Morgan Stanley analysts Scott Devitt and John Egbert take a close look at Zynga as the gaming company looks to shake off the past in 2014 as a year of growth.
CEO Don Mattrick gave his first public appearance with investors at the 2014 Morgan Stanley Technology, Media & Telecom conference.
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New pipeline shows commitment to doubling down on core franchises
Mr. Mattrick demoed 3 titles from Zynga Inc (NASDAQ:ZNGA)’s 2014 pipeline announced earlier this morning: FarmVille 2: Country Escape, New Zynga Poker, and New Words With Friends. All 3 games will soft launch in a limited number of countries in March, with broader releases to follow throughout Q2:14. Zynga Inc (NASDAQ:ZNGA) believes these 3 franchises have collectively touched hundreds of millions of users over the past few years and the products announced this morning could sustain and eventually grow its bookings from core games in 2014E.
Zynga expects 2014 to be a year of growth
Management’s 2014E bookings guidance implies significant Q/Q growth throughout the year, though it may disclose less about its product pipeline to avoid giving the competition “sight lines” into where it is investing. Zynga Inc (NASDAQ:ZNGA)’s lessons from successful competitor games like Supercell’s Hay Day are evident in its 2014 pipeline, most notably the new FarmVille title. FV2: Country Escape will launch exclusively on mobile by the end of Q2, and will bring new features like online play and resource transfers from FarmVille 2 web users.
Mobile gaming in the western markets is still early
Zynga Inc (NASDAQ:ZNGA) aspires to be the at-scale leader in free-to-play gaming in the Americas and EMEA, which are regions it thinks are very underpenetrated relative to Asia Pacific. Zynga thinks mobile gaming in the western markets can potentially offer profit pools in the tens of billions of dollars one day and does not think an at-scale leader has emerged yet. Zynga Inc (NASDAQ:ZNGA) believes hit mobile games are staying in the top 20 longer and that 15 of the top 20 games are typically from repeatable and sustainable categories, while innovative titles like Flappy Bird built by smaller developers usually fill the remaining 5 slots.