A New Look at Zynga's Key Metric

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Zynga (NASDAQ: ZNGA  ) recently reported fourth-quarter and full-year results that sent its shares popping over 20%. The big stories from the release included job cuts, a notable mobile acquisition, and slipping player numbers. The release also included an updated figure for what I consider Zynga's most important metric. 

The company considers average bookings per user, or ABPU, a good measure of overall monetization of players through both in-game purchases and advertising. Bookings include the revenue for the period with the addition of any deferred revenue changes, which include in-game transactions and mobile downloads. Zynga calculates the ABPU by dividing total bookings in a period by the number of days and then dividing this by the average number of daily active users, or DAUs, for that period. 

The good news from the fourth quarter was that ABPU continued to improve. However, the details behind the growth mean that it's not quite time for Zynga to pop the cork.

ABPU improvement carries caveat 
Here's an updated look at ABPU and DAU growth over the past three years: 

Source: Company filings

ABPU improves when bookings grow at a faster rate than DAUs. That's a good thing -- unless it occurs because DAUs have tanked.

A small percentage of players make in-game purchases and -- as a commenter on a prior Zynga article pointed out -- they are likely to stick around longer than non-paying players since they've made a real money investment. So a DAU drop and ABPU increase can happen because the non-paying players simply move on en-masse.

However, there's a limit to the loyalty of paying players, which shows in the fact that the top three games in the fourth quarter -- Farmville 2, Zynga Poker, and Farmville -- accounted for over 60% of total online game revenue. Zynga Poker has been around for almost seven years but ties with Farmville 2 at around 1 million DAUs and 10 million monthly active users, or MAUs. The original Farmville was released in 2009 and falls behind the others with about 500,000 DAUs and 5 million MAUs.

So Zynga needs games that encourage more in-game purchases but also keep both paying and non-paying players involved over a longer period of time. That's why I recently argued that Zynga Poker remains one of the company's strongest assets. A flash in the pan game can create a sudden surge in overall DAUs, but the statistic will boomerang back with a massive drop.

Mobile needs improvement 
Ideally, the longer-lasting games also need to help improve Zynga's mobile metrics. The company's still dependent on the Facebook platform despite attempts to create more distance. At the time of Facebook's IPO, the social network giant divulged that its cut of Zynga's earnings amounted to 12% of its overall revenue. The two companies became tied together for a while with Zynga following Facebook down its own bumpy road.

Questions existed as to whether even Facebook could properly monetize mobile. However, Facebook's recent fourth-quarter report showed improvements in that area with 49% year-over-year growth in daily mobile users and 39% growth in monthly mobile users. 

Zynga's current mobile metrics aren't inspiring but the newly announced acquisition of popular mobile game developer NaturalMotion could help turn the tides while improving overall DAUs and, potentially, ABPU.  

Foolish final thoughts 
Zynga's main problem remains player retention. If the company can develop more titles with the staying and monetization power of Zynga Poker and Farmville, then we'll start seeing some organic ABPU growth that isn't largely tied to dropping membership.

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  • Report this Comment On February 04, 2014, at 9:39 PM, benderdundat wrote:

    take yur spam elsewhere. yur wasting our time reading yur phony junk. yuv been reported.

  • Report this Comment On February 04, 2014, at 9:57 PM, benderdundat wrote:

    I've been following Zynga for years and play and win regularly. It's fun, and the screen is attractive and play is usually fast. At one point I was ready to buy, but realized the customer care just does not care. We've tried many times to report that they have a chronic glitch that allows a player to go all-in without putting money in the pot, and can win the pot taking the money or lose without losing any money. And you cannot chose the ante table you want and often are put into much higher ante table, like 10-20k without any warning. They really don't seem to care and ignore all emails. It's a common subject in chat.

    I would not recommend buying until you play and learn about them. It's a free start, with free money, so you have little to lose to try. They are losing players, as you see and hear that friends you know

    are leaving. They could dominate, but there are several other good games, like Pokerist & WSOP that seem to do a better job of customer care and fixing glitches.

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Brandy Betz

Brandy Betz has written for The Motley Fool since 2011 and primarily covers health care, ETFs, and dividend stocks. You can follow her on Twitter @BrandyBetz.

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