Zynga lets players connect with their inner mob boss, farmer, and poker champ. The company is a leading social game developer with titles such as Mafia Wars, FarmVille, and Zynga Poker. It offers the games online for free primarily through Facebook, but also on its own website, with 240 million monthly active users in more than 175 countries. Players use a credit card or a service such as PayPal to buy virtual currency to purchase in-game virtual goods that enhance, extend, or accelerate gameplay. Less than 10% of revenue comes from advertising, while 36% comes from outside the US. Zynga was founded by CEO Mark Pincus, who fashioned the name after his late dog Zinga. The company began trading on the NASDAQ in 2011.
Zynga's IPO year marked its emergence into the billion dollar club as revenue nearly doubled. Nearly 95% of total sales came through the Facebook platform. Near triple-digit growth is nothing to sniff at, but the preceding year brought in nearly 400% growth and the company's first-ever profitable result. Also, the company's bookings (an internal measure of revenue) were up less than 40% in 2011. The IPO was the primary culprit in preventing the company from translating its 2011 positive growth to the bottom line, which plummeted back into the red with record triple-digit losses. The bulk of that came from $500 million in stock-based compensation in relation to the IPO. Non-GAAP measures put it in the black, at more than $180 million, but that's still down nearly 25% from 2010. That was primarily due to the nearly 385% increase in R&D (to nearly $730 million) to develop new games.
Online game revenue accounts for most of sales (93%) and increased 85% over 2010. This segment consists of consumable and durable virtual goods. Consumable virtual goods are items such as "energy" used by virtual characters to perform in-game actions and that need to be replenished, while durable virtual goods are persistent items "owned" by a player's virtual character, such as the tractors or buildings in FarmVille. Some of both kinds of goods can be obtained simply through gameplay. Durable goods exclusively available by purchase and the time-saving advantage of buying consumable goods are two of the biggest incentives that drive players to fork over real money.
Durable virtual goods is the bigger piece, accounting for more than 70% of the segment's revenue and bringing in more than 80% of its 2011 increase. The company's biggest revenue-generating games were FarmVille (27%), FrontierVille (15%), Zynga Poker (15%), Mafia Wars (13%), and CityVille (13%). Zynga's top games vary over time, but the top three games usually account for the majority of sales, though that percentage has dropped from more than 80% in 2009 to less than 60% in 2011. Its other revenue component, advertising, grew more impressively, rising nearly 230% to more than $74 million. Half of that increase came from in-game offers, sponsorships, and engagement ads.
A key factor in that dynamic is an addendum to its agreement with Facebook that siphons off 30% of all virtual good revenue on that platform to its social partner. That addendum expires in 2015. Zynga's games are also played on mobile devices and other social sites such as Google+, Myspace, and Yahoo! To build a presence outside of Facebook, in 2012 Zynga launched its Zynga.com site as a beta platform for playing Zynga's and even third-party games. Five games -- all Zynga titles -- were available on the site at launch: CastleVille, Words With Friends, CityVille, Hidden Chronicles, and Zynga Poker.
The success of that platform will depend in part on the technology infrastructure supporting it. The company has built its own infrastructure, called zCloud, which sports hardware, such as servers, from Citrix, but it also relies on outside cloud-computing service providers. A material amount of the company's game traffic is hosted by Amazon Web Services, but by the end of 2011, Zynga had shifted 80% of its daily active users to its zCloud, up from only 20% at the beginning of the year.
One of PayPal's top merchants behind eBay, the company maintains US offices in Baltimore, Los Angeles, and San Francisco. Zynga established its first international offices in India and Ireland in 2010 to develop social games within those markets. It also moved into Japan with the acquisition of Tokyo-based social game company Unoh. The purchase of Unoh formed part of Zynga Japan, a joint venture between Zynga and one of its overseas investors, SOFTBANK. Zynga Japan focuses on adapting existing games and developing new ones for Japan's mobile social networks. The next year Zynga established a base in Canada with the acquisition of Toronto-based mobile application developer Five Mobile, in part to take advantage of the booming tech industry in the city. The company renamed the business Zynga Toronto. Five Mobile had developed apps for Rogers Communications, among other clients. This global expansion represents an effort to become less dependent on the Facebook platform and the US market.
Zynga is looking to acquisitions not only for global expansion, but to help diversify its development teams and, consequently, its catalog of titles. Its acquisition pace has accelerated in recent months, and have usually been relatively small purchases. In 2012 it made one of its largest acquisitions, paying about $180 million for New York-based creators of the Pictionary-like hit game Draw Something, OMGPOP. Draw Something had done the impossible in just a couple of months: knocked a Zynga game out of the #1 spot on Facebook in terms of daily active users. A week later, Zynga swooped in. The deal adds another hit game to and broadens the diversity of Zynga's catalog. Also that year it bought Wild Needle Games, which focused on mobile games for women.
In 2011 Zynga married its global expansion goals with its platform proliferation aspirations by acquiring UK-based Wonderland Software, game creator for Apple's iOS platform, rebranding it as Zynga Mobile UK. It also picked up Germany-based Gamedoctors, creator of iOS game ZombieSmash. Also that year it bought two game companies in its hometown of San Francisco: Page44 Studios, which brought the acclaimed World of Goo to the iOS platform, and HipLogic. It bought another US-based company that year, Astro Ape Studios, which operates in New York.
In 2010 the company acquired mobile games developer Newtoy. The company is best known for its Words with Friends game, similar to Scrabble, which is played on the iPhone, iPod Touch, and iPad devices. Zynga also released FarmVille for iPhone and iPad, and Mafia Wars and FishVille on Yahoo!, and Zynga Poker on Google's Android mobile phone platform.
Zynga is also using partnerships to extend its presence outside of its games. It joined up with Hasbro in 2012 to grant the toy company rights to develop products based on Zynga games and for co-branding with Hasbro properties.
As it struggles to deliver its games for mobile platforms (where social games are increasingly being played), Zynga in 2013 laid off nearly 20% of its workforce (about 520 employees). It will also close several offices.
Founder and CEO Mark Pincus controls nearly 40% the company.