Don Mattrick: Zynga could take a year to turn around

Newly appointed CEO outlines his plan for the next 90 days

It was a little over three weeks ago that Zynga CEO Mark Pincus stepped down in favor Don Mattrick, the president of Microsoft’s Interactive Entertainment Business. So Zynga's quarterly results, released Thursday, can hardly be put on his shoulders.

Still, on a conference call following the release of the report, he had a blunt message about the numbers that Zynga saw, despite the fact that they actually came out well ahead of what Wall Street had been expecting: "We can do better."

After being introduced by Pincus, who called him "first, a great game maker, second, a great CEO at scale and, third, a great entrepreneur," Mattrick took over to give "some of his early observations" since taking over and to outline what he will go over the next 90 days to put Zynga back on the right path.

"Its clear that the market opportunity around us is growing at an incredible clip. Its also clear that, today, we're missing out on the platform growth that Apple, Google and Facebook are seeing," he said.

"Over the course of the next few months, I'll be working with our leadership team to challenge previous assumptions and to focus our business fundamentals, which, candidly, we struggled with over the past year."

So over the next 90 days, Mattrick says he will be taking the following steps:

• Getting under the hood to evaluate every aspect of the business
• Conducting top to bottom business reviews
• Working leaders to calibrate against the market opportunity and to go after it with a real sense of urgency
• Spend time, heads down, with the teams and focusing on improving product quality
• Assess and reset the product pipeline

Mattrick also made it clear that this type of change will not happen overnight, saying that it may take two to four quarters before the ship is righted. 

"I see potential from all parts of our business. From regaining share on Facebook, to leveraging our IP, our network and our knowledge for mobile. And, because of what the company has already achieved, I believe we have the staying power to successfully navigate our transition and create connective experiences that span multiple devices and multiple operating systems."

In the Q&A section of the call, Mattrick was asked a question about what made him confidence that Zynga could meet its challenges.

"I've been involved with dozens of platform transitions, and when companies have great assets, when they have hits, when they have great people, when they're viewing and expanding growth market, it frequently just takes a little bit of extra attention to detail, a little bit of extra focus, a little bit of extra disciple to unlock the potential of that emerging market. I think that's what we're going through right now," he said.

"When I think about Zynga, and what made me excited to come here, the free to play model is great, advertising is great, the opportunity to give people instant access to the experiences and services that we create right around the globe, in a market that's growing dramatically, that's pretty exciting stuff." 

Later on, Mattrick was asked to compare the company to one its biggest rivals: King, creator of Candy Crush Saga.

"In relation to what King's accomplished, I think they've done an incredible job. They've built a great hit. I'll fess up: I'm a Candy Crush player," he said.

"Imagine if we can start getting the leverage out of our 2,300 people that King's getting out of their 400 people. Would we be driving better financial results? I believe we would."

Q2 results

Zynga reported $231 million in revenue for the second quarter of 2013, a decrease of 31% compared to the second quarter of 2012 and a decrease of 12% compared to the first quarter of 2013. The company reported non-GAAP earning per share loss of 1 cent.

Analysts had been expecting to see a loss of 4 cents per share on revenue of $185.4 million. In its first quarter earnings report, Zynga projected revenue in the range of $225 million to $235 million for Q2 2013. It was expecting a net loss is in the range of $36.5 million to $26.5 million, while non-GAAP EPS was projected to be in the range of ($0.04) to ($0.03), based on a share count of approximately 785 million to 795 million shares.

Bookings for the quarter were $188 million, a decrease of 38% compared to the second quarter of 2012 and a decrease of 18% compared to the first quarter of 2013.

Net loss was $16 million for the second quarter of 2013 compared to a net loss of $23 million for the second quarter of 2012

"The next few years will be a time of phenomenal growth in our space and Zynga has incredible assets to take advantage of the market opportunity," Don Mattrick, Zynga's newly appointed CEO, said in a statement.

"To do that, we need to get back to basics and take a longer term view on our products and business, develop more efficient processes and tighten up execution all across the company. We have a lot of hard work in front of us and as we reset, we expect to see more volatility in our business than we would like over the next two to four quarters. I'm privileged to lead Zynga and I look forward to spending more time with our players, employees and shareholders."

And apparently that means not persuing real money gaming, which many saw as the best way for the company to bolster its revenue in the future.

"While the Company continues to evaluate its real money gaming products in the United Kingdom test, Zynga is making the focused choice not to pursue a license for real money gaming in the United States," the company wrote.

Online game revenue was $203 million, a decrease of 30% compared to the second quarter of 2012 and a decrease of 11% compared to the first quarter of 2013. Advertising revenue was $27 million, a decrease of 33% compared to the second quarter of 2012 and a decrease of 19% compared to the first quarter of 2013.

Zynga's daily active users  decreaed 45% year-to-year, from 72 million to 39 million. They were down 24% quarter-to-quarter, from 52 million in Q1. Web DAUs and Mobile DAUs were 23 million and 16 million in the second quarter of 2013, respectively.

Monthly active users decreased as well, going down 39%, from 306 in the second quarter of 2012 to 187 million this quarter. They also decreased 26% from 253 million in Q1. Web MAUs and Mobile MAUs were 129 million and 57 million in the second quarter of 2013, respectively.

Zynga is projecting revenue for Q3 to be in the range of $175 million to $200 million, with a projected net loss of between $43 and $14 million.

The company is projecting EPS to be in the range of ($0.05) to ($0.02), based on a share count of approximately 803 million to 813 million shares.

(Image source: https://www.huffingtonpost.com)