guess the margin story has kind been when you talked about - talk about the OpEx leverage?

Gerard Griffin

With respect to, if you look at our core live services, they are not performing at the level they should be. So the way I see leverage in Zynga over the next few years, we are going to continue to manage the middle very closely. WE ARE GOING TO INVEST IN OUR LIVE, WE ARE GOING TO INVEST IN NEW, BOTH R&D AND MARKETING
.
And so from a leverage perspective, as we think about breaking into 20% EBITDA sometime in 2018 and then ultimately growing from there, we do need to grow the top. But THE TOP IS GOING TO BE GROWING FUNDAMENTALLY OFF OUR CORE LIVE BASE AND THEN ADDING NEW GAMES WHICH WILL ULTIMATELY SUPPLEMENT LIVE OVERTIME.

So there is leverage there, but my general direction for next year and I haven’t guidance but my overall shape of my P&L for next year, we are talking about probably sales and marketing staying at the base level of 23%, so flat as a percentage it will grow, but WE ALSO EXPECT TO GROW THE TOP.

I think overtime, I would like to take leverage out of that and I think the interesting thing about gaming is much is it’s important to have a very interactive game, the most powerful thing in your game is your players and as the player start to really get into it and really enjoy their game, they will pull friends in.

And the thing about Zynga is our gaming approach is social we talk about friends and family, I sometimes talk about fellows, because some of the games we have are battling games. So if you want to fight with your friends or if you want to fight with other people.

So as that gets better, it’s like a magnetic effect. You can actually scale your audience based on the network effect within the game and we will see how it plays out. We are very happy with our performance through the end of 2016 and into 2017 and we are looking forward at 2018 as we obviously continue the journey.

Brian Nowak

Yes. Talk some about the core live ops and kind of the live ops and events have been a big part of the 2017 story. It sounds like it’s still early though. I guess I would be curious to hear what are some examples of events you have developed this year that are worked particularly well, what have you learned from those and just talk us through the planning cycle for next events as you go into 2018, 2019 et cetera.

Gerard Griffin

Yes, in terms of the planning cycle, it sort of goes back to my creative random comment earlier, within each of our game TEAMS FRANK AND THE REST OF THE MANAGEMENT TEAM WE SIT DOWN WITH THE STUDIO TEAM AND SAY OKAY WHAT ARE BOLD BEATS YOU HAVE GOT COMING, because the way you need to think about our business, WE ARE AN ENTERTAINMENT COMPANY, WE ARE AN INTERACTIVE ENTERTAINMENT COMPANY AND WE ARE BUILDING RELATIONSHIPS WITH PLAYERS, and RELATIONSHIPS NEED BEATS.

I always get cheeky every now and again, I apologize so hands up there who has a significant partner, wife, lover, girlfriend. Nobody, my god, well what if you didn't talk to them for six months, you think that's a good thing. You do, okay, good, there is always one, I'm not going to call you out because this is being recorded.

That's the point, full beats are either content enhancements, marketing enhancements that you put into the games and if you don't know what those are, you can't plan. My demand planning team is hard to plan the future if you don’t know what's going on in the games. So Frank sits down with the teams and we have what we call strategy reviews and we literally look at the bold beats that are coming out for the next six quarters.
Six quarters out very long range, next year very close, so we know what we are doing in terms of playing against each of the games, and that gives us a better confidence around - is the studio team really thinking about their players. Because historically you had games like Words with Friends which is a very, it's been a very successful game for Zynga, but up until the launch of Words with Friends 2 and the social dictionary last quarter in Words with Friends 1 we haven’t had a real beat in that game, I think the last bold beat was Q4 of 2015.
And yes there was a little marketing events in the game, but there was nothing really there to say wow I need to come back and it’s important to do that. So when you think about our games this year, if you think about CSR 2, what is CSR 2, it’s a racing game, it's a car game, so what you need you need cars, so we Porsche in the game, we put Lamborghini in the game, we celebrated Ferrari 70th anniversary and all of those was engaging with those car manufacturers.
BUT THEY LOVE CSR 2, BECAUSE IT'S A LEGITIMATE BRAND WITHIN THE RACING CATEGORY, AND SO WE CONTINUE TO EVOLVE THE GAME in terms of the type of the cars. WE HAD A RELATIONSHIP WITH UNIVERSAL AND FATE AND THE FURIOUS, SO WE PUT DIFFERENT TRACKS FROM THE MOVIE, DIFFERENT CARS FROM THE MOVIE IN THE GAME.
All of that made the game vibrant, so that a year after the launch that game is very healthy and is on a very nice trajectory that will continue into 2018. I was talking with Julian who runs the studio here in the UK and it’s all about the cars, it's all about the tracks, it's how do you enhance the racing experience for the player and we are also thinking about what do we do beyond this CSR 2, do we do CSR 3 or is it something different. So you have to continually be thinking about that and building that out.
Poker, similarly we put the bold beats in Q4 of 2016 leagues and challenges and we have continued to innovate into poker throughout this year. As I say Words with Friends, we had social dictionary in Words with Friends 1 in Q3 and we just launched Words with Friends 2 which is a new game.
Because we actually found with Words with Friends, we have so many new ideas that were really innovative for the game. There was time to reboot and you know it's eight years old and we are looking forward to the next eight plus years as we put the new beats in place and move on.

Brian Nowak

YES. EARLIER YOU REFERENCED POTENTIAL NEW IP, NEW TITLES NEXT YEAR, HERE IS YOUR SHOT, LET US ALL KNOW, HOW SHOULD WE THINK ABOUT POTENTIAL NUMBER MAYBE GENRE, TIMING AND THEN AS YOU LOOK ACROSS THE SUITE OF THE TEAMS AND THE STUDIOS YOU ARE WORKING ON IP, WHICH ONE SHOULD WE BE KIND OF MOST FOCUSED ON FOR DRIVERS OF THE NEW CONTENT.

Gerard Griffin

YES, WHEN YOU THINK ABOUT NEW, THIS YEAR WE LAUNCHED TWO NEW GAMES IN THE FIRST QUARTER THAT WERE SMALL GAMES BOGGLE AND CROSSWORDS AND WE JUST LAUNCHED WORDS WITH FRIENDS 2 SO THAT’S A FAIRLY MEANINGFUL EVENT. So I'm looking forward Boggle and Crosswords small, Words with Friends we will see, this is a transition from Words 1 to Words 2, so that will be meaningful going into next year.
The one thing I will remind everybody in a specific fiscal over 90% of the bookings and obviously the flows will come from games already in existence, and its enhancing those games with new features that gives us confidence that we can sustain that.
The other thing I would remind people, Zynga started in web and its evolved to mobile where 87% mobile now, but we set 13% to web that’s going to degrade overtime. That’s essentially its old age gravity, but mobile is growing so we are also compensating for that.
Now getting to your question. New, on our last earnings we noted that we are building games in three of the four categories that we interact in. Casual and best expressed and then action strategy. IN ACTION STRATEGY WE ARE BUILDING GAMES OUT OF OUR STUDIO HERE IN NATURAL MOTION. They have got two games out in the market right now, CSR2 as I talked to earlier and Dawn of Titans and they are building new games for the future.
WHAT WE SAID IN TERMS OF NUMBER, WE HAVE SAID WE WILL LAUNCH GAMES IN ALL OR SOME OF THOSE CATEGORIES IN THE SECOND HALF OF 2018. Now what I would tell you is don't get fixated on the number of games, get fixated on the fact that we are building new games, because ultimately you will have enough time to see the games, assess them and figure out what they mean to 2019, because that’s how I think about it.
This is a long game we are playing, we are in this business for a long haul. So when we launch games in 2018 we are thinking about 2019, we are not thinking about 2018 and there is a fixation in the industry that you have to have new, absolutely you do but not for the physical fiscal year launching its how that relationship evolves overtime.

Brian Nowak

Yes. As always wanted to be - it seems in particularly last six months in the gaming industry mobile and PC console around time spent, number of users, are we topped out, is there some ceiling that we are going to bump into, and is this gaming renaissance that we are currently going through. As you look at kind of where you have come from and where you are going with Zynga, have you talked to the drivers of DAU conversion kind of spend per DAU, in the next couple of years which of those metrics you think still have the most upside, more users, more spend per user or where is the juice going to come from?

Gerard Griffin

I think it's all of the above, but I will go back to what I said at the start, it starts with the games and the player and building that connected ecosystem. I grew up in gaming and console and PC gaming and 10 years ago you put it in the box you ship it to game or the game stop and it got sold, and then you build the next one.
Now it’s a connected ecosystem. I know [indiscernible] was here yesterday and when you think about EA, or you think about Zynga, any of the gaming companies it's connected digital environment. And what that means is you are connected to those players and you can continue to evolve the relationship and obviously by definition you evolve the opportunity to create value for the player and for your own Company.
So when you think about it, like our Slots business it was on this attempt to grow DAU and initial bookings, but the challenge with that as you think about the free to play model its acquisition, engagement, retention and then ultimately monetization. The key thing you need to focus is engagement, because you can have a very healthy DAU number.
But if you have got a serious churn, it’s going to falling off and the only reason you are maintaining the DAU is your spending marketing, so that’s a false model. We can’t sustain that forever at least from a profitability perspective.
So it starts with engagement and time spent playing and also the conversion. The conversion rates for paying our business is very low. So if we can even make a small tweak to that, that’s meaningful. So our Slots business right now under [indiscernible] who runs that business. He is very much focused on enhancing the experience within his core games.
He has got four main games in players hands, going deeper with that player experience and then looking to increase the monetization in terms of average revenue per paying user and hopefully the conversion. He is looking to increase DAU as well. But if you keep pumping people and you haven’t got an efficient game, it doesn’t really matter. So it’s all about the player experience.
So the kind of companies I look at in respect to our players, they are fundamentally focused on their player base and focused on the game and as managing really entertainment that people want and if you have a brand around that entertainment you have got a sustainable model. And to your point about time, there is only 24 hours in a day, if any of you have Gen Z or Millennials you know they have created into 72 hours as they multitask.
So I think THE LEVEL OF TIME PEOPLE SPEND ENTERTAINING THEMSELVES IS GROWING AND WE ARE IN THAT SPACE. I haven’t got it here because I was afraid my daughter would call, but the mobile devices are the most powerful entertainment devices on the planet and they continue to evolve. Consoles are great, PCs are great, but BETWEEN CHAT PLATFORMS AND THE APPSTORE AND AUGMENTED REALITY, ALL THE THINGS ARE GOING ON, IT CONTINUES TO GROW IN TERMS OF WHAT YOU CAN DO WITH THE PHONES.
CSR 2 LAUNCHED A LITTLE FEATURE AN AUGMENTED REALITY FEATURE WHERE YOU COULD TAKE YOUR CAR COLLECTION IN THE GAME AND SHOW OFF TO YOUR FRIENDS, YOU COULD SHOW THEM OUT, YOU CAN PARK THEM AT STREET. AND IT WAS FULLY FUNCTIONAL, FULLY DETAILED BECAUSE THOSE CARS ARE BUILT IN PARTNERSHIP WITH MANUFACTURERS. AND THAT WAS COOL.

In my case I bought a few cars because I’m not very good at CSR 2, so I have to buy few cars to show off, but that made me happy at least I could show off and made Julian happy, because I actually gave them some bookings.
So again it starts with the game, it starts with the players and you shouldn’t get fixated on one of the metrics, because that they are interrelated and if you focus just on DAU you will think you are winning, but if you don’t have the retention it doesn’t matter.

Brian Nowak

Yes that’s right yes. The advertising business, you have a PRETTY GOOD ADVERTISING. IT’S ACTUALLY SOMETHING THAT PROBABLY ISN’T TALKED ABOUT ENOUGH. I know there is been some turbulence over the course of the last year in the market et cetera. You have solitaire now, it’s kind of part of the advertising story. May be just could just talk about the ad strategy and the way we should think about the growth potential over the next couple of years?

Gerard Griffin

Yes. Zynga in mobile gaming is - I think we are probably one of the most - not the successful gaming Company as it relates to advertising. The one thing I would say about advertising at the highest level our business is 80% user pay in app purchasing and 20% advertising. And the advertising is predominantly in Words with Friends and solitaire and there is a reason for that.
[color=green]ADVERTISING IS RELEVANT AS [INDISCERNIBLE] MODELING IN THOSE GAMES, BECAUSE IF YOU PLAY WORDS WITH FRIENDS IT’S A TERMS BASED GAME. SO YOU ARE PLAYING WITH FRIEND YOU PICK A WORD THEN YOU TURN IT OVER TO YOUR FRIEND, WHO COULD BE CERTAINLY RIGHT BESIDE YOU OR COULD BE SOMEWHERE ELSE IN THE WORLD AND IN THAT LITTLE MOMENT WE HAVE THE UNIQUE OPPORTUNITY TO JUST DROPPING OUT IN THERE AND ADVERTISE FOR THAT PLAYER. IT’S NOT INVASIVE,[/color] they are okay with it, because it’s natural to the game play. It doesn’t impact their game play.

Now if you are racing a car down a track with your buddy or your girlfriend whoever in CSR 2 and all of a sudden an ad pops up that's not fun, so we are very careful to be player focused in terms of how we embed economic models into our games, so for those games it works and we will continue to evolve unique opportunities to embed ads in our games where it’s relevant.
IN CSR 2 WATCH TO EARN WORKS, SO A LITTLE VIDEO IF YOU WATCH THE VIDEO YOU GET SOME ENERGY THAT HELPS YOU PLAY YOUR GAME. PLAYERS ARE OKAY WITH THAT, THEY LIKE IT, ADVERTISERS LIKE IT CAUSE THEY KNOW THERE WAS A FIXATED MOMENT that you are actually looking at that ad and potentially you click through.

What I will say about advertising at a macro level, we expect it's still going to be very exciting space in mobile. I do think when you look at the amount of time that people spend playing games not just mobile games and then you look at the amount of advertising allocated to our space, it doesn't make sense.

I think agencies still like to go to the bigger platforms, they are still on television, they are still going to the larger networks within digital, but when you look at the amount of time spent in gaming, my vote would be TRADITIONAL ADVERTISERS SHOULD SPEND MORE TIME WITH US. So as a space I think IT’S GOING TO EVOLVE, IT'S NOT MATURE YET and I think innovative ways like watch to earn and other sort of higher value advertising models will come along.

[color=green]MOST OF THE ADVERTISING TODAY IS VERY MUCH PROGRAMMATIC, IT'S LIKE BANNER ADVERTISING, IT’S ALGORITHMIC, SOMEBODY WILL SAY THEY WANT FEMALES BETWEEN 25 AND 30 TO DO THE [INDISCERNIBLE] ON THE COMPUTER AND THEN THEY WILL FIND WHERE IN THE DIGITAL ECOSYSTEM THEY EXIST.[/color] A lot of money goes to the Facebooks and the Googles because they have got the critical mass, but when you take a demographic like Words with Friends it's perfect for what I just said and so we get our relevant share.
So we will continue to optimize our ability to deliver ads within our games. [color=green]WE WILL ALSO CONTINUE TO WORK WITH OUR NETWORK PARTNERS THE LIKES OF GOOGLE AND [INDISCERNIBLE] THEY BASICALLY BUY OUR SPOTS AND PUT THEM ON BEHALF OF THEIR CLIENTS TO OPTIMIZE THE YIELDS[/color] we can get from our advertising and we will see how it plays out overtime.

Brian Nowak

Alright, Gerard we are flashing red, so we are out of time.
Gerard Griffin
Four zeros.
Brian Nowak
Four zeros, so.
Gerard Griffin
That's good.
Brian Nowak
Thank you so much.

Source:
https://www.msn.com/en-us/money/other/zyngas-znga-management-presents-at-37th-nasdaq-investor-conference-transcript/ar-BBGjPpH