Live services form the foundation of Zynga’s (ZNGA) multi-year growth strategy

Zynga Inc. (NASDAQ: ZNGA) continued the strong performance seen through this year with strength in its game franchises and growth in its user base. The company reported better-than-expected results for its third quarter of 2020 a day ago with record growth in revenue and bookings. Looking ahead, Zynga expects to see momentum from its live services portfolio and its pipeline of new games.

Live services

Strength in live services is crucial to Zynga’s growth strategy. During the third quarter, live services helped drive double-digit growth in overall revenue and bookings. Revenues increased 46% to $503 million while bookings jumped 59% to $628 million year-over-year. The company saw recurring growth across its Forever Franchises, Social Slots and Casual Cards portfolios.

Social Slots benefited from strong performances in Hit It Rich! Slots and Game of Thrones Slots Casino. Words With Friends, CSR2 and Empires & Puzzles also did well. Toon Blast and Toy Blast, acquired through the Peak Games acquisition, completed a full quarter at Zynga contributing meaningfully to revenue growth. During the quarter, user pay revenue grew 55% and user pay bookings rose 69% year-over-year.

New games pipeline

Zynga’s pipeline of new games are expected to add to the Forever Franchises portfolio and drive growth over the coming years. The launch of Harry Potter: Puzzles & Spells was received well and the company plans to scale this game in the coming quarters and anticipates that it will help drive growth next year and beyond.

Zynga is making good progress in soft launch with FarmVille 3 and Puzzle Combat as it tests new features to drive long-term engagement and monetization. The company sees immense opportunity in interactive entertainment and mobile games and continues to invest in new categories, platforms, markets and technologies.

In the coming years, Zynga plans to roll out new games based on CityVille and Star Wars as well as new projects from Gram Games and Peak. The hyper-casual games category is another area with good potential and the acquisition of Rollic is expected to help drive growth in this space.

M&A strategy

Zynga’s previous acquisitions are contributing well to the company’s top line growth. They have added to live services and the Forever Franchises portfolio while also expanding the games pipeline and providing entry into new mobile categories.

In October, the company acquired hyper-casual games company Rollic giving it access to a robust portfolio of hyper-casual games and a large audience base. As the mobile games and advertising landscape evolves, Zynga sees opportunities to expand its player network paving the way for cross promotion and advertising opportunities. Looking ahead, Zynga sees opportunities for more M&A deals as it works on expanding its addressable market.

Outlook

While audience levels have somewhat normalized since last quarter, Zynga continues to see strong player engagement and monetization from existing and new cohorts. Live services are expected to drive the majority of revenue growth in the fourth quarter with contributions from Toon Blast, Toy Blast, Rollic’s hyper-casual game portfolio as well as Harry Potter: Puzzles & Spells.

For the fourth quarter of 2020, revenues are expected to increase 41% year-over-year to $570 million and bookings are expected to climb 55% to $670 million. For the full year, revenues are estimated to grow 46% YoY to $1.93 billion while bookings are projected to rise 43% to $2.24 billion.

Stock

Zynga’s stock has gained 50% since the beginning of the year. Despite the strong quarterly performance, the stock stayed down over 6% on Thursday as Zynga’s continued losses remain a concern. The company has delivered net losses throughout this year and the net income generated in the third quarter of 2019 was driven mainly by a one-time gain from the sale of assets in San Francisco. Zynga does not give adjusted EPS metrics. The company has projected losses for both the fourth quarter and full year as well.

Click here to read the full transcript of Zynga’s Q3 2020 earnings conference call