Zynga buys NaturalMotion for $527M to accelerate mobile

Gaming giant also says it will lay off 15% of its staff

Financial trends and news by Steven Loeb
January 30, 2014
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Well, Thursday certainly turned out to be a much busier day for Zynga than I think anyone was expecting it to be.

Not only did the company decide to release its financial earnings statement a week ahead of schedule, but it also announced a big new acquisition, as well as more plans to play off staff.

In a conference call, Zynga's CEO Don Mattrick explained that the company decided to move the earnings release up to coincide with the news that it had signed an agreement to purchase NaturalMotion, a mobile game and technology developer.

The deal is worth approximately $527 million in cash and equity.

Before he got into that, though, Mattrick explained the three areas that he has been focusing on in the time since he was appointed CEO back in July.

The first is being able to sustain hits that have been validated by the company's users. Second, enhancing its capabilites to create new hits. And, finally, doing these things "in a more efficient manner."

Being more efficient, unfortunately, means cutting jobs. In all 314 employees, or approximately 15% of its current workforce, will be laid off. 

"In the last few quarters, I've spent time interacting with our teams, and reviewing with our leaders, better ways to align our business, in a more disciplined way," he said.

"As you can see from today's workforce reduction of approximately 15%, which affected 314 people, we're right-sizing our team structure to align our resources with the best opportunities for growth."

He called the layoffs "difficult, but important, actions, which should help us drive improved results, and help create new foundations for future growth."

"We're saying goodbye to many good people and I want to thank them for their contributions to Zynga. We wish our friends and colleagues well and know that they will have future successes."

Transitioning to the purchase of NaturalMotion, Mattrick said that the company had created a "foundation for natural growth" over the last few months, but that the purchases will help to "significantly accelerate that trajectory."

"We beieve that NaturalMotion is perfectly aligned with our core organic growth strategy and that bringing Zynga and NaturalMotion together is a bold step in the right direction at the right time."

It will help Zynga expand its creative pipeline, excellerate its mobile growth and fast track its ability tro deliver more hit games.

NaturalMotion is a leader in two important categories, he said: racing and people simulation. Zynga will work with NaturalMotion to grow their games in these categories into "global franchises."

"I believe in their culture, and expect the union of Zynga and NaturalMotion to be an excelerant for both businesses in bringing more mobile hits to players."

Zynga's Q4 and FY2013

Zynga came out ahead of expectations by reporting bookings of $147 million on a loss of three cents a share, beating out analyst expectations of $141 million on a loss of four cents.

It reported a net loss of $25 million for the quarter, which was down from a net loss of $49 million for the fourth quarter of 2012 and up from a net loss of $68,000 for the third quarter of 2013.

For the full year 2013, Zynga's bookings were $716 million, a decrease of 38% on a year-over-year basis.

Zynga, however, saw its numbers go down significantly from the same period last year, and the company is being forced to cut staff even further.

It's Monthly Unique Players were 1.3 million, less than half of the 2.9 million it was seeing a year ago. They were even down 16% quarter to quarter.

Daily active users (DAUs) dropped to 27 million in the fourth quarter of 2013 were 27 million, from 56 million in the fourth quarter of 2012. They were down 12% from 30 million in the third quarter of 2013. Monthly active users were also down, going from 298 million in Q4 2012 to 112 million in Q4 2013. They also went down 16% from 133 million in the third quarter of 2013.

Non-adjusted revenue for the quarter was $176 million, a decrease of 43% compared to the fourth quarter of 2012 and a decrease of 13% compared to the third quarter of 2013.

Online game revenue was $152 million, a decrease of 44% compared to the fourth quarter of 2012 and a decrease of 13% compared to the third quarter of 2013.

Advertising revenue was $24 million, a decrease of 35% compared to the fourth quarter of 2012 and a decrease of 15% compared to the third quarter of 2013. FarmVille 2Zynga Poker, andFarmVille accounted for 26%, 21% and 15% of online game revenue, respectively, for the fourth quarter of 2013 compared to 22%, 19% and 18%, respectively, for the third quarter of 2013.

Zynga is projecting revenue for Q1 2014 to be in the range of $1575 million to $165 million, with a projected net loss of between $56 and $49 million.

Non-GAAP loss per share is projected to $0.01, based on a share count of approximately 860 million shares.

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