Zynga (ZNGA) Post Good Q3 Results but Title Delays and CFO Departure Shift the Spotlight to 2016
Colin Sebastian of Baird published an earnings recap on Zynga (NASDAQ: ZNGA) that highlights both the upside in the quarter and the challenges the company will face over the next 12 months. Notes follow:
Zynga reported bookings and EBITDA margin well above expectations. Bookings of $176 million were above consensus of $171 million, driven by Zynga Casino and Words with Friends advertising growth. However, user growth remains challenged, with MAUs/DAUs of 75 million/19 million below consensus of 82.1 million/20 million, driven in large part by declines in Zynga's web games, as well as continued weakness in Looney Tunes Dash and Words with Friends.
Mobile bookings increased 26% Y/Y to $121 million (69% of total), and mobile DAUs of 16 million now represent 82% of total DAUs (up from 68% in Q3-14). However, this represents a decline. Management indicated that overall performance of Empires & Allies is tracking below expectations, despite strong monetization.
Zynga will now release the highly anticipated Dawn of Titans and CSR2 titles in 2016 vs. Q4-2015, with plans to implement changes to help long-term player retention. As a result, Q4 bookings of $172.5 million and roughly break-even EBITDA margin guidance were significantly below consensus estimates of $193.9 million and 7.7%,
Structuctural changes: CFO David Lee leaving company but management announced a $200 million share repurchase program to try and cushion the blow for investors.
Bookings and EBITDA margin were well above expectations, driven by strong performance of Zynga Casino and Words with Friends advertising growth.
Zynga is pushing out key Q4 releases (Dawn of Titans, CSR2) until 2016, ostensibly to add more social features.
No changes to Neutral rating or $3 PT
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Shares of Zynga closed at $2.45 yesterday.