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Zynga (NASDAQ:ZNGA) released its fourth quarter and full year earnings, which caused the stock price to shoot up by 20%. Some of the most important points were the cost cuts, an important mobile application developer acquisition, and falling player numbers. However, the numbers were not the real deal in this announcement; there were a lot of other positive elements that caused the stock price to shoot up. Let's look at some of the elements that will have long-term effects on the growth of the company.

Increase in Bookings

Zynga gave the numbers for average bookings per user (ABPU), a good measure of overall spending pattern of players through both in game purchases and advertising. Zynga calculates the ABPU by dividing total bookings per period by the number of days and then divide the remainder by average number of daily active users for that period. There has been a substantial improvement in ABPU numbers - during the last year, the bookings increased by 20% and if the growth rate continues, we are looking at an expected value of $785 million in year 2014. There are a small number of users who make in game purchases and by doing so, their retention ratio is far more than daily active users DAUs since they have invested in Zynga.

With a remarkable history of in game purchases motivated games like Zynga Poker, Zynga has to develop such games and encourage both paying and nonpaying users to get involved over a long period of time. The online gaming market is expected to grow at approximately 11.4% over the next three years with a total industry worth of $51 billion. With this incremental growth of bookings in the company products, the future growth looks promising for Zynga.

Mobile Online Gaming Industry Growing at an Impressive Rate

The mobile online gaming industry is expected to grow at 12.2% in the next three years. Zynga has acquired a mobile app developer company Natural Motion, which produced the most popular iOS games including Clumsy Ninja and CSR Racing. The acquired company has a remarkable history of games with a next generation graphics engine. This graphics engine has developed some of the finest record breaking console games titles like Grand Theft Auto V.

Japan has become the biggest mobile app market, and the U.S. vendors have not been able to crack the Japanese gaming market. Following the planned divestment of YoVille to Big Viking Games, Zynga could enter the Japanese market with newer user retained games. The key to entering the Japanese market is continuous innovation in the online games with incremental bookings per year. Zynga recently launched new mobile slots product, Hit It Rich! On tablets, which is ranked number one in the free iPad charts in the Casino category games. The older franchises of Zynga are also performing well now - Zynga poker has seen an increase of 8% in monthly active users during the last year. Zynga's Casino and Words with friends has broken their past bookings records assuring Zynga's future growth.

Ignore the Numbers

The earnings for Zynga continued to show a downward trend during the last year. However the arrangements and preparations for the next year have changed the game plan. The decreased bookings observed in year 2012 are taking a stable pattern at the start of 2014. With the increased upcoming product launches and bookings, with the technical support of NaturalMotion graphics engine, Zynga's earnings will certainly improve over the next year. This update is supported by the increased fundamentals of the company obtained from year end results of 2013.

The EPS has increased by 104% compared to the last year. The net income in year 2013 has shown an improvement of 82.3% compared to 2012. The most important fundamental is the free cash flow for Zynga, which has increased to $10 million in 2013 from ($114) million. The earnings results also showed a current assets shortage in the company which was mainly due to the acquisition of NaturalMotion, announced late in year.

Conclusion:

Zynga has seen tough times during the past two years, and the company has been suffering. On more than one occasion, the company has been declared almost a failure by some people. However, the change in strategy has helped the company regain some of its value and it looks set to grow well in the short-term as well as long-term. I believe the fundamentals are strong for the company and it is making good efforts to capture the growth opportunity in the mobile gaming market. However, Zynga will have to continue its efforts and come up with games that can captivate the users and derive revenue growth for the company.

Source: There Are A Lot Of Positives For Zynga