Zynga (ZNGA) came public in a much-hyped IPO at the end of 2011 with its mobile game smash hit Farmville that was played on the Facebook platform. Fast forward to a year later and shares had lost 75% of their value, leaving investors frustrated. The stock languished for years until Frank Gibeau took over as CEO in 2016. Since then, the stock has been on a solid market-beating run. Fool contributors Brian Feroldi, Brian Withers, and Brian Stoffel check in on the company's recent results on a Fool Live episode recorded on March 17 and discuss how far this mobile gaming specialist has come since the early days of when Farmville was its only notable title.
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Brian Feroldi: Me, with Zynga. Here we go. Zynga, the gaming company that nobody ever talks about because all the other great gaming companies suck up all the air in the room. But believe it or not, while this company was a complete dumpster fire after the IPO, it has come roaring back to life and when you look at the company's financials, they look nothing like they did before. Most recently, they acquired a company called Echtra Games for an undisclosed sum, that was a talent acquisition [move]. That company had management teams that worked on Diablo, Diablo II, The Sims, and Torchlight and they think they're going to bring new games into Zynga's franchise.
The fourth-quarter numbers for this company were really strong, daily active users up 77% to 36 million, monthly active users up 100% to 134 million, bookings up 61% to $700 million, revenue up 52% to $600 million. Video game companies have wonky financials with bookings, with revenue. The company reported a net loss of $53 million, but it also reported $200 million in quarterly free cash flow, so that's something to keep in mind there, it has $1.6 billion in cash. Seventy percent of its revenue comes from its forever franchises, which are long-duration game titles that just spit out profits again and again and again.
For 2021, investors really need to watch the company's most recent acquisitions. It bought a company called Peak, another one called Rollic, both of which have gaming titles that produced lots and lots of profits. Can they continue to do so? It also recently rolled out a new version of a Harry Potter game called Harry Potter Puzzles & Spells. Management thinks that will become a forever franchise for it in time. They are forecasting for a 50% revenue growth in Q1 and 30% revenue growth for the entire year. They think their growth rate is going to stay, it'll be something for investors to watch whether or not that trend reverses itself or if indeed it's here for a long time.
Brian Withers: Zynga, wasn't their climb to fame Farmville and being on a Facebook platform?
Withers: I remember when it first came out, it seemed like they were trapped in that universe and couldn't escape and it seems like they've really done it.
Feroldi: That was the Achilles heel of the company. They were basically 100% tied to Farmville and the success of Facebook over time. That relationship really deteriorated, in part because of their prior Founder/CEO, Mark Pincus. He has since been replaced, they have a brand new management team in there and they are really pounding these forever franchises. They've also proven to be pretty shrewd acquisition targets with buying up games that are successful and then growing them over time. That's the strategy. It's working. Its stock is going in the right direction and its financials are improving rapidly.
Brian Stoffel: I'm going to just piggyback off that and say that when I had to run Zynga through the anti-fragile framework the first time about two years ago, I was shocked at how well it did because I like, Brian was like, "Farmville, well, who's going to invest in that?" But it's a lot more than meets the eye there.