Zynga beat the street and its own guidance to report record third quarter revenue of $705M, an increase of 40% over the previous year. It also reached its largest ever mobile audience of 183 million monthly active users, an increase of 120% year-over-year.
Zynga's stock price surged today after it announced that it had a better than expected user acquisition performance and that it is on track to finish the year strongly, despite warnings in the quarter about a significant impact from Apple's privacy policies changes. This led to a 30% drop in its stock price from August 5th through November 4th.
TechCrunch interviewed Frank Gibeau, Zynga CEO, about how the mobile game company has managed to overcome the advertising crisis and make moves to expand across platforms and onto the blockchain.
How to weather the storm
Apple's IDFA (Identifier For Advertisers), which required developers to use the ATT (App Tracking Transparency), tool to enable users to opt-out of being tracked across iOS apps on April 26, shook up the mobile advertising ecosystem. As pandemic restrictions were lifted, new users lost in the lockdown declined rapidly. However, as targeting became more difficult and more expensive, it led to a drop in user numbers. According to Consumer Acquisition, companies began to experience a 15%-20% drop in revenue. According to marketing firm Consumer Acquisition, the most affected were advertisers like Peloton, Snapchat and Zynga which are both ad platforms and advertiser.
TechCrunch's Gibeau said that "the midpoint of the year was difficult." With the combination of IDFA, the great reopening demand problems and our company being one of the first to emerge from the chute, we were among the best. We cut back on our advertising spend to make it easier to navigate. By September, yields had returned to normal.
Gibeau stated that they had waited until growth rates returned before launching FarmVille 3. He was thrilled to see FarmVille 3 rise to No. 1, and No. After its November 4 launch, the iPhone app store and iPad freebies landed at No. 1 and No. 2.
"I am happy to report that the worst is over and we are increasing our spending on new games as we enter the fourth quarter. He said that Chartboost platform's first-party data was the key to getting through this difficult period.
"We have lots of data about players coming into our games, what events they play, and what advertisers are doing with our existing supply. He said that first-party data allows us build models that can predict the type of returns or auctions we would benefit from.
Zynga has also partnered with Unity, Google, and Iron Source to help better target players.
"There are many smart people working on this problem. He said that it's more about time than finding a solution. He said that Apple was building a platform capable of supporting a healthy advertising market and protecting player privacy over the long-term. "We're happy to collaborate with them on this,"
Zynga makes up 80% of its business through subscriptions and microtransactions based on in-app purchases. However, advertising accounts for a fifth. This segment is growing rapidly due to the popularity of hypercasual, which are games that have simple interfaces and can be played in less than 30 seconds.
Gibeau said that Zynga almost doubled its advertising revenues in the third quarter compared to the previous-year period. He attributed this success to Rollic (an Istanbul-based game studio Zynga purchased last year that helped it become a top three publisher in the category).
Hypercausal is the biggest category in terms of app store installs. These games are inexpensive and reach large audiences. They also use advertising as their primary source of monetization. Gibeau said that it is a lucrative location for us and a great source of users into our network. This ties in with our ambitions to build an at-scale advertising and publishing platform that will be a growth engine for us into 2022.
All roads lead to the metaverse
Star Wars: Hunters is Zynga’s next big game. It will soft launch on Android in selected markets next week, and Gibeau stated that it will be testing on iOS and Switch in January. This is the company's first cross platform game on console, and FarmVille 3 was its initial cross-platform launch on macOS.
Gibeau expressed his desire to make Zynga's mobile apps available on other platforms.
He said that "FarmVille and Star Wars fans can be found everywhere so it is important for us to be platform-agnostic and make our experience as accessible as possible." "At the end, we are a social gaming company that believes it is more fun to play together than alone. We like to invent and try new things as part of our culture.
Zynga launched its first game on TikTok, Disco Loco 3D. This is a free-to play music and dance challenge.
"Gaming can be a dangerous game. It can be very painful if you do it wrong. We thought it would be fun to create experiences on these social media platforms to see if people are interested. Snapchat was our partner. We helped them make gaming more part of their ecosystem. But it's still early days," Gibeau said, emphasizing that these games were more proof of concept than revenue generators.
Gibeau stated that Netflix Gaming launched on November 2, with Mike Verdu, former chief creative officer at Zynga, as the head. He said, "For Netflix there's a lot of learning in terms of how they want the subscriptions end to the business and how their customers interact with the games. So I don't know yet if they are ready for third-party content. But it would be great if we could talk with them at one point in the near future."
He said, "Whether it be Netflix, Roblox, Epic, Valve or Roblox, if they have an platform that makes sense for our content and it reaches an audience, then we'll certainly investigate it."
Zynga's greatest venture is likely to be the hiring of Matt Wolf, an ex-executive at EA, to lead its new blockchain gaming division. Blockchain startups such as Mythical Games and Animoca have seen a boom in NFT-related gaming ventures. They are helping developers to create permanent collectible items that can then be used across all games.
Gibeau explained that there was a lot more capital and talent in the sector, which explains the timing of the decision. "Our founder, Mark Pincus and our chair, Bing Gordon are passionate about the sector, and we believe that Blockchain is going to be a part of the fabric and future of gaming."
Gibeau stated that Wolf is establishing a Skunkworks project to determine the best way forward. He will also be looking at ways in which owning a FarmVille farm could increase engagement and retention.
He said, "We are moving at Zynga speed."