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For Zynga, Inc., the Quest to Create the Next "Candy Crush Saga" Begins

After years of working closely, Facebook (NASDAQ: FB  ) has finally outgrown Zynga, Inc. (NASDAQ: ZNGA  ) . We know because the social game supplier hasn't merited a mention in Facebook's SEC filings since January of last year. And even then a clear trend was emerging. Per the 2013 annual report:

[7%] and [9%] of our total revenue for the three and twelve months ended December 31, 2012, respectively and 11% and 12% of our total revenue for the three and twelve months ended December 31, 2011, respectively, came from a single customer, Zynga. Revenue from Zynga consisted of payments processing fees related to their sale of virtual goods and from direct advertising purchased by Zynga.

Zynga has struggled to produce meaningful revenue and earnings growth since, hurting stock returns.

ZNGA Chart

ZNGA data by YCharts

For CEO Don Mattrick, it's a complicated problem that won't be easy to fix. His strategy? Employ big brands to create the next Candy Crush Saga, or something like it.

Mobile motherlode

To be fair, Mattrick didn't specifically single out Candy Crush Saga. Rather, he used the latest earnings conference call to clarify that he wants to see Zynga developing games that "fit the way consumers are playing across various platforms." No platform is growing faster than smartphones and tablets.

According to data compiled by AppLift and Newzoo and published last October, the global mobile games market is on track to grow 27.3% annually to $23.9 billion by 2016. A growing installed base, as well as higher average spending per player, is fueling those gains.

Some of the new players will come from overseas. Recently, King Digital (NYSE: KING  ) began offering Candy Crush Saga to Chinese players through a partnership with local publisher Tencent Holdings, whose QQ and WeChat messaging services cater to hundreds of millions of users.

We don't yet know how big a boost King might get from tapping China's digital sweet tooth. Nevertheless, you can bet that Mattrick is watching how the story unfolds, especially as Zynga's latest mobile-first efforts take hold.

Down on the farm

In April, Zynga introduced FarmVille 2: Country Escape to a largely positive reviews. "Zynga developers set out to build a better FarmVille game for mobile devices. They may have built the best FarmVille game of the series," wrote Kotaku's Mike Fahey at the time.

Today, the game gets 4.2 out of five stars as determined by over 662,000 votes from Google's Play users. At the iTunes Store, the game rates four of five stars over 54,000-plus votes and is the 34th-highest grossing iPhone app and the 20th-highest grossing iPad app. Good numbers, to be sure, but nothing like what King is producing with Candy Crush Saga -- the second-highest grossing game on the iPhone and the iPad, trailing only Supercell's Clash of Clans.

FarmVille 2: Country Escape may be Zynga's first genuine mobile-only winner. Source: Zynga,

Licensing the future

If FarmVille 2: Country Escape is the present, the future includes a lot more mobile games built around recognizable brands. Early wins include deals with the National Football League, Tiger Woods, and Time Warner for the Looney Tunes brand. Sports games will live under the brand Zynga Sports 365.

Golf games using Woods' name won't debut before 2015. A Looney Tunes game is slated for the holiday season, though details remain elusive. But with the NFL season right the around the corner, Zynga's first major mobile catalyst could be about to launch.

"Starting with football, today [Aug. 7] we're announcing two multi-year licensing partnerships," Mattrick said during the latest earnings call, "one with the National Football League and another with the NFL Players. These licenses will enable us to bring real NFL teams and athletes, including their names and license, to our players, creating an authentic football team manager experience that can be enjoyed anytime, anywhere."

NFL Showdown will arrive on mobile devices as the new football season gets under way. Credit: Zynga, via the Google Play Store.

Foolish takeaway

Can any of this work? My Foolish colleague Leo Sun is concerned about licensing fees, and rightly so. Games designed to collect just a few dollars at a time -- as NFL Showdown is -- could have trouble earning enough to pay overhead. Zynga doesn't need a top-10 game that fails to deliver profits.

Then again, any fair evaluation of Mattrick's record suggests he's not the sort of executive you bet against. In his last gig at Microsoft, he helped turn around the Xbox business.

Whether Zynga today is in worse shape than Mr. Softy's Interactive division was in 2007, when Mattrick joined, is a matter of debate. All we know for sure is that Zynga needed drastic action, and spending big on licensed brands during a time of steep losses is as drastic as it gets.

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 28, 2014, at 9:29 PM, z06forum wrote:

    I agree with this Author. We have to wait and see how all the games Monetize over time. Don is a True Visionary. I would not bet against him either. As a Matter of Fact, I am betting heavily on him. There is not a better set of minds at the helm along with Don, (Clive D, Regina D and the Brilliance at Oxford). I like other SH would have liked to have seen a quicker Cadence on Game releases but now realize that we need to give the design teams the time to make quality games and to launch them with better execution. The 13 months of silence now makes sense. If Zynga has the ambition to dominate Mobile then they needed the time to lock in the major deals. Nfl, Woods, WB of what we know today, I can only imagine and speculate that NHL, MLB, NASCAR, NBA and others will follow. I would not be suprised to see Sports 365 as the top money earner for ZYNGA in 2015. The future is shaping well for Zynga IMO. Even if Z is partially sucessful they will certainly be improving mettrics in 15 and beyond. Good luck.

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Tim Beyers

Tim Beyers first began writing for the Fool in 2003. Today, he's an analyst for Motley Fool Rule Breakers and Motley Fool Supernova. At, he covers disruptive ideas in technology and entertainment, though you'll most often find him writing and talking about the business of comics. Find him online at or send email to For more insights, follow Tim on Google+ and Twitter.

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