Over the past decade, there has been no shortage of high-profile celebrity breakups. Ashton Kutcher and Demi Moore. Tom Cruise and Katie Holmes. Kris Humphries and Kim Kardashian. Within the next 10 years, investors will get to be spectators at the high-profile breakup of another famous (or infamous) pair: social gamer Zynga
Like all loveless marriages, the seams of Zyngbook's matrimony continue to unravel as the onetime lovebirds continue to make eyes longingly at other partners.
They're no Brangelina
Zynga's aspirations to move away from its reliance on Facebook's platform is no secret. The company has been hatching its plan to move on to greener pastures, after seemingly having had enough of Facebook's blue hues. There are two primary ways Zynga is hoping to accomplish this: growing its presence in mobile platforms and starting its own desktop platform.
Much of Zynga's mobile strategy involves acquisitions to add to its stable of Apple
The Pictionary knockoff's quick fade into irrelevance among gamers was one contributing factor to Zynga's most recent lackluster quarter and reduced full-year outlook, with CEO Mark Pincus saying it "underperformed versus [Zynga's] early expectations."
The other prong of this shift away from Facebook is the launch of Zynga's own platform in March. The platform continues to use Facebook Credits, but even Facebook itself is transitioning away from this Credits system in favor of local currency transactions, the effect of which remains to be seen for Zynga. The social-gaming company acknowledges that the "launch and promotion of the Zynga platform could harm our relationship with Facebook," as well as the fact that it has "very limited experience launching third-party developed games on the Zynga platform, and supporting games developed by third parties."
It's working!
These two strategic pushes are now beginning to bear fruit, unearthed after digging through Zynga's most recent 10-Q. Zynga reports two important figures related to its top line: revenue and bookings. Bookings includes an adjustment for the change in deferred revenue but can be considered a forward-looking pipeline of Zynga's actual recognized revenue.
Historically, more than 90% of both revenue and bookings have been generated through Facebook's platform, but this dependence has dramatically plunged in the past two quarters, most noticeably in the most recent one.
Source: SEC filings.
The precipitous drop in bookings stands out to me even more so than the one in revenue, because bookings are a more forward-looking indicator than current revenue. This figure has fallen from 93% in the fourth quarter to just 80% in the second as Zynga increasingly generates sales on iOS and Android.
Of course, the company continues to overwhelmingly rely on Facebook, but as you can see, there is some very real progress toward the goal of weaning itself off.
"I love you more." "No, I love you more." "OK, you're right."
This relationship has always been asymmetrical, as Zynga primarily contributes to Facebook's payments business over its core advertising one. Zynga still pays for some advertising, but it's still the biggest player for Facebook's payments by far. That amount of revenue that Facebook derives from Zynga has similarly been declining, but to a lesser extent considering the asymmetrical nature of their relationship.
Facebook has only provided limited data on the topic, but this figure rose in 2011 as Zynga completed its migration to Facebook Credits as the primary payment method, and it has now begun declining again.
|
Year |
2009 |
2010 |
2011 |
Q1 2012 |
Q2 2012 |
|---|---|---|---|---|---|
| Portion Directly Attributed to Zynga | Less than 10% | Less than 10% | 12% | 11% | 10% |
Source: SEC filings.
These figures don't include the indirect revenue that Facebook generates from display ads on Zynga's pages; it only represents direct revenue from payments and ad spending. Facebook has also said that this number reached as high as 13% in the first quarter of 2011.
Facebook has a lot less to lose as this relationship crumbles apart, but it doesn't help its efforts to bolster monetization, especially in its burgeoning payments platform.
Zynga to Facebook: "It's not you, it's me."
Don't expect Zynga and Facebook to have a bitter split. They'll keep things cordial and have the occasional nostalgic fling as they mature and move on to more serious relationships. It's largely Zynga's doing, as the company doesn't want to leave its entire destiny in the hands of another, while Facebook would be happy for Zynga to continue driving growth in its payments business.
The biggest question on my Foolish mind at this point: Did they sign a prenup?
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