Zynga Is Down, But Not Out

After a solid performance in 2013, Zynga (NASDAQ: ZNGA  ) hit a speed bump this year. The stock had gained more than 60% last year, but so far in 2014, it is down 20%. However, Zynga's first quarter was robust, and the company is doubling down on its mobile initiatives. In addition, its bookings growth was strong. 

Zynga might improve going forward, but it faces stiff competition from Glu Mobile (NASDAQ: GLUU  ) and Electronic Arts (NASDAQ: EA  ) . Let's take a look at Zynga's moves and see if it can make a comeback.

Some impressive growth metrics
Zynga is focused on growing and sustaining its franchises, creating new hits, and driving efficiencies in the business. Management says that it has established a strong base for 2014, and expects to record robust growth this year. The company's strategies are working well; for the first time in two years, Zynga witnessed sequential growth in key performance metrics such as bookings, adjusted EBITDA, mobile bookings mix, and audience.

The company grew bookings by approximately 10% sequentially. Its performance was driven by a new FarmVille franchise, FarmVille 2: Country Escape. Since the launch, Zynga has seen more than 4 million installs of the game and received positive feedback from players. 

The company's new games such as Country Escape are key drivers of audience growth. For example, in the first quarter, Zynga grew its mobile audience by 10% and its daily audience by 7%, quarter over quarter. The company increased its monthly mobile audience by 45% and its daily mobile audience by 23%, sequentially. More important, Zynga's core mobile audience, excluding the NaturalMotion acquisition, also grew in the double-digits in the first quarter, with an 11% increase in monthly mobile audience.

The mobile focus
This year is expected to mark the first time in Zynga's history where its mobile bookings surpass its web bookings. The company has made considerable progress in achieving this target, as its mobile bookings grew to 36% of total bookings in the first quarter.

Zynga is making investments to grow and sustain its biggest franchises, such as Casino and Words With Friends. The Casino franchise performed well in the last quarter, as Zynga's focus on player feedback and delivering an authentic casino experience generated bookings and audience growth. In fact, Casino experienced double-digit bookings growth for the first time in seven quarters, largely due to the improvements made in Zynga Poker, as well as the success of Slots, Hit It Rich, and the new Riches of Olympus games. 

In racing, Zynga's products became available to more consumers with the recent launch of CSR Classics on Google Play. The franchise is comprised of CSR Racing and CSR Classics, and it hit a new milestone last quarter by surpassing 100 million downloads. In addition, Clumsy Ninja achieved more than 25 million downloads since its launch only five months ago, and the company is expanding its reach by launching it on Google Play.

Zynga is trying to deliver more games in more categories than any other competitor. The company is investing heavily in developing the next generation of Zynga games. There are a number of new categories where it believes it can deliver top-20 hits. The company already has five top franchises and capabilities in the farm, casino, words, racing, and people categories. This year, it expects to move aggressively into new categories to counter impending threats from Glu Mobile and Electronic Arts.

Stiff competition
Glu already has an established portfolio of mobile games, such as Contract Killer, Frontline Commando, Eternity Warriors, and Deer Hunter. It is now looking to diversify its customer base by adding yet another franchise in the form of a James Bond free-to-play mobile game. Glu has partnered with EON Productions and MGM Interactive to develop the first free-to-play mobile game in the history of the Bond franchise. The game is scheduled for release in the summer of next year. Given the popularity of James Bond films, Glu will be able to increase its audience with the title. 

Electronic Arts is also moving forward aggressively with its mobile initiative. EA had announced last year that it will be releasing around 15 mobile games, and it has the advantage of having a strong portfolio of popular titles such as FIFA 14, Battlefield 4, Madden NFL 25, Need for Speed Rivals, and NBA LIVE 14. The company has started leveraging the popularity of these games on mobile by launching mobile versions.

EA is looking to make the most of the World Cup fever by delivering an expansion pack for the 2014 FIFA World Cup. However, Zynga doesn't enjoy any such advantage and it will need to continue innovating, and innovate fast, to benefit from mobile gaming.

The bottom line
Zynga's performance hasn't been noteworthy so far this year, but the company is undoubtedly making progress. It is seeing sizable bookings growth and launching new games to strengthen its existing franchises. Investors should consider making the most of Zynga's pullback by adding shares to their portfolio.

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