BU SINESS CASE STUDY

REBECCA WEINBERGER
PAUL GLAZIK
CHRIS PHILLIPS
NANCY LEYVA
ZYNGA INTERNAL ENVIRONMENT

REBECCA WEINBERGER

Analysis
 BACKGROUND
Created in 2007 as Presidio Inc. by Mark Pincus
Based out of San Francisco, CA
2010 - Incorporated out of Connecticut and renamed Zynga
2011 - Initial Public Offering on NASDAQ
2014 - Added a new Director to the Board, Dr. Regina Dugan, former V.P. at Google
Owners of several top social media games for mobile/tablets systems such as:
Farmville, Zynga Poker, Mafia Wars, Words with Friends

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 PRIMARY ACTIVITIES

Develop, market and operate social games as live services played over the Internet, social
networking sites and mobile platforms
Generally, all games are free to play and revenue is generated through the in-game sale of
virtual goods, mobile game download fees, and advertising services
Pioneer and innovator of social games and a leader in making play a core activity on the
Internet
Free to play business model
Social games leverage the global connectivity through Internet platforms
Virtual Goods and Paid Downloads
Virtual currency can also be earned for free through game play or accepting promotional
offers from advertising partners
Generate revenue when players purchase mobile game downloads
 SUPPORT ACTIVITIES

Firm infrastructure is heavily based on technology

Constantly investing in hardware and software to maintain their datacenter infrastructure
Technology infrastructure that can efficiently and reliably handle increased player usage,
fast load times, and new feature/product development
Invested extensively in developing proprietary technology stack
Handles sudden bursts of activity for millions of players
Datacenter and cloud computing management
Shared code base
Cross-promotional features
 CULTURE OF MANAGEMENT
Mark Pincus- Founder
Don Mattrick- CEO
Company growth is heavily dependent on efforts to employee talent
High demand of game designers, product managers, engineers and executives
Devote resources to indentifying, recruiting, hiring, training, successfully integrating and
retaining employees
Maintains team spirit in employees and applies effective human resource strategies to
encourage and motivate employees to perform their best
There is a spirit of competition within Zyngas structure. Each unit operates separately
to produce new games/products/ideas
 RBV: RESOURCE BASED VIEW (INTERNAL)
Tangible Resources:
Financially Head is still above water and
assets can be quickly liquidated
Physical They have several geographical
locations: many are proprietary to the games
they create
Technological One of the leading game
developers; own their own gaming rights and
in many cases the coding to those games
Organizational Although they have an
organization, we believe the jury is still out on
its effectiveness and ability to produce newer,
more popular games
Organizational Capabilities:
Excellent at capturing consumers with game qualities (consumers want to keep playing)
Capable of competing on a global level
Zyngas games are leading brands within the mobile gaming industry
Intangible Resources:
Human The market for good programming
and coding talent is small: new game
development is key to Zyngas long term
success
Innovation/Creativity Zynga is well prepared
for on-line gaming growth. The move to their
own website platform is an example. But this
can only be achieved with new and interesting
gaming products
Reputation From a market based view,
Zynga is a bit of an ugly duckling, but from a
consumer view, theyre a leading game
developer
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ZYNGA FINANCIALS

CHRIS PHILLIPS

Analysis
 INVESTING INFORMATION
NASDAQ (ZYNG)
American Stock Transfer & Trust Co. LLC Feb 2014 completed purchase of NaturalMotion
No Dividends paid or declared $527 million
Initial offering in 2011 was at $10 p/s; raised Hiring of Dr. Regina Dugan helps legitimize
approx. $96M Zynga R&D and board compliance
SIC 0001439404
7434 Services Computer Processing
& Data Preparation
 FINANCIAL POINTS

Revenue: 2013 2012 Gain/(Loss) On-line Game Revenue is down by 34%

Online game $ 759,572 $ 1,144,252 $ (384,680) Although income is up by 59%, its still
Advertising 113,694 137,015 $ (23,321) operating with a loss
Total revenue 873,266 1,281,267 $ (408,001) Facebook accounts for 41% of Zyngas A/R
in 2013; 58% in 2012
Research and development 413,001 645,648 (232,647)
Advertising for 2013 was $60.6M; 102.2M in
Impairment of intangible assets 10,217 95,493 (85,276) 2012
2013 2012
3rd Qtr 2012 included a $95.5 million
Income (loss) from operations (65,631) (182,971) impairment to Goodwill, and $10.2 M in
2013 for discontinued games (OMGPOP)

Current assets: 2013 2012 Change

Cash and cash equivalents 465,523 385,949 79,574 Debt has been reduced
Marketable securities 659,973 898,821 (238,848) Only CEO has Class C stock
All others 115,903 199,600 (83,697) Accumulated deficit
Total current assets 1,241,399 1,484,370 (242,971)
increased over 30%
Deferred revenue 186,663 338,964 (152,301)

Total liabilities 401,814 750,817 (349,003)

Total stockholders' equity 1,877,271 1,825,503 51,768

Total liabilities and stockholders' equity 2,279,085 2,576,320 (297,235)

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 COMPARISONS
1st Qtr 2014 (U.S. $ thousands except where noted)
Zynga (U.S.) Change +/- King Digital (Eng) Change +/- Glu Mobile (U.S.) Change +/-
2014 2013 2014 2013 2014 2013
Revenue 168,020 263,589 -36% 606,709 205,918 195% 44,580 24,605 81%

Operating Expense 53,504 69,394 -23% 195,696 64,014 206% 13,756 8,536 61%

Cash Flow %
from
Operations 0.68 0.74 -0.06 0.68 0.69 -0.01 0.69 0.65 0.04

SG&A 184,773 199,128 -0.07 249,234 76,326 2.27 30,117 21,563 0.40

Profit (70,257) (4,933) 13.24 161,779 65,578 147% 707 -5,494 -113%

Cash Assets 782,200M 678,170M 36,950M

Current Ratio 3.32 2.95 1.68

Outstanding Shares 884,460M 317,680M 81,320M

ROA (trailing 12 mo avg)* -2.26 79.99 -10.12

ROE (trailing 12 mo avg)* -5.31 174.76 -29.86

Revenue per share 0.95 7.51 1.68

(trailing 12 mo avg)*

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ZYNGA EXTERNAL ENVIRONMENT

PAUL GLAZIK

Analysis
 MOBILE GAMING INDUSTRY
In 2013, 92 percent of iTunes revenue was from games

Mobile gaming will be a $10 billion industry in 2014

Predicted to reach $60 billion by 2017

Mobile gaming revenues are expected to grow at a rate of 19% through 2016

Many small companies in industry. New entrants every quarter.

Larger companies forming through M&As.

In Q1 2014, mobile gaming related acquisitions topped $5 billion, almost as

much as all of 2013.

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 OPPORTUNITIES & THREATS
Opportunities:
New Game development (license new
characters)
Newer markets - Globally
Newer players younger generations
New platforms to play PCs are not dead
New experiences 3D, even more live
interaction
New Relationships Google, Nintendo
Threats:
Competition
Relationship with Facebook
Underperforming - Failed
games/acquisitions
Unable to retain new talent
Lack of creativity, uniqueness, originality
Underperforming financial market
Copyright, patent infringements
counterfeit gaming
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 MAJOR COMPETITORS
DENA CO., LTD (Japan)
Best known game: AntSmasher
Japanese technology firm established in 1999
Company profile states they develop and operate a
broad range of mobile and online services including
games
Competes with Zynga through its Mobage game
service
Electronic Arts (EA) (U.S.)
Founded in 1982
Large software company that produces console,
computer, online, and social media games
Owns several successful titles, including Plants
vs. Zombies, Zuma, and Bejeweled
Posted $3.8 billion revenue in 2013
In 2013, attempted to sue Zynga, claiming The
Ville (Zynga) was a copy of Sims Social (EA).
Suit was settled.
Gree Games (Japan)
GREE is a global mobile social company with businesses that
include
social gaming, social media, advertising, licensing and
merchandising, and venture capital (direct from GREE business
overview)
Offers a small catalog of online games
Also offers social media services (Japan only)
Gameloft (Europe)
Founded in 1999 by Ubisoft co-founder Michael Guillemot
By 2003, Gameloft offered games to over 100 mobile phone
models
First company to offer games on the iPhone app store after it
launched in 2008
In 2013, Gamelofts Despicable Me: Minion Rush game was
their first title to reach 100 million downloads
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 PROFIT SUMMARY

Gameloft posted $273 million profit in 2013

Electronic Arts earned $264 million in 2013

Zyngas net income for 2013 was ($36 million)

Zynga again operates at a loss while competition profits

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ZYNGA STRATEGY AND MARKET
STRATEGIES

NANCY LEYVA

Analysis
 ZYNGA STRATEGY
Founded on passion for games and for family and friends
playing together

Mission: connect the world through games

Encourage entrepreneurship and intelligent risk-taking to

produce breakthrough innovations

Zyngas goal is to create top hits that engage mainstream global

audiences

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 CURRENT STRATEGIES

Differentiation among game lines: Zyngas content perspective

allows them to expand their offerings across several game
categories: (Farm, Casinos, Words, Live simulation)

Paying a premium for new talent and new acquisitions:

Because the margin for finding new games/talent or good
companies is very small (NaturalMotion)

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 SUSTAINABLE STRATEGIES
Promoting new on-line mobile/tablet/PC website platform www.zynga.com
Facebooks platform will inevitably threaten Zyngas long term revenue, while
its still the largest platform for Zynga users. Using Facebook as a platform
costs Zynga an average of 30% of sales.

Invest in talent and geographical presence

The acquisition of NaturalMotion gives Zynga a European presence and access
to a new market of game development talent and consumer base

Cost Leadership
Continue to find cost cutting measures like closing unprofitable game lines
Keep long term debt low
Continue to re-value the assets of all acquired units

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MARKET STRATEGY CHARACTERISTICS (BUSINESS MACRO LEVEL)

Mainly competing for leisure time, attention and discretionary

spending of their players
Gaining the trust of the player to enjoy the
experience/interaction (targeting members/users of Facebook,
Google, I-Tunes)
Promoting next level activity/game advancement for cash/credits
Selling additional life spans/game resources for cash/credits

Capturing consumer/customer information for data analytics

Analyzing captured gamer data for marketing/sales/advertising
Selling captured gamer data to 3 rd party users (Facebook,
Google, etc.)
Selling advertising space to 3 rd parties

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 ZYNGA RECOMMENDATIONS
Zynga needs to examine its cost structures and business model compared to competition and
find out why.

Find game platform(s) that are going to be long term and sustainable

Zynga has to differentiate itself somehow from its competitors (license new/old characters)

Zynga should investigate a possible sale or merger

Zynga currently invests in both mobile and social media gaming. Competition is large and
fierce, Zynga needs to re-focus on what makes them the real market leader while also turning
profits.

Increase advertising/marketing expense; Tell the public, not just social media users, who
Zynga is.

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RESOURCES:
Yahoo Finance (ZYNG, KING, GLUU)

Google images

SEC.GOV/edgar

Fundamentals of Corporate Finance; Ross Westerfield, Jordan, 10 th Ed., 2013

Strategic Management; Dess, Lumpkin, Eisner, McNamara, 7 th Ed., 2014

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