Zynga (ZNGA) Q1 2021 Earnings Call Transcript

Zynga (ZNGA)
Q1 2021 Earnings Call
May 05, 2021, 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Zynga first-quarter 2021 results conference call. [Operator instructions] Please be advised that today's conference is being recorded. [Operator instructions] I would now like to hand the conference over to your speaker today, Rebecca Lau, vice president, investor relations and corporate finance. Please go ahead.

Rebecca Lau -- Vice President, Investor Relations and Corporate Finance

Thank you, Josh, and welcome, everyone, to Zynga's first-quarter 2021 earnings call. On the call with me today are Frank Gibeau, our chief executive officer; and Gerard Griffin, our chief financial officer. Shortly, we will open up the call for live questions. Before we cover the safe harbor, please note that in an effort to keep our team members healthy, each member on today's call is dialed in remotely.

We appreciate your understanding during the call and hope that everyone is staying safe during this time. During the course of the call, we will make forward-looking statements related to our business plan and strategy, as well as, expectations for our future performance. Actual results may differ materially from the results predicted. Please review the risk factors in our most recently filed Form 10-K, as well as, elsewhere in our SEC filings for further clarification.

In addition, we will also discuss non-GAAP financial measures. Our earnings letter, earnings slides and when filed, our 10-Q, will include reconciliations of our GAAP and non-GAAP financial measures. Please be sure to look at these reconciliations as the non-GAAP financial measures are not intended to be a substitute for or superior to our GAAP results. This conference call is being webcasted and will be available for audio replay on our investor relations website in a few hours.

Now I'll turn the call over to Frank for his opening remarks.

Frank Gibeau -- Chief Executive Officer

Thank you, Rebecca. Good afternoon, everyone, and thank you for joining our Q1 earnings call. We are off to an excellent start in 2021, delivering record Q1 results and generating strong momentum across all aspects of our growth strategy. Today, we are also announcing our acquisition of Chartboost, a leading advertising and monetization platform with a proven track record of innovation in the ad tech industry.

We could not be more excited to bring this talented team to Zynga and will discuss the acquisition in more detail shortly. Execution across our multiyear growth strategy has driven our tremendous results to date while providing strong momentum for additional growth ahead. In and beyond, we are focused on continuing to drive recurring growth from our live services foundation and launching new titles from our exciting new game pipeline. In addition, we are investing in incremental growth initiatives where we believe Zynga is uniquely positioned to capitalize on several megatrends in interactive entertainment.

These new initiatives include hyper-casual games, cross-platform play, international expansion and advertising technologies, all of which have the ability to meaningfully increase Zynga's total addressable market and capabilities to further grow our business. In Q1, we made significant progress against each of our growth initiatives. First, strength across our live services drove record quarterly revenue of $680 million, up 68% year over year and bookings of $720 million, up 69% year over year. While the majority of Zynga Studios are continuing to operate in a work-home configuration, our teams are performing incredibly well and remain focused on delivering highly engaging experiences for our players.

By delivering a steady cadence of bold beats, we are driving strong play engagement and monetization and are seeing these positive trends continue even as more countries begin to reopen. In Q1, we saw strong performances across our live services portfolio with user pay revenue and bookings up 62% and 63% year over year. Advertising revenue and bookings were also up 108% year over year. During the quarter, our Social Slots portfolio delivered its best revenue and bookings, led by a record performance from Hit It Rich! slots, more than seven years after we launched the franchise in 2013.

Our bold beat strategy is paying off in Toon Blast and Toy Blast with our recent feature introductions of Cooper's Rally and Hoop Shot, driving strong player engagement in both titles. Finally, Empires & Puzzles, Words With Friends, CSR2, and our Casual Cards portfolio, all achieved record Q1 revenue and bookings. Second, our recent game launches are off to great starts and we have more new releases planned for 2021. Starting with Harry Potter: Puzzles & Spells, this title continues to build momentum and is a meaningful driver of our year-over-year live services growth.

To further scale the game in 2021 and beyond, we are continuing to invest in marketing and are introducing exciting new bold beats, such as our Magical Mischief event which encourages friendly competition being clubs with a new feature called Prank Boxes. In April, we launched Puzzle Combat worldwide, a new mobile action Match-3 RPG, where players recruit heroes, build bases, and compete in PvP battles in a zombie scene setting. Early player engagement is strong and gives us confidence in our ability to gradually scale the game over the coming quarters, the same strategy that we took with Empires & Puzzles. Our next release will be FarmVille 3 later this year.

As the game progresses through its final stages of soft launch testing, we are pleased to see players engaging with its unique animal and farmhands features. At a time when people around the world are gravitating toward nostalgic experiences that build community, we are excited to bring back the iconic and beloved FarmVille brand to new and returning players. Later this year, we also plan to launch our recently announced Star Wars: Hunters game. This is an ambitious project that will deliver on a number of first for Zynga, including our first arena combat game, our first cross-platform play title, and our first game built in the Star Wars universe in collaboration with Lucasfilm Games.

Third, hypercasual is building strong momentum and proving to be an important driver of growth for Zynga. Rollic has seamlessly integrated into our Zynga family of Studios and in Q1, delivered its all-time best revenue and bookings quarter while also leading the category as one of the fastest-growing hyper-casual game companies in the world. Year over year, Rollic has more than tripled its quarterly installs and now stand as one of the top 5 hypercasual game publishers in the U.S. and top 10 in the world based on downloads in Q1.

This exciting growth was powered by Rollic's unique publishing engine that leverages network of first-party and third-party developers to successfully create and launch new hypercasual hits. In Q1, High Heels and Blob Runner 3D reached the No. 1 and No. 2 top 3 downloaded game positions in the U.S.

app store. Launched in April, Rollic's new game Hair Challenge is off to a tremendous start, reaching the No. 1 top free downloaded games position in the U.S. app store.

Rollic is also attracting new audiences to Zynga's network by creating universally games that are trending in culture and on leading social platforms, including TikTok. Building on this momentum, we are expanding Rollic's development talent and games portfolio via incremental acquisitions such as the Uncosoft Studio. Fourth, we are making significant progress on our cross-platform play growth initiatives initially anchored on the Star Wars brand. In Q1, we announced that our first cross-platform play title, Star Wars: Hunters, will be coming to mobile and Nintendo Switch players later in 2021.

In addition to providing a fresh new look into the Star Wars universe, This fast-paced arena combat game is specially designed for players who thrive on cross-platform play and social competition. During the quarter, we also welcomed Echtra games to Zynga. This talented team has already started working on a new action RPG game for Zynga which leverages their decades of experience in this category, as well as, their proven cross-platform development tools and technologies. Fifth, Asia is becoming a key contributor to our international growth.

In Q1, we delivered our best international revenue and bookings of 67% and 59% year over year. Our recent acquisitions of Toon Blast, Toy Blast, and Rollic, as well as, our launch of Harry Potter: Puzzles & Spells have all been key drivers of our international growth. Specifically, audiences in China are responding to our hypercasual games with High Heels and Blob Runner 3D, both reaching the No. 1 top 3 downloaded games position in the China app store.

While our presence in Asia is still in its early stages, it's great to see our content connect with audiences across the region and we are excited to build on this momentum in the future. Finally, the acquisition of Chartboost dramatically accelerates the development of our advertising and monetization platform and greatly enhances the value of our first-party data. Chartboost reads a massive global audience of more than 700 million monthly users and runs over $90 billion monthly advertising auction. Chartboost's unified advertising platform includes demand side, mediation, and supply side capabilities, that are powered by proprietary technologies that optimize user acquisition and advertising yields.

Chartboost has been a trusted partner of Zynga for many years in numerous campaigns that have contributed to the strength of our live services portfolio. Together, Zynga and Chartboost possess all the elements of a complete next-generation platform. By combining Zynga's high-quality games portfolio with first-party data and Chartboost's proven advertising and monetization platform, we will create a new level of audience scale, strengthen our ability to navigate upcoming privacy changes, and meaningfully enhance our competitive advantage in the mobile ecosystem. Following the anticipated close of this transaction in Q3 2021, Chartboost is expected to be immediately accretive to Zynga while also unlocking growth opportunities and synergies for our company in 2022 and beyond.

Today, we are raising our full-year 2021 revenue and bookings guidance, and over the coming years, we are confident in our ability to increase our total addressable market, while driving strong top-line growth and margin expansion as we continue to execute on our growth initiatives. With that, I would now like to turn the call over to Gerard to discuss our Q1 results in more detail, as well as, our outlook for the coming year.

Gerard Griffin -- Chief Financial Officer

Thank you, Frank. We delivered record Q1 results ahead of our guidance and are off to a great start in 2021. Our strong performance reflects momentum across all aspects of our growth strategy. On the talent front, I would like to echo Frank and welcome the recently acquired Echtra Studio to Zynga.

This talented team brings extensive cross-platform experience and we'll be developing a new yet-to-be announced cross-platform play action role-playing game. As Frank noted, today, we are also pleased to announce our acquisition of Chartboost. Later in this call, I will outline some further details on this transformational acquisition. Building on our strong execution to date and our road map for the balance of the year, we are raising our full-year 2021 revenue and bookings guidance.

But first, let's discuss Q1 results. Revenue was $680 million comprised of bookings of $720 million, offset by a net increase in deferred revenue of $39 million. Revenue was $45 million ahead of our guidance, driven by a $40 million bookings beat and a $6 million lower-than-expected net increase in deferred revenue. Live services drove our record top-line results, with stronger-than-anticipated performance from Rollic's hyper-casual portfolio, Toon Blast, Harry Potter: Puzzles & Spells, Toy Blast, and broad-based strength across the remainder of our live services.

Revenue was up $277 million or 68% year over year, driven by bookings growth of $295 million, up 69% year over year, partially offset by an $18 million higher net increase in deferred revenue. Our year-over-year bookings growth was driven by our mobile live services, including full-quarter contributions from Toon Blast, Toy Blast, Rollic's hyper-casual portfolio, and Harry Potter: Puzzles & Spells. The net increase in deferred revenue of $39 million was primarily driven by bookings from Harry Potter: Puzzles & Spells, Toon Blast, and Toy Blast. We ended Q1 with a deferred revenue balance of $780 million versus $453 million a year ago.

Turning to Q1 operating expenses. GAAP operating expenses were $425 million, up $76 million or 22% year over year while non-GAAP operating expenses were $354 million, up $145 million or 70% year over year. The primary driver of the year-over-year increase in GAAP and non-GAAP operating expenses was a step-up driven by incremental expenses from our acquisitions in 2020 and in Q1 of 2021. In particular, the increase was primarily attributable to marketing expenses from Toon Blast, Toy Blast, and Rollic's hyper-casual portfolio.

Outside of this step-up for acquisitions, the other drivers were an increase in growth marketing, in particular on Harry Potter: Puzzles & Spells and a slight ramp in R&D investment in our new game pipeline, including cross-platform play projects in development. GAAP operating expenses significantly decreased to 62% of revenue from 86%, principally driven by the lower contingent consideration expense year over year. Non-GAAP operating expenses represented 49% of bookings, in line with the prior year with greater operating leverage in R&D and G&A, largely offset by higher marketing investments year over year. We reported a net loss of $23 million, $27 million bettered in our guidance and an improvement of $81 million versus our net loss of $104 million a year ago.

The variance to guidance was primarily driven by our stronger operating performance, higher income, and lower-than-expected net increase in deferred revenue, partially offset by higher-than-expected contingent consideration expense. The variance to prior year is heavily influenced by the lower contingent consideration expense and our stronger operating performance, partially offset by a higher amortization of acquired intangibles, net increase in deferred revenue, and stock-based compensation. Our adjusted EBITDA was $123 million, $23 million better than our guidance, and an increase of $55 million versus the prior year. The variance to guidance was primarily driven by our stronger operating performance and lower-than-expected net increase in deferred revenue.

The variance to prior year was driven primarily by our improved operating performance and partially offset by a higher net increase in deferred revenue. We had an operating net cash outflow of $164 million versus a net operating cash outflow of $35 million in the prior-year quarter. In the quarter, we executed the second of three annual installments to acquire the remaining 20% share interest in Small Giant games, paying $240 million for an additional 6.7% interest. $250 million of this cash investment was classified as a use of operating cash flow and $25 million as a net cash used in financing activities.

The final acquisition installment will be executed in Q1 of 2022. As of March 31st, we had approximately $1.36 billion of cash and investments which we expect to use primarily to fund additional growth through acquisitions, including Chartboost and also payment of existing contingent consideration obligations. We also have $425 million available under our credit facility which had no amounts outstanding as of March 31st. Now I would like to outline some additional points related to our transformational acquisition of Chartboost, a leading advertising and monetization platform.

The purchase consideration is $250 million in cash, subject to customary closing adjustments. This purchase price represents a high single-digit net revenue multiple based on Chartboost's trailing 12-month performance and is compelling when compared to recent transaction multiples in the ad tech sector. While we expect to close this transaction in Q3 2021, subject to regulatory approvals, our Q2 and updated full-year 2021 guidance which I will outline shortly, does not assume any contributions or benefits from this acquisition. Once integrated, we expect the acquisition will be immediately accretive, contributing modestly to our top line and profitability for the second half of 2021.

In 2022 and beyond, we expect our combined capabilities will unlock additional growth and margin expansion opportunities. As a starting point in '22, this could deliver synergies and savings in the range of $20 million to $30 million. Now turning to guidance. We have developed our Q2 and full-year 2021 guidance based on information available to us today, May 5th, 2021, and using a similar methodology to previous quarters.

Given the higher level of volatility and uncertainty around the COVID-19 pandemic, there is the potential for a wider range of outcomes, both positive and negative, as it relates to the ultimate business results. That said, let's discuss our 2021 and Q2 guidance. Our updated 2021 guidance is as follows: revenue of $2.7 billion, up $725 million or 37% year over year, and an increase of $100 million versus our prior guidance, and an increase in deferred revenue of $200 million down $95 million or 32% year over year and in line with our prior guidance. Bookings of $2.9 billion, up $630 million or 28% year over year and an increase of $100 million versus our prior guidance.

A net loss of $135 million versus a net loss of $429 million in the prior year and an improvement of $15 million versus our prior guidance. Adjusted EBITDA of $450 million, up $184 million or 69% year over year and in line with our prior guidance. Given our strong Q1 delivery and the momentum in our live services, in particular in our hypercasual category, we are raising our full-year revenue and bookings by $100 million. We are maintaining our adjusted EBITDA in line with our prior guidance in order to invest further against growth initiatives.

Specifically, we are investing additional marketing to new game launches, as well as, our hyper-casual games portfolio. We are also committing further resources to our new games pipeline with specific focus on incremental investments in our expanded portfolio of cross-platform play projects. We continue to expect live services to drive most of our top-line performance. Key drivers of the year-over-year growth will be full-year contributions from Toon Blast, Toy Blast, Rollic's hypercasual portfolio, and Harry Potter: Puzzles & Spells, as well as, modest growth across the remainder of our live service portfolio.

This will be partially offset by declines in older mobile and web titles. Our guidance assumes modest initial top-line contributions from our 2021 new game launches. We have also factored into our guidance that Apple's recent changes to IDFA will create some short-term pressure on advertising yields primarily in Q2 and Q3. However, our teams have multiple strategies in place that should more than offset this potential headwind, including yield optimizations and opportunities to expand our advertising inventory.

All in, we expect to meaningfully grow our advertising revenue bookings, driven primarily by a full-year contribution from Rollic hypercasual portfolio, as well as, some growth across the rest of the portfolio. We anticipate a modest increase in our gross margins due to a lower net increase in deferred revenue, as well as, a higher mix of advertising versus user pay, partially offset by higher amortization expense from acquired intangible assets. While we expect to deliver strong absolute year-over-year growth and profitability and expansion in GAAP operating margins, we anticipate some compression in non-GAAP operating margins as we continue to invest in our growth strategies. In particular, marketing for our new game pipeline launches, hypercasual momentum, as well as, investment in our new game pipeline, in particular, cross-platform play game development.

That said, we continue to expect improvements in operating leverage in R&D and G&A, which will be more than offset by higher marketing expenses. Turning to Q2. Our guidance is as follows: revenue of $675 million, up $223 million or 49% year over year. A net increase in deferred revenue of $35 million.

Bookings of $710 million, up $192 million or 37% year over year. Our net loss is $30 million versus $150 million in the prior-year quarter. Adjusted EBITDA of $115 million versus $70 million in the prior-year quarter. Some factors to consider in assessing our Q2 guidance include, our top-line performance will be driven by our live services, including year over year additions of Toon Blast, Toy Blast, and Harry Potter: Puzzles & Spells, as well as, existing and new hyper-casual games from Rollic.

Our top-line guidance assumes modest initial contributions from Puzzle Combat and does not assume the launch of any additional new titles in Q2. Overall, we expect year-over-year growth drivers, these are -- excuse me, overall, we expect these year-over-year growth drivers to be partially offset by the anticipated short-term impact on advertising yields due to Apple's recent changes in IDFA and declines in older mobile and web titles. Please also note that in the prior-year quarter, we experienced heightened levels of engagement and monetization as we all sheltered in place due to the COVID-19 pandemic. We expect gross margins to be modestly up year over year, primarily due to a lower net increase in deferred revenue and stronger advertising mix, partially offset by higher amortization expense from acquired intangible assets.

Like Q1, we expect the primary drivers of the year-over-year increase in GAAP and non-GAAP operating expenses to be the step-up for incremental expenses from our acquisitions in 2020 and 2020 -- excuse me, in Q1 2021. Outside of this acquisition step-up, other drivers will be the increase in live service marketing, in particular on Harry Potter: Puzzles & Spells, as well as, initial launch marketing on Puzzle Combat. We expect our GAAP operating expenses as a percentage of revenue to significantly improve year over year, primarily due to a lower contingent consideration expense, partially offset by higher stock-based compensation. Outside of these factors, we expect to see improvements in our year-over-year operating leverage in R&D and G&A, which should be more than offset by higher marketing expenses.

In summary, we are pleased with our performance to date and the outlook for the balance of the year. We also believe that the positive momentum across all aspects of our growth strategy positioned Zynga for multiple years of strong top-line growth and further margin expansion. With that, we would like to open the call for your live questions.

Questions & Answers:

Operator

[Operator instructions] Our first question comes from Mike Ng with Goldman Sachs.

Mike Ng -- Goldman Sachs -- Analyst

Hey, thank you very much for the question and time. I really appreciate it. I was just wondering if you could talk a little bit about the acquisition of Chartboost and perhaps, compare it to some of the other ad network peers that it competes with. And also, will you be changing your user acquisition strategy to direct more dollars toward Chartboost? Is that where you're getting a lot of the synergies? I just would love a little bit more detail there.

Thank you.

Frank Gibeau -- Chief Executive Officer

Hi, Mike. This is Frank. The first question about Chartboost is a really good one about our competitive positioning as we start to embrace and enter into the ad tech business in a much more aggressive way. Chartboost is a full stack end-to-end complete platform.

It has demand-side capabilities, mediation, as well as, supply side. So on a capability standpoint, it checks all the boxes from that perspective. In terms of the scale, 700 million monthly users, 90 billion auctions managed, that puts it in the middle of the pack. It's got some growth.

There's some networks that are larger, but when you start to think about bringing Zynga into combination with Chartboost the second part of your question is exactly right. As we move more of our advertising business into Chartboost platform, that will change the overall metrics and relative positioning competitively. In addition, one of the things that is really exciting for us is not only just moving the dollars into their networks and starting to save on the fees that we pay other networks to actually run those businesses. That's where a lot of the synergies will come from, but a lot of the strategic benefit is going to come from the fact that our first-party data, when combined with their capabilities, will create a much more effective and leveraged platform.

We'll be able to hopefully increase yields, drive better monetization and fill rates, and frankly, make the technology much more predict about what will happen because we can see the full set of data with now with what happens when people enter into the Zynga services. So it's a very exciting acquisition. We expect to take rest of '21 working with Rick Izzo, who's the CEO of Chartboost and integrating their platform, the SDK, the DSPs, all the different components into our business, starting to flow more business their way and then also look to ways to continue to grow the third-party business that Chartboost has. I think that we can increase the value of what they provide to partners and advertisers because of all the additional data and resources that we're providing to their team.

So it is a transformation of the company in many ways in terms of moving from a traditional developer and publisher of games only to a developer and publisher of mobile games. But now with a platform and an ad platform that puts us into a market that is growing very rapidly and is an extremely important part of the monetization and engagement that we run inside of Zynga's game, so very exciting time for us.

Mike Ng -- Goldman Sachs -- Analyst

Great. Thanks, Frank. I appreciate all the thoughts.

Operator

Thank you. Our next question comes from Matthew Thornton with Truist Securities. You may proceed with your question.

Matthew Thornton -- Truist Securities -- Analyst

Hay, good afternoon, Frank and Gerard. Thanks for taking the question. Maybe two quick ones, if I could. I guess just first, obviously, with things starting to open up, vaccines rolling out.

Just curious kind of what you're seeing in the data and the trends kind of through April into May. If there's anything you can kind of compare and contrast, markets that are maybe more open versus some that are still going to sheltered. Just kind of any learning you might have on that front. And then just secondly, maybe, Frank, just around Rollic, I'm curious now with two full quarters under the belt, I'm curious kind of what you're seeing around, again, upsell in the funnel to higher LTV kind of core Zynga games? And maybe if you can speak to just whether what you're seeing is contributing to the strong 1Q and kind of raised outlook for the year.

Just curious if that's already contributing or not. Any color there would be great as well. Thanks, guys.

Frank Gibeau -- Chief Executive Officer

Sure. I think what's interesting about what's going on in this transition period between pandemic and post-pandemic for a lot of different countries and states is, we're continuing to see engagement rise for our games. When we look at our core products, each quarter in the last several quarters, we've seen a rise in core player engagement, which is what drives our business. And you know, that's for markets that are opening up, where people are going back to school, going back to work, returning to their normal life, it appears they're taking mobile games with them.

That experience that they had with them during shelter in place really opened up a lot of new markets, a lot of new players, and a lot of players that have been with us for a while. They just the value of the social connections, the entertainment, the flexibility of free-to-play mobile being able to, frankly, take it with you, play anytime you want. In economically dislocated times, it's a very, very efficient way to play games because you spend when you want to spend or you engage with advertising. So I think the resiliency of what we build and offer as services is in a position where, as things are kind of going back to normal, we're not seeing like step function drops in engagement.

We're actually seeing increases in engagement. Now that might not be true forever, but certainly, up through Q1, that has been the case. Now your second part of your question about Rollic. What's really great about Rollic is they have an approach to the business that is very fast, very nimble.

They look at what's happening in pop culture. They've innovated some really new interesting techniques about how to partner with TikTok and bring to life their games there and build audiences, both organically and also through paid acquisition and so we're starting to see contributions from Rollic to our other games. It's a little too early to kind of set kind of rules of thumb here yet, but we are building good cohorts in Harry Potter from the Rollic hyper-casual games. We've seen a lot of new players coming into our network that have never played a Zynga game before.

And what's interesting is we're seeing that people play both hypercasual and the more traditional mainline mobile. They'll play both and they're playing more games and that's an exciting part of what we're seeing inside of our audience, in terms of MAUs is up 139% year over year, there's a lot of Rollic contribution there. Advertising was up 108% year over year, there's a lot of contribution there as well. So I think just two quarters in, we're seeing very positive contributions from the team and they are continuing to really embrace, building out their development community to the point where we're starting to acquire some of these developers and bring them in from a third-party relationship into internal studios and that should continue to maintain growth for us.

So on both fronts, I feel like Q1 was a good quarter for the company on an engagement level for sure.

Operator

Thank you. Our next question comes from David Karnovsky with J.P. Morgan.

David Karnovsky -- J.P. Morgan -- Analyst

Thanks for the question. You know, Frank, I was hoping you could maybe just discuss how Apple's changes to its privacy framework informed your decision to acquire Chartboost. And then maybe can you discuss how many inside game from ownership of an ad network might play toward your M&A or your game strategy?

Frank Gibeau -- Chief Executive Officer

Yeah. It was a factor in the process of going out and thinking about how we build our platform. It wasn't a determinant variable, but it was certainly a factor. I think one of the things that we thought about was the value of having first-party data extend higher in the funnel through a lot of the things that ad tech companies do.

We have this great first-party data around what our and services do. Again, some of these games have been around for 12, 15 years. So we have really great, rich behavior what people like, what they don't like, but it was a little opaque to us as we were doing third-party handoffs into our first party and post IDFA, a lot of that data handoff goes away. But when you start to step into an opportunity like Zynga plus Chartboost, that data continues to flow all the way through because it's a first-party solution from demand all the way through in game.

And so from my perspective, it was a very clear opportunity for us to vertically integrate into ad tech. It would allow us to have a lot more information, so that we can make better product decisions, better service decisions, better investment decisions. It will also tell us at the top of the funnel, what's hot and what's not out there in terms of trends in the marketplace long before it would start to appear in the charts. And so from our perspective, we look at the point of view of how do we maximize this combination of these two teams and what possibilities does it open it up for additional game development, better investment decision-making, and I think IDFA is a component of that.

And as we've moved through the last year and a half or so, the unfolding of GDPR and the California rules for privacy, we've embraced those. Our players care about privacy and from our standpoint, that's the value of our company that we also embrace. That changes the rules and how you operate, we're making those adjustments, so that we can do both. And that's really -- it was a key part of the acquisition, but it wasn't the reason we did it.

We had aspirations to increase the leverage and growth of our core advertising business which was before this deal, largely an optimization ad stack for engagement combined with inventory in our games. And so now by vertically integrating into this, we get a full view on it. And I think just as importantly, we got a great engineering team from Chartboost of ad tech engineers and ad tech leaders that will add a lot of comp, a lot of new DNA to Zynga, and give us a lot of new points of view about how to grow in the mobile ecosystem over time and that's exciting for us as well.

David Karnovsky -- J.P. Morgan -- Analyst

Thank you.

Operator

Thank you. Our next question comes from Eric Handler with MKM Partners. You may proceed with your question.

Eric Handler -- MKM Partners -- Analyst

Yes, thank you very much for the question. Frank, you talked -- I believe I heard you say, I mean you're looking at other games that have cross-platform capabilities. And as you think about your business over the next couple of years, how many of your games that you launch or maybe or currently have will add cross-platform play or include cross-platform play at launch? And as second part to that, how much incremental development costs go into that if you add cross-platform play?

Frank Gibeau -- Chief Executive Officer

Yeah. I think the way to think about it is probably a handful. As we said, we're going to start by anchoring this on the Star Wars brand and we've looked at our NaturalMotion studio, in combination with Echtra, as kind of the collection of developers that want to go after this. They're very experienced in the category and in the design.

What works really in our favor from a cost and effectiveness standpoint is, there's a lot of tools now that allow us to develop these where the marginal cost to complete other platforms is quite low because Unreal and Unity do a lot of the heavy lifting for you. And when that's combined with something like AWS or Azure and the emerging 5G networks, you can get the very high performance gains that will be able to be completed and playable across platform simultaneously in a very efficient way. Now we have started to investment spend in R&D against this idea and I think that we're not going to go for a huge platform shift of every game from Zynga is cross play. It's really focused on the games that make the most sense, the brands make the most sense, and that's where we're starting.

And as this unfolds over '21, '22, '23, '24, if this is really working, then it's possible to do more. But we feel very good about increasing our total addressable market by going after this and I think that in addition to the tools and technologies, which make this a reality for a company like ourselves, we have a real advantage in free-to-play and running live services, which if you look at the largest in the multibillion-dollar franchises out there that are cross play, they're free to play. They run live services, they're really good at live ops, and I think that that part of the equation for us is really important and we're very excited to kind of go in there with production values that are console quality and then start to bring together these audiences across all of these different platforms. I think there's a lot of really beneficial things that we can do there.

Eric Handler -- MKM Partners -- Analyst

Thank you very much.

Operator

Thank you. Our next question comes from Doug Creutz with Cowen. You may proceed with your question.

Doug Creutz -- Cowen and Company -- Analyst

Hey, thanks. With the ad revenue being so strong in Q1. I mean, noticing it was up sequentially from Q4, which is pretty rare, can you give a sense of how much of that was driven by Rollic's success with some of their launches in Q1 versus just overall market conditions and anything else you may have been doing to help your ad pricing? Thanks.

Gerard Griffin -- Chief Financial Officer

Doug, this is Ger. Yeah, the -- we obviously saw -- it was obviously a full-quarter contribution from Rollic, but we also saw a significant uplift in their performance given the titles they launched in the quarter. So versus the market, I think, Rollic was really strong. So when you think about Q1 advertising and actually, as we look at the rest of the year, we believe that the momentum we have in our hypercasual business is going to be a very strong driver of our advertising growth.

Doug Creutz -- Cowen and Company -- Analyst

OK. Thanks.

Operator

Thank you. Our next question comes from Drew Crum with Stifel. You may proceed with your question.

Drew Crum -- Stifel Financial Corp. -- Analyst

OK. Thanks, guys. Good afternoon. Frank, you gave us a lot of detail on the various new growth initiatives you've embarked upon.

As you think about hypercasual cross-platform, ad tech, and international, can you rank order the importance of these to '21 and how you see that evolving over the next couple of years? And then separately for Ger, you mentioned that the cash and the balance sheet earmarked for acquisitions, including outstanding and contingent consideration. Can you remind us what that number is and the timing of those payments? Thanks.

Frank Gibeau -- Chief Executive Officer

Yeah, Drew. The way to think about how the growth initiatives unfold is most of the growth this year is going to be delivered from live, our new game pipeline, and in addition, hypercasual is obviously contributing and will continue to contribute as we move through the rest of the year. Cross-platform really starts to happen toward the end of this year and starts to ramp over '22 and '23. That's where you'll start to see more of the games released, more of the platforms to take hold in terms of more distribution there.

International is kind of happening now so that's a contributing factor right now. We're running about 60%, 40% international on the business right now and we're seeing good growth in hypercasual already. With regards to the final piece on AdTech, we're going to take the next six months or so of the year to kind of start to integrate our businesses together with Chartboost. And I think the synergies case starts to really take on an interesting level in '22 and beyond, but in '21 we're going to start to test how we will operate together, to what degree can our resources leverage each other, and start to look at the data plans and that sort of thing.

So when that deal closes, we'll be in a much better chance to integrate, but think about the ad tech platform really starting to take hold more in '22 and beyond.

Gerard Griffin -- Chief Financial Officer

Hi, this is Ger. In terms of the contingent consideration, that liability is obviously for three parts. It's Gram, Small Giant, and Rollic, and it's just over $330 million as of the end of the quarter.

Drew Crum -- Stifel Financial Corp. -- Analyst

Got it. OK. Thanks, guys.

Operator

Thank you. Our next question comes from Matthew Cost with Morgan Stanley. You may proceed with your question.

Matthew Cost -- Morgan Stanley -- Analyst

Hi, guys. Thanks for taking the question. So I guess on Chartboost, over the long-term, kind of when you get through this initial phase that you just mentioned about integrating the two businesses and shifting some of what you do externally or with what are currently third-parties into Chartboost? Over the longer-term, how do you see the opportunity to basically serve yourselves as a publisher versus serving third-parties and maybe growing an ad tech software revenue line within Zynga, serving publisher developers and then publishers that you don't own? And then just separate from that, obviously, international has been a huge success story for you guys. You just mentioned 40% of revenue coming from that angle.

It seems like China is something that is gaining steam now. You know, I think we've talked a lot in the past about Korea and Japan and other markets in Asia that have done well, but has your view on the China opportunity, all following some of the success you're seeing with hypercasual games there? Thanks.

Frank Gibeau -- Chief Executive Officer

Yeah. I think on the first question, we are looking at how we integrate the first-party and the third-party opportunities in a way that because Chartboost has a very vibrant and great third-party business right now. And in fact, by bringing in our first-party data, as well as, other capabilities, it should improve their standing and competitiveness as a network for other parts inside the mobile ecosystem. So long-term, you know, our view is that Chartboost plus Zynga creates a great platform for advertising and monetization that serves, not only Zynga's needs, but also the broader mobile ecosystem.

And companies that are in gaming or outside of gaming brand advertisers, especially, will come to this network because we have a very unique set of audiences with predominantly women, busy adults, a very diverse product portfolio of games combined with these capabilities that will improve over time as we bring the data together. That from our perspective, is really important. How it's actually recorded, that we'll figure it out for another day. But in terms of our goals, it is definitely about driving the advertising business and a component of that will be advertising from assisting third-parties and growing their businesses.

And I think as you look at the capabilities of what the platform has at Chartboost and what we can do with it going forward, that will only increase in value and importance. In terms of international success, China has always been an important market for us. It's just been one of those markets that we take a very patient approach to. We're not necessarily rushing into China.

We're releasing games. Our hyper-casual games are doing very well there and as we develop the market opportunity in Asia, the prioritization of Japan and Korea, a little bit higher than China, that could shift over time. It's just really making sure that we're not overinvesting too quickly and getting over our speeds here. But it is exciting to see the audiences really start to build up, which is the first thing that we want to make sure is that our [Inaudible] property really appeals to that audience and that we have the right type of live services model, so that we can continue to sustain those.

So there's going to be more about China as we grow our company. It's an important market for us long-term and I think as you start to see more of the PvP experiences that we're building that are cross platform, the PC market is very important in the Asian region. And so having PC plus mobile experiences that work together is going to be another advantage for us as we start to build out that marketplace.

Matthew Cost -- Morgan Stanley -- Analyst

Great. Thank you.

Operator

Thank you. Our next question comes from David Beckel with Berenberg Capital Markets.You may proceed with your question.

David Beckel -- Berenberg Capital Markets -- Analyst

Great. Thanks so much. Just touching back on Chartboost, I was hoping we could dig in a little bit to the expected revenue synergy. I believe it was in 2022 of $20 million to $30 million.

Can you describe for us the mechanics of that? Is that primarily serving ads through Chartboost instead of a third-party system and thereby eliminating the 15% to 30% sort of fee that you've talked about in the past? And what percentage of your inventory filled through that channel does that assume? And just as a second question, it's about ROIC. You talk a lot about the third-party partners, can you explain a little bit how the third-party relationship works from a revenue monetization perspective? And what third-party acquisition means from a financial perspective in terms of outlay? Are these expensive acquisitions?

Gerard Griffin -- Chief Financial Officer

Hi, this is Ger. In terms of the benefits we outlined as it relates to post-integration, and more importantly, what you're referring to '22, the largest element of that is actually related to where the user acquisition side of the equation, the demand side, where we will look to flow a larger percentage of our user acquisition spend through our own first-party platform, and obviously, eliminate the fees we paid to our other partners. We don't intend to eliminate our other partners. They will continue to be trusted partners as we look to acquire users, but we do anticipate putting, obviously, more of our own spend through the -- our own DSP and generate profitability there.

There is an element of ad monetization in the mix as well because, obviously, we'll get the benefit from the third-party monetization. But initially, we're focused more on the user acquisition side and ultimately we'll look for synergies through both sides. We haven't indicated what the exact percentage is, but you can assume it's going to be in the sort of initially in the sort of the low double-digit range. And sorry, could you, in terms of the acquisitions, can you repeat that part of the question, you're referring to Rollic?

David Beckel -- Berenberg Capital Markets -- Analyst

Yes. Sorry, just referring to Rollic. You mentioned a couple of studios that were recently acquired. What is the relationship with these third-party partners? Are you currently monetizing them? Or do you have to acquire them to gain the benefit of those relationships?

Gerard Griffin -- Chief Financial Officer

No. These -- the studios and the games that have actually gone from third-party to the first-party, they were already partnerships we already had. So in terms of economics, the normal economics in a third-party relationship is there's a profit share, i.e., we, as in Rollic, our platform, we published the game, we drive the monetization through advertising, we execute the marketing against these games. So the net of bookings and marketing ultimately then get shared with the actual developer of the actual game.

Those percentages can vary, but in a situation where we bring the studio in-house or the game in-house, sort of quick as you buy the game or you acquired the studio, and you eliminate that profit share. And so there's a stronger for Rollic and for Zynga, obviously, developing and publishing its own games, that's the core economics. The other obvious benefit is you're enhancing the talent base of our own hypercasual studios as we think about new games going forward.

David Beckel -- Berenberg Capital Markets -- Analyst

Perfect. Very helpful. Thank you.

Operator

Thank you. Our next question comes from Mario Lu of Barclays. You may proceed with your question.

Mario Lu -- Barclays -- Analyst

Great. Thanks. I have a couple of questions. The first one, I wanted to expand on a question earlier.

You guys mentioned most of the outperformance this quarter was from recent acquisitions and Harry Potter. I was wondering if you could share what the organic growth was for core Zynga titles? Or just generally how those are trending?

Gerard Griffin -- Chief Financial Officer

I think overall our business grew. It was up modestly in terms of if you were to take out the Harry Potter, which we obviously believe is an organic title in our live service portfolio. But collectively, the portfolio grew, but the major drivers in the quarter were the year-over-year acquisitions. But Empires & Puzzles, Words With Friends, CSR2, Casual Cards, they all had record Q1 revenue and bookings.

So it was a -- there is strength across the portfolio, but it's -- I know I'm stating the obvious. It's an Irish thing, the full year -- the full quarter contributions from Peak and Rollic, plus the very strong performance from Harry Potter helped improve the overall performance of live services.

Mario Lu -- Barclays -- Analyst

Got it. That makes sense. And then just lastly, on the synergies from your recent acquisition. You mentioned Rollic, you're already able to kind of cross-promote those titles with your other ones.

In terms of Peak game, what's now an iOS 14.5 and IDFA out live, is there an updated timeline on when and if we should expect advertising to be layered into both Toy and Toon Blast?

Gerard Griffin -- Chief Financial Officer

We're not going to disclose timing on that. It's something that the studio teams and the advertising teams are obviously working at. In the end of the day, the aim there is we do see an opportunity to deliver advertising from these games, but we're obviously working very patiently with the studio and the advertising teams to make sure we do it in a very strong player-first way?

Mario Lu -- Barclays -- Analyst

Thank you.

Operator

Thank you. Our next question comes from Mike Hickey with The Benchmark Company. You may proceed with your question.

Mike Hickey -- The Benchmark Company -- Analyst

Hey, Frank, Ger. Congrats on the quarter guys. Thanks for taking the questions. I appreciate it.

I guess double-clicking on cross-platform game opportunities, you've had sort of a few more months on development sort of curious. If you're more or less encouraged that you can be successful or not in this effort? And maybe, I guess, the second part would be the challenges of lifting a new mobile game to cross play versus an existing mobile game with a player base that's already and monetized. And I guess the comp would be, if you see a lot of successful mobile games of proven game IP, that sort of seems to be an established relationship. It just seems like an extra headwind with a new game versus the existing game trend go on the console PC.

Thanks, guys.

Frank Gibeau -- Chief Executive Officer

Hey, Mike. Thanks. Good question. The early testing on Hunters is very strong, very positive in our testing with consumers in play testing and concept testing.

So we're very encouraged by the reception. The game was built with very high-quality assets from the [Inaudible] So in terms of resolution of the models and the textures and everything, the fact that it's using Unreal allows it to kind of move across these platforms at a very high-level performance in terms of how it looks and feels, the frame rate, etc., etc. What I think is really interesting for us is because we're building it with on mobile simultaneously, a lot of the decisions around how live services is going to work and the free-to-play model is already built in, and we're not trying to basically downsize code to work from a high-end console to work on mobile. We're actually going the other direction, where we're taking great production values, rising them up, increasing the performance on other devices.

So we actually think by building to that -- building in that manner, we're going to see some real benefits for how the games perform, how they get adopted, and the fact that there's a lag between when something happens in one platform or another, we're going to get rid of that. So it's really exciting to see the early reaction. I'm encouraged by the momentum that the teams have and where we spent a lot of time on this project and a lot of us have experience on consoles and PCs. I think that's why you see us reaching out and partnering with a company like Echtra and having them doing Zynga's.

They just released games on multiplatform. They've done it in engine. They've done -- they've run the service. So they've kind of done it before and that really helps raise the level of the entire effort inside of Zynga because of their experience is so real and has happened just recently.

So from my perspective, that's the real positive and I think for us, we're going to see how this goes. And we think that we have a lot of brands that will appeal across these platforms and that does open new opportunities for us in Asia by having PC versions of these games.

Mike Hickey -- The Benchmark Company -- Analyst

Thanks, guys. Good luck.

Operator

Thank you. And our last question comes from Brandon Ross with LightShed Partners. You may proceed with your question.

Brandon Ross -- LightShed Partners -- Analyst

Hi, thanks for taking the questions. Just one. As you guys are entering the ad tech world, is Chartboost the beginning of a multipart built by? Or should we just expect acquisitions from here on out to be back to the tried and true studio acquisitions that you've done in the past?

Frank Gibeau -- Chief Executive Officer

Yeah. I think where we're at right now is we're very excited about Chartboost and integrating that team, letting the market unfold a bit here over the summer and see how things go with IDFA and and the other aspects of returning from COVID in terms of the shelter in place. So we're not -- our business has a tremendous amount of organic growth opportunities and we've got excellent capabilities now at Chartboost to help optimize and grow the business. So we're not in any hurry or need to grow through additional M&A.

Having said that, you know, we're an acquisitive company. We are constantly looking at build versus buy options and I think giving us a little bit of time to integrate Chartboost, work with their leadership team to understand what's possible in terms of what's next is certainly something that we don't rule out, but at this point, we have nothing that we're thinking about. As it relates to the overall M&A environment, it's a global talent base, there's great games out there and great teams. Obviously, there's a lot of attention on acquisitions and ad tech and games right now and that increased competition is certainly clear and present.

But at the same time, we like our positioning, we like our track record, we like our appeal as a destination for developers, and the proposition that companies can join us and grow faster together is proven through multiple examples now over these last few years. So dynamic time, exciting time. We're in a great position to make sure that we can grow the way we want to grow, without getting forced into an acquisition that we think we have to do that. I don't believe that we're in that position.

Brandon Ross -- LightShed Partners -- Analyst

Thank you.

Operator

[Operator signoff]

Duration: 61 minutes

Call participants:

Rebecca Lau -- Vice President, Investor Relations and Corporate Finance

Frank Gibeau -- Chief Executive Officer

Gerard Griffin -- Chief Financial Officer

Mike Ng -- Goldman Sachs -- Analyst

Matthew Thornton -- Truist Securities -- Analyst

David Karnovsky -- J.P. Morgan -- Analyst

Eric Handler -- MKM Partners -- Analyst

Doug Creutz -- Cowen and Company -- Analyst

Drew Crum -- Stifel Financial Corp. -- Analyst

Matthew Cost -- Morgan Stanley -- Analyst

David Beckel -- Berenberg Capital Markets -- Analyst

Mario Lu -- Barclays -- Analyst

Mike Hickey -- The Benchmark Company -- Analyst

Brandon Ross -- LightShed Partners -- Analyst

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