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spk12: Thank you for standing by, and welcome to Zynga's third quarter 2021 results conference call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. Should you require any further assistance, please press star 0. I would now like to hand the conference over to your host, Vice President, Investor Relations and Corporate Finance, Rebecca Lau. Please go ahead.
spk00: Thank you, Lateef, and welcome everyone to Zynga's third quarter 2021 earnings call. On the call with me today are Frank Jabot, our Chief Executive Officer, and Jer Griffin, our Chief Financial Officer. Shortly, we will open up the call for live questions. During the course of today's call, we will make forward-looking statements related to our business plan and strategy, as well as expectations for our future performance. Actual 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, earnings slides, and our 10-Q 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 webcasted 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.
spk11: Thank you, Rebecca. Good afternoon, everyone, and welcome to our Q3 earnings call. We delivered strong quarterly results, including record Q3 revenue and bookings and better than expected operating leverage. Today, we are raising our full year guidance and are on track to finish 2021 with Zynga's best ever annual top line performance and the largest mobile audience in the company's history. We are well positioned for 2022 and beyond with multiple growth catalysts in place to drive our continued expansion. Starting with Q3, Our live services delivered strong results ahead of our guidance, including our highest ever third quarter revenue of $705 million, up 40% year-over-year, and record Q3 bookings of $668 million, up 6% year-over-year. This was a tremendous performance by our teams against a difficult comparison from a year ago. Our top-line beat was driven by strong advertising results. in particular by another standout quarter from Rolex's hyper-casual portfolio. This performance capped off Rolex's phenomenal first year at Zynga and also helped drive our average mobile DAUs to 38 million, up 21% year-over-year, and average mobile MAUs to 183 million, up 120% year-over-year. Moving to Q4 and next year, I'd like to highlight some of Zynga's near-term growth catalysts. First, we expect our live services to build momentum as we head into 2022. We recently closed our Starlark acquisition, the talented developers of Golf Rival. This adds another fast-growing franchise to our highly diversified live services portfolio. We also see more opportunities to further accelerate Golf Rival's growth by leveraging Zynga's best-in-class product management, data science, and user acquisition capabilities. In addition, we have an outstanding slate of bold beats prepared for Q4, including the introductions of Alliance Quest in Empires & Puzzles, Fantastic Feasts in Harry Potter Puzzles & Spells, Dragon Missions in Merge Dragons, and Piggy Bank in Toon Blast. Second, our new game pipeline has never been stronger. Last week we launched Farmville 3 Worldwide, a reimagination of one of Zynga's most iconic franchises for the mobile platform. The game is off to a tremendous start and has already reached the number one and number two top free downloaded game positions in the US iPad and iPhone app stores respectively. Player feedback has been very positive as well, and we expect Farmville 3 to be a strong growth contributor in 2022 and beyond. Next week, we are releasing our first cross-platform play franchise, Star Wars Hunters, into technical soft launch in select mobile markets. The title features unique new characters in the Star Wars universe. and we are unveiling several new gameplay modes that will be available when the game launches in 2022. We also have two additional new titles that are performing well in soft launch. Both games are developed by studios with proven track records of creating hit franchises. Graham Games, makers of the popular Merge category, are developing Pirates Evolution, a brand new title where players explore mysterious islands and engage in player versus player sea battles. Peak, the talented puzzle makers that brought us chart-topping games like Toon Blast and Toy Blast, is creating their next blockbuster match-three game, Star Blast. Over the coming quarters, we will steadily ramp up the production of both these titles, and also expect to make meaningful progress on additional games in development across our global studios. Third, we expect our expanding portfolio of hypercasual games, one of Zynga's fastest growing categories, to deliver strong growth in our advertising business. In Q3, we grew our advertising revenue in bookings by 99% year-over-year, and on a trailing 12-month basis, we have now surpassed half a billion dollars. Moving forward, we expect to drive more advertising growth from our live services, new game releases, and the positive momentum from Rolex's portfolio. Hypercasual is one of the largest and fastest-growing game genres on mobile, and Rolex's unique development process enables us to repeatedly design and publish new hit titles. We are now introducing bold beats within our key hypercasual franchises, which are deepening and sustaining player engagement. To build on this momentum, we are expanding Rolex's first and third party developer network and are enhancing their publishing platform with new tools and technologies. Fourth, our integration with ChartBoost is well underway and we are making significant progress in building a next generation mobile advertising platform. As the mobile app ecosystem continues to evolve, The integration of Zynga's first-party content and data with an at-scale advertising platform will be an increasingly important competitive advantage. By leveraging ChartBoost's demand-side platform, we are meaningfully enhancing our ability to more efficiently acquire high-value players at scale. We are also building out ChartBoost's supply-side platform and mediation product which will enable us to improve the yields on our large portfolio of owned and operated advertising inventory. We also expect that this will generate more value for ChartBoost's advertising partners. As more brands and marketers turn to mobile advertising to reach large and highly diverse audiences, our platform provides a significant opportunity to expand Zynga's total addressable market and strengthens our position in the fast-growing digital advertising sector. With that, I would now like to turn the call over to Jer to discuss our Q3 results and forward outlook in more detail.
spk13: Thank you, Frank. In Q3, our live services delivered strong results ahead of our guidance, including our highest ever third quarter revenue and bookings. Execution of our multi-year growth strategy has us on track to deliver Zynga's best-ever annual top-line performance and the largest mobile audience in the company's history. On behalf of Zynga, I would also like to welcome the talented team from Starlark, developer of the hit franchise Golf Rifle, which is now part of our market-leading live services portfolio. Today, we are raising our full-year revenue bookings, and GAAP profitability outlook. Outside of the update to the estimate change in deferred revenue, we are also maintaining our previously communicated non-GAAP profitability guidance for 2021. With respect to our Q3 results, revenue was $705 million comprised of bookings of $668 million and a net release in deferred revenue of $37 million. Revenue was $40 million ahead of our guidance driven by an 8 million bookings beat and a 32 million higher net release in deferred revenue. Live services drove our Q3 results with a stronger advertising performance from Rolex hypercasual portfolio driving our top line beat. Revenue was up 201 million or 40% year over year driven by a bookings growth of 40 million or 6% year over year and a 162 million difference in the net change in deferred revenue. We generated user pay revenue of 571 million, up 31% year over year, primarily driven by the impact of the change in deferred revenue. User pay bookings were 534 million, down 5% year over year, against a difficult comparison due to the COVID-19 lockdowns in Q3 2020. Advertising revenue and bookings were both a quarterly record of 134 million, both up 99% year over year primarily driven by the addition and strong performance of Rolex's hypercasual portfolio. The net release in deferred revenue was $37 million and was primarily driven by Merge Dragons, Empires & Puzzles, CSR2, and Toy Blast. We ended Q3 with a deferred revenue balance of $734 million versus $655 million a year ago. Turning to Q3 operating expenses. Gap operating expenses were 476 million, up 87 million or 22% year-over-year. This represented 68% of revenue down from 77% of revenue in the prior year. Non-gap operating expenses were 325 million, up 46 million or 16% year-over-year, and represented 49% of bookings, up from 44% in the prior year. Q3 FY21 gap operating expenses included a one-time cost of $67 million related to the impairment of a vacated lease, related leasehold improvements, and other property and equipment. Gap operating expenses increased year-over-year primarily due to this one-time cost I just noted and an increase in our non-gap operating expenses. This was partially offset by a decrease in contingent consideration expense. Non-gap operating expenses increased year over year, primarily due to the incremental expenses from our recent acquisitions. In particular, higher marketing expenses from Rolex's hyper-casual portfolio. This was partially offset by reduced spend across the balance of our live services. Outside of this step-up for acquisitions, other drivers of our non-gap operating expenses were investments in our new game pipeline, including cross-platform play projects in development. We reported a net loss of 42 million, which included a one-time cost of 67 million related to the impairment of a vacated lease, related leasehold improvements, and other property and equipment. This net loss was 68 million better than our guidance and an improvement of 80 million versus a net loss of 122 million a year ago. The variance to guidance was primarily driven by the higher net release in deferred revenue, stronger operating performance, as well as the lower than expected expense incurred from our vacated office lease and income taxes. The year-over-year improvement was primarily driven by the impact of the net change in deferred revenue and lower contingent consideration expense, partially offset by the one-time expense incurred from our vacated office lease. Our adjusted EBITDA was $197 million, $47 million better than our guidance, driven by a higher net release in deferred revenue and better-than-expected operating performance. The year-over-year increase of $159 million was primarily driven by the difference in the net change in deferred revenue. We generated Q3 operating cash flow of $99 million, down 13% year-over-year, primarily due to the higher earn-out payments this period. As of September 30th, we have approximately $1.3 billion of cash and investments which we expect to use primarily to fund future acquisitions. In October 21, we utilized $316 million for the upfront consideration for the acquisition of Starlark. We also have $425 million available on our credit facility, which had no amounts outstanding as of September 30th. Turning to our guidance, overall, For the full year 2021, we are raising our revenue bookings and GAAP profitability outlook. Outside of our update to the estimated change in deferred revenue, we are maintaining our previously communicated non-GAAP profitability guidance for 2021. Our update at Q4 and full year guidance is as follows. For Q4, revenue of $675 million, up $59 million or 10% year over year. And that increase in deferred revenue of $40 million. Bookings of $715 million up $16 million are 2% year-over-year. A net loss of $60 million versus a net loss of $53 million in the prior year quarter. Adjusted EBITDA of $122 million versus $90 million in the prior year quarter. For the full year, we expect revenue of $2.78 billion up $805 million are 41 percent year-over-year, and an increase of $55 million versus our prior guidance. And that increase in deferred revenue of $34 million, down $261 million, or 88 percent year-over-year, and a $41 million lower than our prior guidance. Bookings of $2.814 billion, up $544 million, are 24 percent year-over-year, and an increase of $14 million versus our prior guidance. A net loss of $97 million versus a net loss of $429 million in the prior year and an improvement of $34 million compared to our prior guidance. Adjusted EBITDA of $616 million, up $350 million or 131% year-over-year, and an increase of $41 million to our prior guidance. Some year-over-year factors to consider in assessing our guidance include In Q4, our top-line performance will be driven primarily by our live services and will benefit from year-over-year growth in advertising, primarily from our Rollic hyper-casual portfolio and the first full quarter contribution from ChartBoost, in addition to initial contributions from Golf Rifle and FarmVault 3. Growth collectively in our live services will be partially offset by declines in Merge Dragons, Merge Magic, as well as older mobile and web titles. Versus our prior implied Q4 guidance, we have adjusted our bookings outlook to account for a more gradual live service growth rate, reflecting lower user acquisition investments in Q3, a more conservative view on Q4 advertising growth, and a later launch of Farmville 3. That said, with improvements in user acquisition yields, we are ramping our marketing investments against our live services and new game launches in Q4. and we expect this investment to contribute to our growth in Q4 and 22. For Q4, we expect GAAP cost of sales as a percentage of revenue to improve year over year, primarily due to the positive impact of the change in deferred revenue, partially offset by amortization expense. On a non-GAAP basis, we expect cost of sales as a percentage of bookings to improve slightly, primarily driven by a stronger advertising mix. we expect Q4 gap operating expenses as a percentage of revenue to increase primarily driven by increases in R&D and G&A partially offset by sales and marketing as a percentage of revenue. We also expect Q4 non-gap operating expenses as a percentage of bookings to increase primarily driven by increases in R&D and G&A partially offset by sales and marketing as a percentage of bookings. As we look ahead to 22, We are targeting low double-digit top-line growth year-over-year, which we expect will be driven by momentum in our live services, including full-year contributions from Farmville 3 and Golf Rival, as well as continued growth in Rolex's hypercasual portfolio. We also expect new games in 2022 to be a strong growth contributor, including our worldwide release of Star Wars Hunters and the potential for other new releases later in the year. While we expect to expand operating margins over the next few years, we expect margins in 22 will be influenced by the level of marketing we invest on launching and scaling the next wave of releases from our new game pipeline. As these new games scale, we expect them to become positive contributors to our live service portfolio. In Q2 22, we expect to complete most of the outstanding earn-out commitments. After this occurs, we anticipate a meaningful increase in our next cash flow generation, which we expect will be used primarily to fund future acquisitions to further accelerate our growth in 22 and beyond. With that, I would like to turn the call back to Frank for his closing remarks.
spk11: Thanks, Jer. Before we open the call for questions, I want to provide additional context on how Zynga is positioned as a leading player in the interactive entertainment industry. We are on track to finish 2021 with Zynga's best-ever annual top-line performance and the largest mobile audience in the company's history. We are also excited about the long-term growth ahead for interactive entertainment. With new innovations, devices, and technologies, more people around the world will be discovering deeply immersive social gaming experiences. This will continue to expand our total addressable market and plays to Zynga's unique strengths. These include our growing live services portfolio, free to play expertise, and a next generation advertising platform that leverages our first party content. Zynga is uniquely positioned to engage this growing global audience and capture more market share within this sector. We are focused on executing our multi-year growth strategy that has us well positioned for continued expansion in 22 and beyond. We expect to drive recurring growth from our live services foundation as well as new game launches from our exciting new game pipeline. In addition, we anticipate that our progress in hyper-casual games, cross-platform play, international expansion, and building an ad platform will each be significant growth contributors. We are also investing in emerging opportunities, which will provide additional growth optionality. Some of these include direct-to-consumer billing, NFTs and blockchain technology, as well as games on popular social platforms like Snap and TikTok. The industry is undergoing significant consolidation within mobile and ad tech. With our anticipated increase in net cash flow generation, we expect to acquire more talented teams, franchises, and advertising technologies to further accelerate our growth. In summary, there has never been a more exciting time at Zynga. The interactive entertainment industry continues to be a dynamic and fast-growing sector, and we are confident in our ability to expand and scale Zynga within it. With that, we would now like to open up the call for live questions. Operator, you may begin.
spk12: As a reminder, to ask a question, you will need to press star 1 on your telephone. To withdraw your question, press the pound key. We ask that you limit yourself to one question and one follow-up. Please stand by while we compile the Q&A roster. Our first question comes from the line of Brian Fitzgerald of Wells Fargo. Your line is open.
spk14: Thanks, guys. I wanted to ask a couple things in terms of marketing a cross-platform title like Star Wars, Hunters, and how does that differ at all in terms of how you address the marketing playbook for a cross-platform title specifically? Maybe given the franchise name associated there. How does your playbook differ, if at all?
spk11: Hey, Brian. This is Frank. The playbook right now is getting development, but it has a lot of fundamentals that are common between mobile and console. We'll be using UA. We'll be using a lot of PR, channel marketing, first-party marketing. Both titles are free-to-play, so the performance marketing is a huge component of how we'll scale those games. There could be differences in the marketing mix. We might lean a little bit more into TV for Nintendo. We might lean harder into paid acquisition on the mobile devices. But we've seen enough cross-platform launches now over the years to see where the heat is, and we feel confident that we'll be able to bring those to market in terms of the fall.
spk13: Got it. Thanks, Frank. Appreciate it.
spk12: Thank you. Our next question comes from Mario Liu of Barclays. Please go ahead.
spk07: Great. Thanks for taking the questions. The first one's on blockchain. You guys announced today that Matt Wolf is going to be a VP of blockchain gaming and that it's going to be both in your existing games and new games from the ground up. Just curious, like which games or genres in particular you think blockchain gaming is best suited for and what the rough timeline is on these initiatives?
spk11: Okay, Mario, good question. The first place that we look at is wholly owned IP because it gives us more flexibility in terms of how to approach the opportunity. A lot of this early stage development and work that we're going to do is about really understanding the category, the dynamics, where the heat is. So we want to use wholly owned IP for maximum flexibility. In terms of the categories that we think are most interesting, the builder category certainly is one. where you have real estate, you're building value in a farm, for example. Also, looking at collecting cars, RPGs, collection mechanics, RPG mechanics, and builder mechanics, we feel like are probably the first places that will look. It is early days. We just, as you mentioned, announced the hiring of the leader of this new endeavor, but there's a lot of people internal to Zynga. Some of our best engineers and PMs are really interested in this category. Um, it's a, it's a popular topic at our board of directors, uh, in terms of how to build this opportunity out. So we're very excited to, uh, to make our, our, uh, commitment to this public today.
spk07: That's helpful. And then just to follow up on, on guidance, um, any color you guys could provide in terms of the contributions from the recent acquisitions, such as Starlight and ChartBoost in both 4Q and, uh, in 2022. Thanks.
spk13: In terms of, you know, from a bookings perspective, you know, as we said before, you know, chart boost, you know, in the quarter is, broadly speaking, roughly around $10 million. So quarter on quarter, it's obviously less of a pickup from a growth perspective. And then as it relates to golf rivals, you know, our guidance assumes roughly $20 million for the quarter.
spk07: Great. Thank you.
spk12: Thank you. Our next question comes from Matthew Thornton of Truist Securities. Please go ahead.
spk09: Hey, Frank. Hey, Jer. I guess kind of a three-part question, all related. You know, there's obviously a couple of endemic gaming ad networks that are vertically integrated with first-party content, sufficient significant first-party content out in the market now, and obviously there's a valuation applied to them, and it looks different from Zynga's. And so my question is, I guess, do you look at kind of where Zynga's going in that context and see that as an opportunity to kind of close that gap? Secondly, I guess, given the disconnect in valuations there, I guess, do you think about or worry about M&A or being maybe vulnerable to M&A, given kind of the delta between valuations at current levels? And then finally, and again, relatedly, I'm just kind of curious how you're thinking, maybe this is for Jer, but how you're thinking about buybacks as you get through 1Q and kind of the final earnouts and as cash starts to kind of balloon from there. How do you think about buybacks in that context? Any color there would be great. Thanks, guys.
spk11: Thanks for the questions, Matt. I'll start with the first two, and Jer can come in on the third one. You know, I think from the perspective of, what's going on in the mobile ecosystem, the vision that we believe in at Zynga is that the next generation of mobile game companies and successful companies are going to have a platform component to what they do. We are an app developer and publisher, and we've started building out our ad platform and publishing platform. And our view is that that symbiotic nature between first-party content and data, when combined with an app-scale ad platform, can create a powerful competitive advantage. And as you noted, there are several examples of companies that are starting to bring that to life as a concept. That's something that we've been thinking a lot about, and we've been, as you know from the ChartBoost acquisition, we've been working against now for a good bit of time. The interesting thing is the destination is the same for those companies for us. We're just starting at it from being a game company for the last 10 years, building an ad platform versus being an ad platform that's buying gaming assets. So there's a lot of commonalities, a lot of similarities. We would like to be positioned in that conversation and, frankly, see our future as bringing that to life and manifesting the full power and competitive advantage of having a platform as part of our overall positioning. The second piece on M&A vulnerability, I guess, would be the summary on your question there. You know, from our perspective, we focus in on growing our business, and that's what we come in every day. The gaming business is a dynamic one. Sometimes you're hot, sometimes you're not. But the overall trends are such that we are long on gaming and we are long on Zynga, and we believe that organic growth augmented by inorganic growth is something that we can bring to life in 22 and beyond and continue to add to shareholder value. We don't really think about whether we're vulnerable or not on that front. We're just thinking about creating more value tomorrow than we had today. And so now I'll hand off to Jer for the third question.
spk13: Yeah, as it relates to, you know, once we get through the next tranche of earners, which are the most material and essentially will be done other than some small ones, you know, when you think about our cash generation in particular going into 23, it's going to meaningfully expand. And while I did say in my remarks that it's primarily for acquisition, we do have the optionality to actually do buybacks or some other return of cash to shareholders. But I will say, based on our own analysis, just to build on what Frank said, we still see a lot of unique opportunities to bring talented teams and capabilities into Zango over the next few years. So that will be the primary use of our cash, but absolutely there's room to deal with buybacks as we get through Q1 of next year.
spk12: Thank you. Our next question comes from Clark Lampin of BTIG. Your question, please.
spk04: Thanks a lot. I have one on marketing spend for next year. So you guys have a number of titles that are either sort of launching or scaling up right now, I think between sort of three and four, if we're counting something like golf rival, and maybe even puzzle combat. Under that umbrella, I'm curious if you'd give us a sense for whether the four key implied marketing run rate is sort of how we should think about the way that might trend over the next couple of quarters, or is there potential that perhaps ChartBoost could mitigate some of that upward pressure. Second question I have is on Switch. I saw in the shareholder letter you guys mentioned that Hunters is about a week away from soft launch. The Switch hardware base last I saw is approaching about 100 million installs right now, and I was curious if you could give us a general sense for how additive Switch might be relative to the current mobile device base.
spk13: Hi, this is Gerald. I'll take the first question as it relates to marketing. I'm going to answer in the context of a full fiscal. If you think about the current fiscal, essentially this year has been a live services year, yes, ramping Harry Potter during the year and to a lesser extent Puzzle Combat, and we've just launched Farmville 3, and we're entering Star Wars Hunters into technical soft launch. You also have Pirates Evolution and Starblast. So as I think about next year, I think the level of what I would say launch marketing and scale marketing against those new titles is going to be more significant than what you've seen, obviously, in the current year. To your point, we have levers to improve our operating leverage and marketing, i.e. chart boost and optimizing our overall US spend across our live services. But I think overall, our expectation is there will be a stronger lean-in into investing against these new launches. And by definition, that will put some pressure on our margins as it relates to 22 versus 21.
spk11: This is Frank Clark. I'll take the second question. We are very excited to be a partner of Nintendo's and see the Switch launch. as a very complimentary platform to the Android and iOS versions of Star Wars Hunters. We definitely see it opening up the younger audience a little bit more who are playing that device relative to on the phones, and that is an example of something that we're going to test a lot in consumer research over the summer. We also like some of the change of pace that you can get with the Switch. You can play it on the big screen in the living room. You guys can be on the couch. It allows more people to mix and match and play together. A lot of the research that we've gotten from Nintendo talks about this party mode of how youth are getting together, whether it's at recess or on the weekend and playing together and being able to have your phone available on the Switch. We think it just opens up more user scenarios. It's very complimentary. and we think that the game is going to look great on Switch.
spk04: Thanks a lot.
spk12: Thank you. Our next question comes from Doug Kretz of Cohen. Your line is open.
spk03: Hey, thank you. When you guys gave guidance on the last call, you seemed to be bracing for some potential for ad weakness due to IDFA, and as it turned out, you wound up having actually a very strong quarter. So can you talk about why sort of things trended better than you were expecting, and to what extent do you think you benefited from people seeking alternative ad platforms relative to some of the big ones that were obviously impacted by IDFA? Thanks.
spk13: Yeah, Doug, this is Jerry. Overall, we indicated we expected to see some weakness in Q3 and potentially into Q4 later than we had previously expected with the whole IDFA rollout. As it relates to the Q3 performance, as we highlighted, our hyper-casual portfolio is doing really well. And that portfolio continues to grow and drive momentum in our overall addressable advertising audience base. And that plus yields were actually a little bit better in Q3 than we expected. And we expect that momentum to continue into Q4. But as I indicated, we did see a little bit of softness in October. Coming through the end of October, it was picking up again. So we expect Q4 will be a very strong advertising quarter as well, just a little bit less than what we would have implied in our guidance when we set up at the last earnings call.
spk03: Thanks.
spk12: Thank you. Our next question comes from David Konofsky of J.P. Morgan. Your question, please.
spk15: Hi. Thank you. Just on user acquisition, you cited improving yields. Just curious if you can expand on what you saw through the quarter in terms of UA channels and then where you think you are in the process of navigating the IDFA change, and then maybe related to that, how do you kind of think in general about launching and scaling new games? Is the process fundamentally more difficult than it was prior, and How does that maybe change the way you view your pipeline or even M&A? Thanks.
spk11: Yeah, David, the UA market has improved to the point where we felt comfortable enough to launch Farmville 3 last week. So that's a title that is currently releasing with very good momentum. We're starting to layer in user acquisition spending. We're also gradually building up the live services spends as we head into Q4, leaving this quarter. There was a period of time, as you know, that we pulled back on spending and really looked at how the systems were operating with all the changes, and we felt comfortable that as we got into October and early November that really the worst of it was behind us. Right now, we feel like the tools and the techniques that we have allows us to successfully release new games and scale them. It really... Android obviously is still operating as expected, but we're getting very comfortable with the changes that have happened on the Apple side, and we feel like that that's going to be something that we can use as a growth tool as we go into next year and launch new games like Star Wars Hunters and Star Blast and Pirate Evolution. So we feel good about that.
spk15: Thank you.
spk12: Thank you. Our next question comes from Eric Handler of MKM Partners. Please go ahead.
spk02: Thank you very much. We could talk a little bit about the M&A environment. Are you seeing a bit of a disparity at the moment between the public multiples and the private multiples and how that's impacting how you're thinking about your capital allocation decisions right now?
spk13: Yeah, no, Eric, I would say, you know, we're, We continue to be highly active in evaluating opportunities out there in the marketplace, and we don't see anything dramatic in terms of changing in the valuations. Obviously, the public markets are for everyone to see. But as it relates to, you know, right now I think there is – a lot more energy around consolidation. And I think in terms of if you're a talented studio right now and you're looking for a home, Zynga still is a destination that is on that list and is high up in that list. So from our perspective, when we look at targets, we're very much focused on the talent, on the IP, on what we can do to unlock further value if we bring that studio or that capability into Zynga. And, yeah, obviously there's different pockets of target M&A, whether it's IP, whether it's capabilities, and there's some disparity there. But overall, we don't believe that, at least from a Zynga perspective, that the competition has got any more intense.
spk03: Thank you.
spk12: Thank you. Our next question comes from Michael Ng of Goldman Sachs. Your question, please.
spk01: Hi, good afternoon. Thank you very much for the question. I was just wondering if you could talk a little bit about the magnitude of new game contributions to the low double-digit outlook for next year. And as a follow-up, I was just wondering if you could also just talk about how big some of those new soft launch games like Pirate Evolution and Star Blast could be. For instance, are these $100 million bookings games in a steady state? Thank you.
spk13: Michael, in terms of low double-digit, when you think about low double-digit in the context of fully-fledged Star Wars, Farmville 3, peak blockbuster game if it arrives in the quarter plus the Graham game, obviously the bookings is something that should not be a challenge, a big picture if you think about it from an opportunity perspective. Overall, the guidance assumes that, you know, the majority of the growth you're going to see year on year is going to come from, obviously, from golf rivals, Farmville, and the other new games that we haven't declared that are as effectively as launched in 22. Also, I think the next major lever will be the continued momentum we see in Rollick. and our advertising, we do expect that to be a strong driver of growth. And, you know, the overall live service portfolio, like for like, we do expect we can grow that. But, again, as we've said in the past, that will be the fundamental bedrock and foundation of the company and will be at a lower growth rate than obviously new and our advertising momentum.
spk01: Great. Thank you, Chair.
spk12: Thank you. Our next question comes from Drew Crum of CIFL. Please go ahead.
spk05: Okay, thanks. Hey, guys, good afternoon. I wonder if you could comment on your view in terms of the amount and timing of cost synergies from the chart boost acquisition. Has that changed from your update earlier in the year? And then separately, on the new game pipeline, maybe for Frank, do you have any other games in development that are cross-platform, or do you need to see how Star Wars Hunters performs before you greenlight any other titles? Thanks.
spk13: Jerry, this is Jerry. Our guidance previously is we expected somewhere between 20 and 30 million of contribution and synergies from ChartBoost, and we still believe that's a good number. Obviously, as we scale... new games, there is the potential that that will benefit us as we leverage ChartBoost to help launch those games. But for the moment, we're going to hold to that prior number, and we'll obviously give more color on that as we get into the February earnings call.
spk11: And then, Drew, in terms of new games on cross-play, yes, we have a handful of additional games under development for cross-play capabilities. In fact, Farmville 3 has a version that works on Macs that we're going to start rolling out more significantly as we go into the end of this year. But there are several unannounced games that fully embrace console, PC, and mobile gameplay together that we haven't announced. And in fact, Etra, the developer that joined us last year, is an example of one of the development teams that's working on one.
spk12: Thank you. Our next question comes from Matthew Cost of Morgan Stanley. Please go ahead.
spk10: Hi, guys. Thanks for taking the question. So in terms of like the ad revenue business, you know, when you think about the success that you've had scaling that up with Rollick, I guess where do you think about the next leg of growth coming from? Is there a greater opportunity to scale up the hypercasual business? Can you do more with ads and your non-hypercasual games? And then how do you see that kind of interacting with the ad platform that you talked about envisioning for the future? And then just secondly, can you talk a little bit about your decision to put some games into soft launch, you know, through the end of the year? Is that an acceleration versus your prior expectations? And if so, what drove that decision? Thanks.
spk11: Yeah, Matt, I'll start with a look at the ad business. We definitely see contributors to the ad business growth coming from hypercasual. We think that... Rollick has a system that is repeatable that can continue to put out hit games, and we have further expansion from a territory standpoint from the types of products that we're building. So we believe that that is going to be one place to look for growth. A second is our core games. There are additional inventory opportunities inside of our existing live services portfolio where we can put more watch-to-earn inventory into and enable other games that haven't quite yet integrated with Zynga fully into the ad stack. Also with the core games, our new releases have advertising contemplated in them. For example, Farmville 3 has Watch to Earn already operating in it. So between expansion of inventory and live, new games releasing, hyper-casual, that's going to account for a lot of growth. But in addition to that, growing the third-party ad business through ChartBoost and through other parts of the network that we're going to build out, we believe longer term that can be an important part of our business overall for sure. We're starting at a level that is not contributing a significant amount right now, but as we head into 22 and we start to expand ChartBoost integration into Zynga as well as the rest of the industry, we think that that can be very helpful to us. The other parts of the platform that we're looking at near term, we continue to augment and integrate the DSP, the demand side piece, but we're also looking at mediation and supply side technologies and products that will expand the overall capabilities of the platform and further attributes beyond that. We're investing a lot in machine learning and other components that will drive yields and look at other components of the platform that need to level up in order to really start to hit scale. In terms of the second question about soft launch titles, we're soft launching a lot of titles all the time. The progress that we saw in Pirates as well as in Star Blast we felt was notable and worth communicating. There are other titles that we are in soft launch on and that we're in development that are going to go into soft launch shortly that we're excited about. So there really hasn't been an increased cadence. It's just they've the new pipeline is really starting to come together and pick up momentum. As you know, it takes a long time to build out studios and get new games off the ground, and it feels like that's really, as I mentioned in my remarks, really hitting its stride and showing renewed strength that will contribute more growth going forward than it has in the past. Not that we haven't had good games like Harry Potter and Game of Thrones slots contribute, but in fact, when we look at 22, 23, and 24, we feel really good about our lineup.
spk12: Thank you. Our next question comes from Colin Sebastian Baird. Go ahead.
spk06: Great. Thank you. This is Dalton on for Colin. Just looking at the improvements that you saw in user acquisition yields quarter over quarter, just wondering how much of that came from the addition of ChartBoost versus some of the other shifts in your strategy and maybe moving around different channels. And related to that, with the launch of FarmVille and the early success you've seen so far, Just wondering if you can comment on some of your user acquisition on Facebook specifically, given how tied that game is to that platform and what you've been able to do versus last quarter to drive stronger yields there. Thank you.
spk13: In terms of – this is Jared Cullen. On the advertising side, ChartBoost is – obviously it's in the building and is getting integrated, but there wasn't much – of the improvement there, I would tag against ChartBoost in Q3 or Q4 because it's early days yet. I think as I said earlier, we will see, as I said to Drew's question, we will see more material improvements and opportunities from ChartBoost as we get into 22 and beyond. So from that perspective, if you look at Q3 with the profitability beat and if you look into Q4, You know, we did see towards the end of Q3, as we said at the last earnings call, we've seen across the board improvement in the UA landscape. And, you know, the benefits from not spending as much in Q3, we've layered into Q4 from an investment perspective because we see the opportunity to not just drive Farmville but obviously lean in against some of our live service titles. In terms of the marketing strategy around Farmville, it's across the board. It's not fixated on any one platform. Obviously, the historical legacy of Farmville was very much linked to Facebook, but we're now in a very diverse marketplace where mobile is beyond Facebook. It's everywhere. So we're actually investing in user acquisition across multiple channels.
spk12: Thank you. Our next question comes from Garrick Johnson of BMO Capital Markets. Please go ahead.
spk08: Good afternoon. Thank you. First off on Rolex, is the growth in ad revenue expected there from Rolex going forward? Is that more from additional game installs or better productivity, ad productivity per game? And my second question, games like Disco Loco and Revamp, can these be meaningful contributors or are they more novelty? Thank you.
spk13: Yeah, in terms of Raleigh, it'll be all of the above. Garrett, in terms of the core business, and we talked about this on the last earnings, what we're actually seeing with some of the key franchises is that they're actually starting to behave more like sustainable life services as opposed to in-and-out hyper-casual games. So from that perspective, the team is looking to build sort of iterative sort of events and ball beats into some of the franchises. But we also have continued to expand the first-party and third-party network of developers that we work with, and we plan to continue to do that into 22. So you will see, obviously, a strong flow-through of games coming through Rollick, both owned IP developed and obviously third-party partner games. And, you know, ultimately over time, as we leverage our ad tech platform, we'll be able to drive even stronger flow through of those bookings into Zynga.
spk11: Yeah, Garrett, this is Frank. The efforts on Snap and also now with what we announced today on TikTok, it's new platform experimentation and development. So, you know, the history of the industry from our perspective has a lot to do with platform transitions and getting in early and then learning a lot so that you can hit scale. So... We're not really doing it for novelty's sake at all. It really is the thesis that we're a social gaming company. These are highly engaged social platforms. Interactive entertainment could work in those environments, and so we want to experiment with that and see if there's heat. So we're not betting the company on it for sure, but at the same time, we're putting brands to work and we're putting teams to work to see what we can learn about these environments. It also helps us understand the networks as it relates to virals and how to market our other games. So there are secondary benefits to developing on these platforms that affects the mainline part of the business, in addition to being bets on whether or not these can actually be viable platforms. And if they are, then we're in early and we're in the right position. So that's the way we think about it.
spk08: Great. Thank you very much.
spk12: Thank you. Our last question comes from the line of Martin Yang of Oppenheimer and Company. Please go ahead.
spk16: Good evening. Good afternoon. Thank you for taking my question. First question is, can you elaborate on your direct-to-consumer strategy? What platform or geography would you target first? And second question is related to your NFT and blockchain gang hiring. Why now and at what stage are you regarding developing games that are associated with blockchain or NFT.
spk11: Yeah, Martin, thank you for your question. In terms of the direct-to-consumer idea, it takes a couple of different forms. Obviously, on the PC, we can go direct-to-consumer. So we can work with other platforms to distribute, bill, handle customer service, and all the other services that you potentially get from Mobile platforms, for example, or console platforms. So look for us to part of our PC strategy and Mac strategy is start to develop these muscles and these capabilities for D2C. If the mobile ecosystem opens up at some point in the future for direct-to-consumer billing, then we have the ability to do that. It would obviously be a tailwind for our business. but it's difficult to forecast that event given the activity in the courts. But our goal is to be in position for D2C. It includes things like building out our Zynga identity system that we have in place using email, and we're accumulating and building out those capabilities across our live services where we can and on new platforms that we're building out. In terms of the geos, you know, I would just highlight – Frankly, all of them. We're doing this in North America, Europe, as well as Asia where we can go direct, especially on the games that we start to release that are cross-platform. That will be an increasingly important opportunity, too. In terms of your second question, why now on the NFTs, I think from our perspective, we have a lot of interest internally in this category. As I mentioned earlier on the call, at the board level, within the game teams, And, you know, along the way, we met Matt Wolfe, and I had worked with him in the past. And we just came to the conclusion that this was the right time to start to put together some ideas. How do we start to bring NFTs and blockchain technology into Zynga's existing portfolio, our owned IP, develop games from inception that are built with NFTs as part of the core gameplay loop? We like the timing of this. Obviously, it's a category that's getting a lot of capital and talent involved. Right now, we felt like this was the right time to unveil something that we've been talking a lot about internally and start to make it an operating facet of our company going forward. Way too early to ascribe any value, any components to guidance or how 2022 will unfold, but this is an area where we think that blockchain and NFTs can be part of the fabric of interactive entertainment for the long term. And one of our core values at the company is Zynga speed, and we like to hit things fast and go at it. So once we've got the leadership and the talent in place, we think we have some ideas that we can start to bring to life, and that's what we intend to do.
spk16: Thank you, Frank.
spk12: Thank you. At this time, I'd like to turn the call back over to Rebecca Lau for closing remarks. Thanks.
spk00: Thank you, Lateef. We want to thank everyone again for joining our earnings call today and look forward to connecting further over the coming weeks.
spk12: And this concludes today's conference call. Thank you for participating. You may now.
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