By Kim-Mai Cutler
Stepping back from remarks a few weeks ago that suggested that Zynga (NASDAQ:ZNGA) was about to go on a shopping spree, Zynga chief executive Mark Pincus said the $180 million acquisition of Draw Something-maker OMGPOP was a “rare instance.”
Although OMGPOP was certainly a step up from anything Zynga has ever done before, Pincus said it didn’t represent a change in strategy from last year. He said Zynga will continue to be “prudent and bottom line-oriented” in its decisions today during the first-quarter earnings call. That’s a change in tone from an interview with Bloomberg a few weeks ago when he said that he expected to do “a few” OMGPOP-sized deals in the next three to five years. His remarks helped send shares tumbling 13.9 percent from the day the story appeared.
Mostly because of the OMGPOP deal, Zynga raised its annual guidance to $1.425 billion to $1.5 billion in bookings, up from $1.35 to $1.45 billion before. The company didn’t comment on how much OMGPOP will exactly contribute to Zynga’s bottom-line, but one might be able to infer from the guidance change that it’s anywhere from $50 to 75 million in bookings. Keep in mind though that this increase might include revenue not only from “Draw Something,” but other titles Zynga might be able to launch and cross-promote through the game.
Before OMGPOP, Zynga had mostly bought small teams in the $5 to 20 million range. In late 2010, however, Zynga bought a company called Newtoy, that was behind the hit game “Words With Friends” for $53.3 million in cash and stock. They were able to in turn increase their mobile users tenfold through the deal by the time they filed for an initial public offering. The OMGPOP deal helped Zynga raises its daily active users on mobile to 21 million in the first quarter, up from 12 million in the fourth.
Zynga has about $1.5 billion in cash and securities that it could use to buy companies, down from $1.9 billion at the end of last year because of the OMGPOP deal plus the $228 million it spent to buy its headquarters in San Francisco.
Here are Pincus’ comments from the earnings call:
“We are happy to provide accurate expectations about our M&A strategy. The strategy hasn’t changed since the roadshow and as we’ve spoken to all of you – our primary focus — and the way we’ve built this business has been about organic development and growth of games that have led to a network that we have further leveraged to bring more successful games to market. That’s what you should expect to continue to drive growth.
Draw Something was the second major product line that we went out and acquired. It was a rare instance for us. We believed it was not just accretive financially, but we were excited about its growth and what this game meant for mobile-social gaming. It was a new experience that had a level of sharing that’s never seen before in gaming. It was setting new boundaries in social media and viral growth that hadn’t been seen before.
We saw a whole new phenomenon that is not only more exciting for mobile-social gaming, but we saw a property that very quickly becoming mainstream. We thought it would be synergistic to our network and infrastructure. We thought it would be more valuable to Zynga and that we could organically build from it.
It does not represent a change in our strategy or our approach to large investments in our data, analytics and hosting infrastructure.
At every point, we’ve been very careful, prudent and bottom-line oriented to make investments where we could connect the dots to an accretive return.”