BU SINESS CASE STUDY
REBECCA WEINBERGER
PAUL GLAZIK
CHRIS PHILLIPS
NANCY LEYVA
ZYNGA INTERNAL ENVIRONMENT
REBECCA WEINBERGER
Analysis
BACKGROUND
• Created in 2007 as Presidio Inc. by Mark Pincus
• Based out of San Francisco, CA
• 2010 - Incorporated out of Connecticut and renamed Zynga
• 2011 - Initial Public Offering on NASDAQ
• 2014 - Added a new Director to the Board, Dr. Regina Dugan, former V.P. at Google
• Owners of several top social media games for mobile/tablets systems such as:
Farmville, Zynga Poker, Mafia Wars, Words with Friends
3
PRIMARY ACTIVITIES
•
Develop, market and operate social games as live services played over the Internet, social
networking sites and mobile platforms
•
Generally, all games are free to play and revenue is generated through the in-game sale of
virtual goods, mobile game download fees, and advertising services
•
Pioneer and innovator of social games and a leader in making “play” a core activity on the
Internet
•
Free to play business model
• Social games leverage the global connectivity through Internet platforms
• Virtual Goods and Paid Downloads
• Virtual currency can also be earned for free through game play or accepting promotional
offers from advertising partners
• Generate revenue when players purchase mobile game downloads
SUPPORT ACTIVITIES
•
Firm infrastructure is heavily based on technology
•
Constantly investing in hardware and software to maintain their datacenter infrastructure
• Technology infrastructure that can efficiently and reliably handle increased player usage,
fast load times, and new feature/product development
•
Invested extensively in developing proprietary technology stack
• Handles sudden bursts of activity for millions of players
• Datacenter and cloud computing management
• Shared code base
• Cross-promotional features
CULTURE OF MANAGEMENT
•
Mark Pincus- Founder
•
Don Mattrick- CEO
•
Company growth is heavily dependent on efforts to employee talent
• High demand of game designers, product managers, engineers and executives
• Devote resources to indentifying, recruiting, hiring, training, successfully integrating and
retaining employees
• Maintains team spirit in employees and applies effective human resource strategies to
encourage and motivate employees to perform their best
• There is a spirit of competition within Zynga’s structure. Each unit operates separately
to produce new games/products/ideas
RBV: RESOURCE BASED VIEW (INTERNAL)
Tangible Resources:
•
Financially – Head is still above water and
assets can be quickly liquidated
•
Physical – They have several geographical
locations: many are proprietary to the games
they create
•
Technological – One of the leading game
developers; own their own gaming rights and
in many cases the coding to those games
•
Organizational – Although they have an
organization, we believe the jury is still out on
it’s effectiveness and ability to produce newer,
more popular games
Intangible Resources:
•
Human – The market for good programming
and coding talent is small: new game
development is key to Zynga’s long term
success
•
Innovation/Creativity – Zynga is well prepared
for on-line gaming growth. The move to their
own website platform is an example. But this
can only be achieved with new and interesting
gaming products
•
Reputation – From a market based view,
Zynga is a bit of an ugly duckling, but from a
consumer view, they’re a leading game
developer
Organizational Capabilities:
•
Excellent at capturing consumers with game qualities (consumers want to keep playing)
•
Capable of competing on a global level
•
Zynga’s games are leading brands within the mobile gaming industry
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ZYNGA FINANCIALS
CHRIS PHILLIPS
Analysis
INVESTING INFORMATION
•
•
•
•
•
NASDAQ (ZYNG)
American Stock Transfer & Trust Co. LLC
No Dividends paid or declared
Initial offering in 2011 was at $10 p/s; raised
approx. $96M
SIC 0001439404
• 7434 Services – Computer Processing
& Data Preparation
•
•
Feb 2014 completed purchase of NaturalMotion
$527 million
Hiring of Dr. Regina Dugan helps legitimize
Zynga R&D and board compliance
FINANCIAL POINTS
Revenue:
Online game
Advertising
Total revenue
Research and development
Impairment of intangible assets
Income (loss) from operations
Current assets:
Cash and cash equivalents
Marketable securities
All others
Total current assets
2013
2012
Gain/(Loss)
$ 759,572
113,694
873,266
$ 1,144,252
137,015
1,281,267
$ (384,680)
$ (23,321)
$ (408,001)
413,001
645,648
(232,647)
10,217
95,493
(85,276)
2013
2012
(65,631)
(182,971)
•
•
•
•
•
On-line Game Revenue is down by 34%
Although income is up by 59%, it’s still
operating with a loss
Facebook accounts for 41% of Zynga’s A/R
in 2013; 58% in 2012
Advertising for 2013 was $60.6M; 102.2M in
2012
3rd Qtr 2012 included a $95.5 million
impairment to Goodwill, and $10.2 M in
2013 for discontinued games (OMGPOP)
2013
465,523
659,973
115,903
1,241,399
2012 Change
385,949
79,574
898,821 (238,848)
199,600 (83,697)
1,484,370 (242,971)
Deferred revenue
186,663
338,964 (152,301)
Total liabilities
401,814
750,817 (349,003)
1,877,271
2,279,085
1,825,503
51,768
2,576,320 (297,235)
Total stockholders' equity
Total liabilities and stockholders' equity
•
•
•
Debt has been reduced
Only CEO has Class C stock
Accumulated deficit
increased over 30%
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COMPARISONS
1st Qtr 2014 (U.S. $ thousands except where noted)
Zynga (U.S.)
Change +/2014
2013
Revenue
168,020 263,589
-36%
King Digital (Eng) Change +/2014
2013
606,709
205,918
195%
Glu Mobile (U.S.) Change +/2014
2013
44,580
24,605
81%
Operating Expense
53,504
69,394
-23%
195,696
64,014
206%
13,756
8,536
61%
0.68
0.74
-0.06
0.68
0.69
-0.01
0.69
0.65
0.04
SG&A
184,773
199,128
-0.07
249,234
76,326
2.27
30,117
21,563
0.40
Profit
(70,257)
(4,933)
13.24
161,779
65,578
147%
707
-5,494
-113%
Cash Flow %
from
Operations
Cash Assets
782,200M
678,170M
36,950M
3.32
2.95
1.68
884,460M
317,680M
81,320M
ROA (trailing 12 mo avg)*
-2.26
79.99
-10.12
ROE (trailing 12 mo avg)*
-5.31
174.76
-29.86
Revenue per share
(trailing 12 mo avg)*
0.95
7.51
1.68
Current Ratio
Outstanding Shares
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ZYNGA EXTERNAL ENVIRONMENT
PAUL GLAZIK
Analysis
MOBILE GAMING INDUSTRY
•
In 2013, 92 percent of iTunes revenue was from games
•
Mobile gaming will be a $10 billion industry in 2014
•
Predicted to reach $60 billion by 2017
•
Mobile gaming revenues are expected to grow at a rate of 19% through 2016
•
Many small companies in industry. New entrants every quarter.
•
Larger companies forming through M&A’s.
•
In Q1 2014, mobile gaming related acquisitions topped $5 billion, almost as
much as all of 2013.
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OPPORTUNITIES & THREATS
Opportunities:
• New Game development – (license new
characters)
• Newer markets - Globally
• Newer players – younger generations
• New platforms to play – PCs are not dead
• New experiences – 3D, even more live
interaction
• New Relationships – Google, Nintendo
Threats:
• Competition
• Relationship with Facebook
• Underperforming - Failed
games/acquisitions
• Unable to retain new talent
• Lack of creativity, uniqueness, originality
• Underperforming financial market
• Copyright, patent infringements –
counterfeit gaming
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MAJOR COMPETITORS
Gree Games (Japan)
DENA CO., LTD (Japan)
•
Best known game: AntSmasher
•
Japanese technology firm established in 1999
•
Company profile states they “develop and operate a
broad range of mobile and online services including
games”
Competes with Zynga through its Mobage game
service
•
Electronic Arts (EA) (U.S.)
•
Founded in 1982
•
Large software company that produces console,
computer, online, and social media games
•
Owns several successful titles, including Plants
vs. Zombies, Zuma, and Bejeweled
•
Posted $3.8 billion revenue in 2013
•
In 2013, attempted to sue Zynga, claiming The
Ville (Zynga) was a copy of Sims Social (EA).
Suit was settled.
•
GREE is a global mobile social company with businesses that
include
social gaming, social media, advertising, licensing and
merchandising, and venture capital (direct from GREE business
overview)
•
Offers a small catalog of online games
•
Also offers social media services (Japan only)
Gameloft (Europe)
•
Founded in 1999 by Ubisoft co-founder Michael Guillemot
•
By 2003, Gameloft offered games to over 100 mobile phone
models
•
First company to offer games on the iPhone app store after it
launched in 2008
•
In 2013, Gameloft’s “Despicable Me: Minion Rush” game was
their first title to reach 100 million downloads
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PROFIT SUMMARY
•
Gameloft posted $273 million profit in 2013
•
Electronic Arts earned $264 million in 2013
•
Zynga’s net income for 2013 was ($36 million)
•
Zynga again operates at a loss while competition profits
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ZYNGA STRATEGY AND MARKET
STRATEGIES
NANCY LEYVA
Analysis
ZYNGA STRATEGY
•
Founded on passion for games and for family and friends
playing together
•
Mission: “connect the world through games”
•
Encourage entrepreneurship and intelligent risk-taking to
produce breakthrough innovations
•
Zynga’s goal is to create top hits that engage mainstream global
audiences
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CURRENT STRATEGIES
• Differentiation among game lines: Zynga’s content perspective
allows them to expand their offerings across several game
categories: (Farm, Casinos, Words, Live simulation)
• Paying a premium for new talent and new acquisitions:
Because the margin for finding new games/talent or good
companies is very small (NaturalMotion)
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SUSTAINABLE STRATEGIES
Promoting new on-line mobile/tablet/PC website platform www.zynga.com
• Facebook’s platform will inevitably threaten Zynga’s long term revenue, while
its still the largest platform for Zynga users. Using Facebook as a platform
costs Zynga an average of 30% of sales.
Invest in talent and geographical presence
• The acquisition of NaturalMotion gives Zynga a European presence and access
to a new market of game development talent and consumer base
Cost Leadership
• Continue to find cost cutting measures like closing unprofitable game lines
• Keep long term debt low
• Continue to re-value the assets of all acquired units
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MARKET STRATEGY CHARACTERISTICS
•
(BUSINESS MACRO LEVEL)
Mainly competing for leisure time, attention and discretionary
spending of their players
• Gaining the trust of the player to enjoy the
experience/interaction (targeting members/users of Facebook,
Google, I-Tunes)
• Promoting next level activity/game advancement for cash/credits
• Selling additional life spans/game resources for cash/credits
•
Capturing consumer/customer information for data analytics
•
Analyzing captured gamer data for marketing/sales/advertising
•
Selling captured gamer data to 3rd party users (Facebook,
Google, etc.)
•
Selling advertising space to 3rd parties
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ZYNGA RECOMMENDATIONS
•
Zynga needs to examine its cost structures and business model compared to competition and
find out why.
•
Find game platform(s) that are going to be long term and sustainable
•
Zynga has to differentiate itself somehow from it’s competitors (license new/old characters)
•
Zynga should investigate a possible sale or merger
•
Zynga currently invests in both mobile and social media gaming. Competition is large and
fierce, Zynga needs to re-focus on what makes them the real market leader while also turning
profits.
•
Increase advertising/marketing expense; Tell the public, not just social media users, who
Zynga is.
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RESOURCES:
•
Yahoo Finance (ZYNG, KING, GLUU)
•
Google images
•
SEC.GOV/edgar
•
Fundamentals of Corporate Finance; Ross Westerfield, Jordan, 10th Ed., 2013
•
Strategic Management; Dess, Lumpkin, Eisner, McNamara, 7th Ed., 2014
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