Q2 2019 Earnings Call
At this time all participants are not listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time, if anyone should require assistance. During the conference. Please press Star then zero on your Touchtone telephone.
As a reminder, this conference call is being recorded I would now like to introduce your host for today's conference Mr., Rebecca Lau, Vice President of Investor Relations and corporate finance.
Well you may begin.
Thank you drew all and welcome to Zynga second quarter 2019 earnings call.
On the call with me today are French a ball, our chief Executive Officer, and Joe Griffin, Our Chief Financial Officer. Shortly we will open up the call for live questions.
During the course of today's call will make forward looking statements related to our business plan and strategy as well as expectations for future performance outdoor results may differ materially from the results predicted.
Please review the risk factors in our most recently filed Form 10-Q as well as elsewhere in our SEC filings for further clarification.
In addition, we will also discuss non-GAAP financial measures.
Our earnings letter, earning slides and when filed our 10- Q1 include reconciliations of our GAAP and non-GAAP financial measures.
Please be sure to look at these reconciliations as the non-GAAP measures are not intended to be a substitute for or superior to our GAAP results.
This conference call is being webcast and will be available for audio replay on our Investor Relations website in a few hours.
Now I'll turn the call over to Frank for his opening remarks.
Thanks Rebecca.
Good afternoon, everyone and thank you for joining our Q2 earnings call.
We delivered great Q2 results ahead of our guidance and finished the first half of 2019 with strong momentum in her life services.
In the quarter revenue grew 41% year over year to 306 million and bookings increased by 61% year over year to 376 million.
Q2 was our best mobile revenue and bookings quarter in Zynga history, with mobile revenue up 49% year over year, and mobile bookings up 69% year over year.
Operating cash flow was 99 million, our best performance since Q4, 2011 and up 140% year over year.
Given the strength of our lives services, we are raising our full year 2019 guidance, which Jerry will discuss in more detail later on the call.
We are on track to deliver our best annual revenue since 2012, and the highest bookings in Zynga history.
Looking back over the first half of the year I would like to highlight some of the key drivers of our strong performance.
Starting with light services, our focus on driving recurring growth through steady release of innovative bold beats is working.
Empires, and puzzles and merged Dragons, both delivered record top line performances in the quarter as empires and puzzles repeatedly broke into the top five U.S. gross gaming charts on Android and iOS.
Well emerged Dragons entered the top 10 on Android in the top 20 on iOS.
Words with friends achieved its best Q2, mobile revenue and bookings in franchise history.
Contributing to our highest Q2 advertising results ever.
Celebrating its third anniversary CSR two was a strong contributor in the quarter driven by a series of fast and furious events.
Zynga Poker performed ahead of our expectations as a new boost feature resulted in mobile revenue being flat sequentially and mobile bookings returning to sequential growth.
Finally from our social slots portfolio. He didn't rich slots had a great quarter delivering its best mobile revenue and bookings in over three years.
Next we have successfully integrated our recent acquisitions into Zynga and they are now contributing meaningfully to our life services performance and new game pipeline.
Both acquisitions are performing ahead of our initial expectations as Graham games recently completed its first full year at Zynga and small giant games finished its first six months.
Our integration approach is designed to enable teams to do what they love most create great games, while growing faster together.
This is working well as these talented development studios maintained their unique creative cultures, while leveraging zyngas life services platform to enhance their growth.
Another key driver is we are making significant progress on our exciting pipeline of new games.
On May Thirtyth, we released game of Thrones slots casino worldwide.
Through its first two months the title is off to a great start with strong player engagement and monetization metrics.
We expect this game will steadily scale over the coming quarters as we continue to invest in its growth.
In July we also introduced two new games into soft launch Farmville, Threed and innovative mobile experience built from the ground up around this iconic brand and merge magic a new title from Graham Greene that combines whimsical magical themes with merge and builder game elements.
These titles join puzzled combat in soft launch a new title from small giant games that combines modern combat with role playing systems and accessible puzzle mechanics.
We're also expanding our reach into new markets and platforms to accelerate future growth.
Specifically in Q2, we self published empires and puzzles in South Korea and Japan.
We are encouraged by the games early engagement results and expect to invest in additional marketing on this title in Asia over the coming quarters.
We're also experimenting with the distribution of our games on new platforms.
In June we launched tiny Royale, a team based battle Royale experience and one of the first games on snapshot snap games platform.
We are excited to partner with snap to introduce our games to a new audience and platform.
Finally, we executed our objective to increase our cash reserves.
First given favorable market conditions, we issued convertible notes that were well received by investors.
We also completed a successful sale leaseback of our San Francisco headquarters in a strong real estate market.
Given these transactions and our positive operating cash flow. We are entering the second half of the year with approximately 1.4 billion of cash and investments, which we plan to use primarily for future acquisitions to further accelerate our growth.
With that I will now turn the call over to Jerry to discuss our Q2 results in further detail as well as our raised outlook for the year.
Thank you Frank.
Well, it's not a great first half performance Q2, finishing ahead of our expectations on strong all my life service momentum and better than expected operating leverage.
Given the strength of our mobile live services, we are raising our full year outlook for revenue and bookings.
But first let's let's discuss Q2.
Revenue was 306 million comprised of bookings of 376 million offset by a net increase in deferred revenue of 70 million.
Revenue was 26 million ahead of our guidance driven by a 16 million bookings b and a lower increase in deferred revenue of 10 million.
Our top line beat was driven by strong mobile life service performance in particular outstanding performances from merged Dragons and empires and puzzles as well as initial contributions from game of Thrones slots Casino, which released on May Thirtyth.
Revenue was up $89 million or 41% year over year, driven by bookings growth of 142 million or 61% year over year, partially offset by the significant growth in deferred revenue.
53 million.
The strength of our portfolio drove our best mobile revenue and bookings performance in the second history.
Mobile revenue was 287 million up 49% year over year, a mobile bookings were up 358 million up 69% year over year.
Our year over year bookings growth was driven by our mobile live services, including a full quarter contributions from merce Dragons and that person puzzles.
The growth collectively in our mobile or excuse me the growth collectively in our forever franchises more than offset the continued declines in our legacy mobile and web games.
The increase in deferred revenue was driven by improved some puzzles continued bookings growth for merged tracking in addition to initial bookings from game of Thrones slots casino.
In assessing year over year variances. Please note that the increase in deferred revenue represents a 53 million negative component to the year over year variance in revenue net income and adjusted EBITDA.
Turning to Q2 operating expenses.
GAAP operating expenses were 241 million up $95 million or 65% year over year.
This was primarily due to a full quarter contribution from Graham games, and small giant games as well as higher contingent consideration expense versus the prior year.
The contingent consideration expense was driven by our recent acquisitions, which continue to perform ahead of our initial expectations.
This resulted in an expense of 24 million up 22 million year over year, and 9 million ahead of our guidance.
Year over year, GAAP operating expenses increased from 67% to 79% of revenue.
This was driven by the significant increases in deferred revenue and contingent consideration expense.
Partially offset by improved operating leverage in SVC, and other R&D and <unk> expense lines.
non-GAAP operating expenses were 197 million up 71 million or 57% year over year.
This was primarily due to the quarter contributions from Graham games and small giant games.
Year over year, non-GAAP operating expenses decreased from 54% to 52% of bookings.
This was true to improved operating leverage in R&D, and <unk> expense line items, which more than offset the higher sales and marketing as a percentage of bookings.
We reported a net loss of 56 million 14 million better than our guidance and an increase of $55 million versus a net loss of 1 million a year ago.
The variance to guidance was primarily driven by better than expected operational performance with the <unk> with the lower billed and deferred revenue more than offsetting the higher contingent consideration expense.
The variance to prior year was heavily influenced by the significant increase in deferred revenue and contingent consideration expense versus prior year.
Our adjusted EBITDA was 3 million 21 million better than our guidance and a decrease of 24 million year over year.
The variance to guidance was driven by better than expected operational performance as well as a lower billed and deferred revenue.
The variance to prior year was heavily influenced by the significant increase in deferred revenue, which more than offset the strong year over year improvements in operating performance.
In Q2, we generated operating cash flow of 99 million, our best performance since Q4, 2011, and up 57 million or 140% year over year.
In addition, given the favorable market conditions, we executed on our objective of increasing our cash reserves through two transactions.
The convertible debt offering and the sale leaseback of our San Francisco headquarters.
In mid June we issued 690 million five year convertible senior notes with a coupon of 4.25%.
The initial conversion price on the notes is approximately $8.31 per share.
In conjunction with the offering we entered into capped call transactions designed to effectively eliminates the potential dilution impact on conversion until our stock reaches a stock price of $12 54 per share.
Net proceeds from the offering were approximately 600 million after the cost of the capped call transactions and associated issuance fees.
This quarter, we also paid down 100 million outstanding on our revolving credit facility and ended the quarter with 831 million in cash and investments.
In addition, given the strong San Francisco real estate market on July Onest, we completed the sale leaseback of our San Francisco building, which provided net proceeds of approximately 580 million.
Taxes and fees.
As of July 1st we have approximately 1.4 billion of cash and investments, which we anticipate we will use primarily to fund future acquisitions to further accelerate our growth.
Turning to guidance.
Guidance for Q3 is as follows.
Revenue of 325 million.
And that increase in deferred revenue of 55 million.
Bookings of 380 million.
Net income of 250 million, which includes a 305 million onetime gain on the sale of our San Francisco building.
And adjusted EBITDA of 7 million.
Some factors to consider in assessing or Q2 or excuse me. Our Q3 guidance are as follows.
Our Q3 top line performance will be driven by our live services in particular, we expect moderate sequential growth collectively across her five forever franchises.
We also anticipate that the incremental topline contribution from game of Thrones slots casino will be more than offset by declines in web and older mobile games.
We expect our gross margins to be pressured sequentially by a higher mix of use of pay versus advertising and an increase in royalties and license type piece.
With this negative impact more than offset by the revenue increase in the quarter.
We also expect an increase in our operating expenses sequentially, primarily due to higher marketing investments in the quarter slight ramp in R&D and our new game pipeline and rent expense of approximately 3.75 million on our San Francisco headquarters.
These increases should be partially offset on a GAAP basis by lower contingent consideration expense.
The sequential increase in marketing costs is expected to be driven primarily by the ramp of investment spend on the recently launched game of Thrones slots casino as well as merck's Dragons and that person puzzles.
We've also factored into our guidance the potential for initial marketing investment on some of our titles in soft launch.
While these investments will pressure operating margins in Q3, we expect them to support growth in future quarters.
In simple terms, we expect the pressure factors noted on gross margins the ramp up investment in marketing and new game development as well as the introduction of rent expense on our San Francisco headquarters to a broadly similar impacts on our Q3 operating margins.
Finally on Q excuse me finally on July Onest, we completed the sale leaseback of our San Francisco building, resulting in a one time gain of approximately 305 million.
Well, we did incur San Francisco transfer taxes on the sale, we expect minimal federal and state taxes on this gain due to the utilization of net operating losses carryforwards.
Turning to expectations for 2019 and beyond.
Our topline performance for the year will be driven by our mobile live services anchored by growth collectively in our forever franchises.
Well, we also continue to make progress on our exciting pipeline and new games under development.
In Q2, we launched game of Thrones slots Casino and are currently testing three new games in soft launch.
We remain on track to deliver our strongest annual revenue since 2012, and the highest bookings and sank a history.
Given the strong momentum in our live services, we are raising our full year 2019 guidance to 1.24 billion in revenue up 37% year over year, and an increase of 40 million versus our prior guidance.
We are also raising our bookings guidance to 1.5 billion up 55 million year over year, an increase of 50 million versus our prior guidance.
We expect the net increase in deferred revenue of 260 million.
Up 370% year over year, and an increase of $10 million versus our prior guidance.
In terms of profitability in 2019, we continue to expect pressure on our gross margins due to a higher mix of user pay versus advertising and an increase in royalties unlicensed like piece.
In addition, we expect to increase our marketing spend year over year as we invest in high growth life service titles, such as Empire, some puzzles and Mercks Dragons as well as the launch of new titles.
We also anticipate a slight ramp and development spend on our new game pipeline, an incremental rent expense related to the sale leaseback of our San Francisco headquarters.
These factors will modestly impact or overall operating margins in 2019.
But should deliver returns in future years.
Looking forward to 2020, we continue to expect low double digit revenue and bookings growth with greater operating leverage as our life service growth is enhanced by full year contributions from our 2019, new game launches as well as initial contributions from games launched in 2020.
Over the next few years, we expect to make meaningful progress towards achieving margins more in line with our peers on a like for like basis.
In conclusion, we are pleased with our performance through the first half of 2019 and the progress we're making on our multiyear growth strategy.
With that I will turn the call back to Frank.
Thanks, Jeremy.
Before we open the call up for life today, I want to take a moment to highlight how zynga is uniquely positioned within the interactive entertainment industry.
Zynga is a leading mobile first free to play life services company with the mission of connecting the world through games.
Mobile is the largest and fastest growing gaming platform in the world with mobile games expected to reach 2.4 billion people in 2019.
This platform is constantly evolving with new devices technologies and distribution innovations that will expand the overall accessibility of games and therefore, zyngas total addressable market.
As a nimble mobile first company, we are well positioned to capitalize on this rapidly evolving game landscape at a time when demand for interactive entertainment is reaching new highs.
Our great results through the first half of 2019 put us well on track to be one of the fastest growing public game companies. This year.
We are focused on executing our multi year growth strategy to further scale, our business and generate more value for players and shareholders with that we'll open up the call for your questions.
Thank you ladies and gentlemen, if you have a question at this time. Please press the star and the number one can you touched on telephone. If your question has been answered or you wish Tim maybe yourself from the queue. Please press the pound key.
Again, that's star then one to ask a question.
In the interest of time, we ask that you. Please limit yourself to one question and one follow up.
Our first question comes from Colin Sebastian with Baird.
Your line is now open.
Oh, great. Thanks, Great quarter I have a couple first could you talk about the levers driving continued strong growth in empires and puzzles, including the mix of paid user acquisition.
Versus specific monetizing events or other activities and then secondly, raising the full year bookings guidance by more than the Q2 beat if you could just.
Maybe talk a little bit more specifically about what parts of the business you think are showing more sustainable faster growth. Thanks.
Oh, Hey, Collin. This is Frank I'll start with the empires and puzzle question its going to be a combination of things we have a fairly aggressive full de calendar in front of us for these next couple of quarters, where we will be expanding the number of systems that players can engage with one example is we will continue to expand the base features that we introduced this quarter and cruelly, including stronghold Max levels, new characters and new ways to compete also we are investing more in our operations in Asia against this title it's out in South Korea, and Japan, as we mentioned and we're seeing some very promising early indicators. So expect that will also ramp geographic expansion over the coming quarters that should also help drive the growth of that franchise.
This is Jerry in terms of.
For the full year guide as we stand at the Prime the primary rationale for for the year.
Increase was how we see our live services progressing over the second half year.
Obviously, we expect.
A game of Thrones, so slots to ramp its obviously progressing through this quarter and then through the end of the year, but also as we look across the rest of the portfolio. We still believe there's there's room for growth as we.
As we assess the various bold beats that we're going to prosecute both in Q3 and Q4.
Okay. Thanks.
Thank you.
And our next question comes from Mike King with Goldman Sachs. Your line is now open.
Hi, Thank you very much further question I have one for care and one for whoever would like to take it chair can you talk a little bit about how much incremental marketing spending you're putting against the three soft launches. This year Im just trying to better understand the impact to margins on the third quarter and full year.
What I would consider growth investments that likely won't pay off until 2020, and my second question and I apologize, if I'm being a little bit pedantic, but it seems like your language around using capital allocation to fund.
Acquisitions seems a little bit more intentional that in previous quarter.
Has your intention increased.
Since our last earnings report and could you just update us on your progress there. Thank you.
Yes, we don't break out specifically.
The exact number against what we may apply against the soft launches its just as as we now have three games in soft launch, they're obviously in different levels of maturity I did consider that as I thought it was second guidance, what I will say.
If you think about you know the last quarter from from Q2 to Q3, we essentially indicated theres about three points of pressure and I gave a little bit of an outline in my prepared remarks to say that.
<unk> point is fundamentally coming from the gross margin side of the equation appoint is coming from the the rents on the real estate and then the other point is broadly related to marketing so little elements of that relates to what I'm talking about in terms of soft launched the majority of it relates to the ramp of game of Thrones social slots.
Game, and obviously you continue the investment against the Empress and puzzles as it ramps in Asia and Mers Dragons.
On the on your second point from our perspective, I don't think we amplified our attention on on on acquisitions other than.
Prosecuting our objective to refill our cash reserves, obviously is indicative that we now have the capital in house should additional opportunities arise.
But it has always been our attention to be prepared if other opportunities similar to a a casual cards or Graham games are moroccans are are on the offering and so from our perspective, there is no rush.
To do another acquisition, but we feel.
The sale of the building and the convert gives us the opportunity to execute from a financial perspective, if an opportunity arises.
Great. Thank you very much for the color those are helpful.
Thank you and our next question comes from Alex Yao Mount with Jefferies. Your line is now open.
Thanks for taking the question just from a high level. It seems as if mobile is quickly becoming the most competitive sub sector within gaming can you just talk a bit about how your team is adapting to that competitive environment and if you do feel acquisitions are are necessary to maintain growth rates are you confident that your existing portfolio can drive the low double digit future growth rate that you referred too. Thank you.
Yes, Alex I think that if you look at mobile overall, its as competitive as it's always been I wouldn't I wouldn't subscribe to the point of view that mobile is getting more and more competitive I think that it is a very dynamic marketplace. It has innovation happening in the hardware handsets in the distribution channel and the business model.
And it's also expanding into new markets in the emerging world at a very aggressive rate. So from our perspective, we look at it as yeah sure. It's competitive it you need to have you need to know what you're doing in this category it needs to be something that isn't a hobby it needs to be something that's your primary focus in many ways to really break out and so we that's where we keep our management attention very much focused on her live ops or we have a very rigorous process to continually look at our franchises in terms of are we bringing new people into the franchises are people that are playing the games playing more our lapsed players we have plans to bring them back and keeping that drumbeat in that discipline is integral to our overall strategy of producing growth inside the overall marketplace. It's also a marketplace that I would point out is very broad and its demographics. So lot of the franchises that we have whether its words with friends.
You know the upcoming form Bill three merged Dragons, they're reaching audiences that traditionally a lot of the game companies haven't reached and that's exciting for us because we're just starting to tap into that and grow it and especially internationally.
So from our perspective, we're going to keep our eyes focused on the fundamentals of mobile, but we're also going to be aggressive our new product pipeline is just starting to show up in terms of the marketplace with game of Thrones, social casino and the three titles that we have in soft launch. They are all very big potential titles Farmville three puzzle combat merge magic those titles have real potential and that doesn't even include the games that were working on in the future with Star Wars, Harry Potter and the future pipelines that we have coming so the combination of those two elements. We think can continue to deliver on our strategy of.
A strong foundation of growing life services with incrementally layering in new titles.
And we believe that that execution will continue to deliver the growth rates that we've committed to our shareholders into the marketplace. The M&A is actually a lever on top of that and we take it in a very.
Considered and thoughtful manner, we don't we're not in a rush to do any deals, but if we see something that we can plug into our lives services platform and if we find a game team and a franchise that we really believe in a we'll go for it and that would increase the growth rates from what Weve already committed to so we don't really have any assumptions in our projections against further M&A. It's all based on organic growth from existing life services and with a very small assumption against a new title releases.
The only thing anything I would add to what Frank said as you as you think about 2020 and we've talked about this before.
As as these new games come out.
They'll start contributing games that come out obviously in 2019 will give us a full year contributions.
Yeah, Jim it's Kevin shrunk social slots.
The as you get into 2020 then.
Depending on the timing of a few additional games when the turn off that will ultimately define the level of operating leverage we can we can we can command obviously, if we get the games are out earlier in the year they'll they'll be contributing more to the to the.
For the year, then if they come out later in the year, but that's that's all a TBD depending on the cadence of our new games.
Okay. Thank you.
Thank you and our next question comes from Brian Nowak with Morgan Stanley . Your line is now open.
Hi, guys its Matt on for Brian . Thanks for taking the question. So can you discuss the puts and takes that you saw in words with friends and Zynga poker in the quarter. Obviously, you grew bookings sequentially in both of the games, but sighted them as a driver of a you know the slight decrease in users sequentially and then can you discuss kind of what youre seeing in the chat games and solitaire as well and that point. Thanks.
Yeah with regards to poker in words with friends. There was that there was a lot to celebrate in terms of the features that were released in poker. There was a new Bu system that was introduced to the game that fans really really liked we also made some changes to the infrastructure and the production cycle. So we can actually get bold beats out faster and that was very encouraging to see the return to growth on a sequential basis as we've discussed on prior calls we felt that that was going to be a second half event. So that affected it's a little early is very positive to us and we anticipate that the velocity of bold beat releases on poker will increase as we enter into the second half in terms of the audience level. There's there's some puts and takes on poker in terms of some different markets that we've been active in a new way. Some places we pulled back a little bit some places we leaned in and we wanted to see how the boost really working before we look at that on a more a long term basis.
In terms of words with friends again best quarter, it's ever had on mobile a big driver of the result on advertising.
The new achievements bold beat was was very well regarded we also had a promotion with Garth Brooks and so we had a really good may and June on that title. We just released a celebration of the 10th year anniversary with friends Bursary event, which is off to a good start we got engaged giveaways and exclusive titles coming so what we're seeing is the existing base of users is playing the game more we're seeing more moves per player and as we get trend diversity out we're going to look at ways to expand the audience through you weigh and further investments in terms of the legacy titles. There had been some changes in terms of how Facebook it's been approaching messenger.
And movement of that App from where it was in to the new Blue App that they have and where its been surface and how discovery works Weve decided to focus our efforts there on draw something in words with friends and we've sunsetted or the rest of the chat games. There. So that was a negative impact on audience as we sunset at those games and focus more and on the two titles that had substances AOS audience.
Great. Thank you.
Thank you and our next question comes from <unk> Khan with Stifel. Your line is now open.
Okay. Thanks, guys.
Talk about Csrtwo sounds like you have a deeper line up the content will be coming in threeq versus twoq, two plus an easier comp how are you thinking about that franchise in the second half.
And then separately and I apologize if I missed the can you comment on your plans for marketing support of new initiatives beyond three Q.
Aside from the seasonality you see in Fourq should we expect another step up going from Threeq to Four Q2 around marketing. Thanks.
Yes drew on Csrtwo, we do have an ambitious a bold beat roadmap for us starting in Q3 today you saw the announcement of the the Podany wire a roadster that was released exclusively for the first time ever in a in a in a game I'm very well received and we have a new beta testing feature a PDP feature called showdown, which really is focused on expanding the player versus player modes. Insights. These are two that were very excited about and that should have a long term impact on the franchise I will also have some new fast and furious events coming so we do have a lot of ambition for the game in the second half the investment in the Pvp feature is substantial.
And in terms of the release calendar, you've seen a lighter cadence in this last Q2.
And coming off Q1, so you will start to ramp Csrtwo as we go into the second half.
I'll, let Jeff talk about the sequencing of marketing from Q3 to Q4.
Yes, our guidance for Q3, and if you if you think about my overall color ive given on on margins for the for the full year would indicate.
A similar sort of pressure on margins for Q4, as we do invest against.
Our current lifecycles and the potential of investment against new titles.
So from a from a quarter on quarter perspective, without putting any any major dollars against few games, you should sort of assume that.
Q3, and Q4 broadly look the same from a top line on a on a margin profile as of now.
Okay helpful. Thanks, guys.
Thank you.
And our next question comes from Brian Chin with Bank of America. Your line is now open.
Yes, hi, good afternoon. Thanks for taking the question. So the first one's on public combat. So we're watching it in soft launch and argue it could kind of looks like a modern combat versus fantasy re scan of empires and puzzle. So.
We've seen this with your competitor that did a bunch of different themed match three games in the past and sequels weren't really that incremental so I'm curious how you guys are internally forecasting the contribution of that equal.
Is it just about moving users from one game to the other.
And then focusing on retention or do you plan to see incremental users and revenue.
No. One is public combat does launch and then follow up along those lines you know three titles in soft launch. So have you guys committed to a specific number of titles for 2019, I think going into the year you were looking at for possibly five Cityville makes it.
So just curious if that's still the case.
And if that was a factor in the $50 million.
Bookings guidance raise thanks.
Yeah, Ryan I'll start with the public combat a question.
It's very early in soft launch we are looking at all different types of a player behaviors how cohorts come in what features they like I think its.
You haven't seen the full feature set rolled out against the game in soft launch so I'm not sure I would characterize it as a re skin of puzzles. It puzzles empires and puzzles. It certainly is embracing a different theme in modern combat, which we've seen in testing really does open up incrementally new audiences. So our goal is not to create a cannibalistic cells less than the last game type strategy here. So I think it's a little too early to read too much into what the game. Eventually is going to look like in soft launch from a modeling standpoint, you know we're not doing a lot of deep modeling in terms of the revenue contributions on public combat right now we're looking at frankly, what's the player behavior in the franchise all the projections that you've seen from us on the future really are more related to how live ops and the titles that we discussed a roll up in terms of the three titles in soft launch.
We we committed to having games in soft launch and releasing a few titles I don't think we are committed to five games, releasing this year, but really the beauty of how weve constructed the company is that we can deliver recurring predictable growth off the live services that are strong I mean, this quarter is up 61% bookings level without major contributions from new titles. We did not want to design a company that was beholden to the risk of new product introductions and so from that standpoint, it takes a little bit of pressure off of new product development process. If we're not trying to land it in a quarter and we were able to just more focus in on the product quality the engagement metrics and the lifetime value that we can generate inside the title. So that's why we're not as a vocal about we have to get these games out in this quarter, it's really more about let's get into soft launch, let's see what we learn if things look really good. It can go pretty fast if things are need more work and more polishing iteration. Fortunately the way that the live services are pretty.
Forming we have that flexibility and opportunity to do so.
Thank you and our next question comes from Doug Creutz with Cowen.
Your line is now open.
Thanks.
Obviously far below the important title for you guys. It's kind of it was a phase of the company for a long time, you've now got.
Fargo three in soft launch can you talk about what you're doing with that game.
That's going to kind of updated for what what mater audience is looking for in a top play mobile gaming.
Would you do you think you can make it successful thanks.
Yes, the game is innovative and a lot of levels and we're encouraged by what we're seeing in terms of research and test in terms of the appeal.
It starts by building it from the ground up for modern mobile user experiences modern mobile technology. It has a lot of new things and it was related to event harnesses, we can frequently update it in.
Live operations, but it really does start with a new look and feel to the game, it's actually three d. not duty it hasn't really accessible you I.
And it's focusing in on some key elements on the farm that I think people are really going to gravitate to which is the animals the ability to interact with farm animals horses dogs cats, and we've added a layer of story and RPG related to farm hands with the different characters, who operate on the farm. So it embraces a lot of of the tried and true builder mechanics from the original Farmville and from whats popular in the category, but it adds a few new twist with collection.
RPG.
Depth in terms of how the stories unfold.
And we have a we haven't unveiled them yet in soft launch, but there are also elder game features related to social co op play and other things that we feel can drive the elder game retention that this type of franchise.
Well, we will enable and so I'm very early days, it's only been in soft launch a few weeks and we expect that will be a polishing and testing. This game over the next couple quarters.
Great. Thank you.
Thank you and our next question comes from Ben Schachter with Macquarie. Your line is now open.
Hi, guys I hopped on late so I apologize. If this was already asked but one can you update anything on the strategy for Asia for China, specifically anything new there either near term or long term and then secondly, I don't know if you've seen what's happened with Tinder recently, but.
The first time that I've seen anyone in AP go around the payment systems from from Android.
And we think that we know how they did it.
But the question is can gain company doing as well and if there is any any update in terms of how you're thinking about the ability to go around the 30% tax rate or negotiate that lower thanks.
Yeah on the first question regarding Asia, you know our focus was very deliberate and you know one game at a time and do it in a way that we don't rush in and you know end up making mistakes in terms of how you enter Asia like a lot of companies have so we focused in on empires and puzzles, which we saw was testing well we started with the markets that we felt we could self publishing with Korea, and Japan, where we could actually get direct feeds on the data we weed control more of our own destiny in terms of how we can invest in change the games I give us much more flexibility for how to bring the games to market and then grow overtime I'm happy to report that is very encouraging early metrics from both markets. So much. So that we will be increasing the marketing expenditures against that title in the coming quarters as it relates to China, given a lot of the.
Dynamics related to how games are regulated how you go into the market, we decided to focus more in on Korea, and Japan on the titles get to success and scale their and while we do have games available in China merged Dragons. For example has a fairly good audience. There that's going to be part of a next wave of efforts and as we look at how to expand further into Asia.
As it relates to the App stores and you know there's a lot of dialogue about the distribution channel the rates the fees how to go around it you know I can only say this it's it's really a dynamic environment. The mobile ecosystem is subject to constant change and there's a lot of attention and pressure on the current structure of how its operating.
Zynga is a great partner to Apple and Google and you know our perspective is lets do what we do best which is make games run live services and if there are shifts in the channel as it relates to some of these dynamics.
Those would probably benefit us, but it's not forecastable event and as far as going around some of these you know systems and policies that they have.
A dating App, where a lot of the activity happens off the application is a little bit different than a game, where most of the activity happened inside the application. So I think there's some more fundamental structural issues there that to look into that it doesn't make it a perfect north star for how to potentially go after that activity. So from our perspective you know.
We love mobile because of the opportunity presents for growth and change, but at the same time. The current system is benefiting as well.
Thank you.
And our next question comes from Ray Spotchem with consumer edge. Your line is now open.
Great. Thanks for the question. So a couple on new platforms, what would be the long term opportunity for you all with cross platform play historically you ran your own website in portal historically, but we know that theres pressure of web based games is there a scenario where you have cross platform play with third party distribution as as we see there continues to be a growth of third party distribution on PC and then secondarily would be on chat is there any way that you can quantify the audience impact either for Facebook instant games in Twoq and Threeq, you or tiny right now in Twoq and Threeq. Thanks.
Yes, so the cross platform opportunity for US, we think is profound and and it is something that.
Zynga teams and zinc intellectual properties, we think they can appeal across platforms.
The most adjacent clear opportunities on the PC not just the web but also in a fully downloadable game type environment free to play as a very proven model on on PC on there is a lot of great distribution channels with steam and epic and others that you can go direct on that we think over the long term as we look at how we grow our forever franchises. There will comment on the day, where zynga will be able to launch games I have cross platform play and cross platform audiences.
PC is also very appealing to us because of the presence that it has an Asian as we as we grow our global footprint.
The ability for mobile players and PC players to co mingled play against each other.
It's really exciting and something that we're looking at.
The next step out from that with console and streaming systems.
I think it's simple to say we are a.
A platform agnostic company, we start with.
The games, the teams and where can we generate audiences profitably and if we can we can figure out pads for franchises and IP is that that makes sense.
That would be something that we evaluate its not anything that's eating up R&D right now, but it's certainly something that we think about as we contemplate 2020 and beyond.
As it relates to chat.
We recently announced or we recently released a tiny ROI on snap and we've been very pleased with the partnership with snap there.
Very very good company and their approach to gaming, we really like.
And it's exciting to see the reception that tiny reality as receive so you know the idea that you can build games on chat platforms in the West I think is still in its very early days snap just got in.
Facebook is recalibrating in terms of how it wants to approach that so I think when you look at audience numbers. They are going to jump around a lot. There's a lot going are going to be a lot of noise in them.
We don't really break them out so I can't give you a quantitative assessment of how big they are.
But from a from the standpoint of over the long term.
Theres audiences there in chat that that are fine zynga intellectual properties like words with friends and draw something and tiny Ral very appealing and so it's a place that we'll continue to look to innovate. It's also going to be an AD driven business, which also works well for us. So there's still a lot of structural things that we like there but again.
The cautionary note that I would say is its early days reading too much into audience or or how it unfolds is is.
Do at your own risk.
Great. Thanks again.
Thank you.
As a reminder, ladies and gentlemen that Star then one to ask a question.
And next question comes from Mike Hickey with benchmark. Your line is now open.
Hey, Frank share with Becca Congrats on the quarter guys. Thanks for taking my questions.
I guess the first one just looking at your house.
20 bookings guidance sinister 2%.
Obviously.
You live service games are cranking here, just curious how you sort of balance growth from existing live services.
Mrs.
New games, obviously are inherently more risky.
Thats in the 50% range Paul.
Well the way, we think about planning for current here in future years is we do we do have.
Obviously, we've got a perspective on our new game sales and potential.
Launch Windows.
As we as we thought about giving our AR.
Our guidance for 2020, we said low double digits. So.
In that guidance, we implied we wouldn't get growth from our core life portfolio, but we do expect that we'd get some contribution from new games, whether its a.
A full year contribution of the game launch.
And this year are some additional games that would launch in 2020. So in setting that guidance. There is there is a component that relates to new.
And from our perspective, as we look at the portfolio, both our life portfolio on the potential game, so could soft launch.
Or over the next year or so we felt low double digits was or was it was a reasonable expectation.
As you think about it from a mix point of view the majority still going to be coming from what we would call life games live by definition is any games that are in the market prior to the end of 2019.
Okay. Thank you Jackie.
Last question for me on small James looks like.
Empires, and puzzles and north of 80 million bookings for the quarter I think is probably top performing game play by quite a bit when you acquired that asset I think the run rate.
Forgive me if my math is wrong, but it was around 200 millions now looks like pure so.
Looking to be well over 300 million. So one is that math right cheek sort of help us bridge that sales growth from that game, but generally.
Yes, I see.
The math is broadly correct the game has.
As we said when we.
When we brought.
Small China family, we're really excited with Harman scandal.
Starting it.
Obviously its journey in terms of ramp it had a very good Q4 had an excellent Q1.
Continued growth so in terms of.
How much of that was baked into our initial expectations. We obviously took a more conservative view, hence you see the contingent consideration build.
But.
You know what we when we if we start to step back in the time machine and look at it versus our our case there was six to our board. It's obviously performing ahead of our expectations and to a similar except we have a similar situation going on were crammed those titles.
The core as Frank said in his opening remarks, the core team and their creativity.
We haven't messed with that they're they're they're part of the single family or we've been layering into them is our our publishing experience our.
Our studio ops, and our ability to help them scale better and the combination of the two is worked really really well.
Thanks, guys.
Thank you and our last question comes from Jeff Cohabit Stevens.
Your line is now open.
Hey, guys. Thanks for taking my question. So one of your competitors made an acquisition today in the hyper casual space could you maybe just talk about that genre on any ambitions you might have to get bigger there.
Yeah. It's a it's a category that is a very interesting to us it very high D. you are very casual very easy to get into it tends to skew a little younger than a lot of the main native apps. It's an it's an AD driven business right now it could start to evolve more towards I P. R. Anat purchase so when we look at the overall download charts on the on the platforms. You do see you know the charts dominated by these you know very quick or easy to play easy to get into games on the challenge is just how do you get to scale. How do you maintain that that's sustainable make the sustainable on you have to have really good systems for cross promotion you have to have really good advertising systems, we like the category. It remains to be seen how long it'll stay at this you know rapid growth rate, if it's going to start to slow down in the second half or not but from our perspective, we think that hyper casual is.
Strong sector of growth inside the mobile ecosystem.
Thanks.
Thank you.
I'm not showing any further questions at this time I would now like to turn the call back over to it that could allow for closing remarks.
Thank you all we want to thank everyone for joining our earnings call today, we look forward to connecting with you more over the coming weeks.
Ladies and gentlemen, thank you for participating in today's conference. This does conclude todays program and you may all disconnect everyone have a wonderful day.