Zynga Inc.
Q2 2021 Earnings Call Transcript

Published: 5 Aug 2021

[Operator:]

Thank you for standing by, and welcome to Zynga’s Second 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. Please be advised that today’s conference may be recorded. I would now like to hand the conference over to your host, Rebecca Lau. Please go ahead.

[Rebecca Lau:]

Thank you, Latif, and welcome to Zynga’s Second Quarter 2021 Earnings Call. On the call with me today are Frank Gibeau, our Chief Executive Officer; and Ger 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 when filed, our 10-Q, will 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 will turn the call over to Frank for his opening remarks.

[Frank Gibeau:]

Thank you, Rebecca. Good afternoon, everyone, and thank you for joining our Q2 earnings call. We delivered strong results this quarter ahead of guidance, including our best ever Q2 revenue bookings and operating cash flow. This Q2 performance capped off a dynamic first half of the year for Zynga and reflects our team’s continued commitment to connect the world through games during these unprecedented times. Today, we are making several exciting announcements that demonstrate significant progress on our long-term growth strategy. While we discuss each of these in more detail later on the call, I would like to start by officially welcoming the Chart Boost team to Zynga following the close of our acquisition just a day ago. In addition, we are also excited to announce our agreement to acquire StarLark, the makers of the Hit franchise golf rival. We look forward to welcoming this talented team to Zynga later in Q4. Starting with our Q2 performance. In the quarter, we delivered our highest ever Q2 revenue of 720 million, up 59% year-over-year and record Q2 bookings of 712 million, an increase of 37% year-over-year. Our top-line performance, combined with positive operating leverage generated our highest ever Q2 operating cash flow of $161 million. Our strong Q2 results were driven by our diverse portfolio of leading mobile franchises and our live services platform. By leveraging our best-in-class data science, product management, user acquisition and advertising capabilities, our teams are able to release innovative bold beats to engage and attract players. For example, in Q2, the release of a new Discord fever bold beat in tune blast and the introduction of a team’s feature in Toy Blast drove strong performances in both of these franchises as we approached Peak’s first anniversary at Zynga. In Harry Potters, puzzles and spells are release of a club-based magical mischip event also provided a new way for players to engage and compete between teams. Within our portfolio, social casino also continues to deliver incredible results. Social Slots achieved yet another all-time best revenue and bookings quarter while Zynga Poker also delivered its best Q2 revenue and bookings performance in nine-years. During the quarter, we also generated our all-time best advertising revenue and bookings performance. Words With Friends delivered its best Q2 revenue and bookings in the franchise’s 12-year history driven by its recent introductions of Rewards Pass and new Solo Challenge content. Rollic also delivered a record top-line quarter and was the fastest-growing hyper-casual game company in the world measured by sequential growth in downloads. By leveraging its unique development process that incorporates key data insights and rigorous testing, Rollic is demonstrating its unique ability to repeatedly design and publish hit titles in this competitive category. For example, in April and May, hair challenge reached the number one top free downloaded game position in the U.S. App Store and Google Play, while Queen B reached number one on top free downloaded game position in the U.S. App Store and Google Play in June. Overall, we are pleased with our performance in the first half of 2021 and are especially excited about the growth potential that lies ahead of us. In the short-term, however, we are navigating market dynamics related to the great reopening and Apple’s privacy changes that have created choppiness in our business. Toward the end of Q2, as communities began to reopen and reduce their COVID-19 restrictions, we saw softness in our bookings primarily driven by declines in player cohorts who installed our games in the early part of 2021. At the same time, the adoption of Apple’s privacy changes resulted in a higher cost to acquire new players. In response, we scaled back our UA spend to maintain targeted returns, resulting in fewer players installing our games during this period. We believe these trends are short-term in nature, we are already seeing improvements in user acquisition yields and within our core audience that accounts for the vast majority of our bookings, we continue to see strong engagement and monetization. As we progress through the second half of the year, we are also increasing the number of bold beats across our live services to further engage and monetize our player base. Given these short-term market dynamics, we are adjusting our live services outlook for the remainder of 2021 as well as moving the launch of FarmVille 3 from Q3 to Q4. While we are revising our top-line expectations for the full-year, we are maintaining our profitability guidance for 2021, which Ger will tell you more about shortly on this call. As we look ahead, we are incredibly excited by our positioning within the dynamic and fast-growing interactive entertainment sector and the multiple catalysts that we have in place to deliver strong top-line growth and margin expansion in the years ahead. Execution of our multiyear growth strategy enables Zynga to drive recurring organic growth from our expanding live services portfolio and new game pipeline. In addition, we are investing in hyper-casual games, cross-platform play, international expansion and advertising technologies, all of which have the ability to meaningfully increase Zynga’s total addressable market and further enhance our competitive advantage and growth potential within the interactive entertainment industry. Since our last update, we have made notable progress across the following key aspects of our growth strategy

[Ger Griffin:]

Thank you, Frank. We kept up a great first half performance with strong Q2 results ahead of our guidance, delivering our best Q2 revenue and bookings in Zynga history. We have also made great progress in key aspects of our multiyear growth strategy. On the talent front, I would like to echo Frank and welcome the Chartboost team to Zynga and look forward to unlocking the growth and synergy opportunities within our advertising platform in 2022 and beyond. Today, we are also pleased to announce that we have entered into an agreement to acquire China-based StarLark developer of Gulf rival. Later in this call, I will outline some more details of this acquisition. While we are pleased with our performance to-date and our overall business fundamentals, we are adjusting our live service outlook for the remainder of 2021 as well as that from new games to reflect two market dynamics, namely communities reopening with the easing of COVID-19 restrictions and the rollout of Apple’s privacy changes. While we are revising our top-line expectations for the full-year, we are maintaining our previously communicated profitability guidance for 2021. But more on guidance later. Let’s discuss Q2 results. Revenue was 720 million comprised of bookings of 712 million and a net release in deferred revenue of eight million. Revenue was 45 million ahead of our guidance, driven by a two million bookings beat and a 43 million lower-than-expected net change in deferred revenue. Live services drove our record Q2 top-line results with better-than-expected delivery from Rollic’s hyper-casual portfolio, Words With Friends and Zynga Poker, partially offset by lower-than-expected user pay across our portfolio towards the end of the quarter. Revenue was up 268 million or 59% year-over-year, driven by bookings growth of 194 million or 37% year-over-year and 75 million swing in the net change in deferred revenue. We generated user pay revenue of 587 million, up 51% year-over-year and user pay bookings of 579 million up 27% year-over-year. This was driven primarily by our mobile live services, including full quarter contributions from Toon Blast, Toy Blast, Harry Potter Puzzles and Spell partially offset by declines primarily in Merge Dragons!, Empires & Puzzles and Merge Magic!, as we lapped heightened levels of engagement and monetization we experienced in Q2 2020. Advertising revenue and bookings were both a record 133 million, up 110% and 111% year-over-year, respectively, primarily driven by the year-over-year addition of an ongoing momentum in Rollic’s hyper casual portfolio as well as year-over-year strength in advertising yields. The net release and deferred revenue of eight million was primarily driven by Merge Dragons! and Empires & Puzzles, partially offset by the recently launched Harry Power Puzzles & Spells and Puzzle Combat. We ended Q2 with a deferred revenue balance of 775 million versus 523 million a year-ago. Turning to Q2 operating expenses. GAAP operating expenses were 392 million, down 10 million or 2% year-over-year, while non-GAAP operating expenses were 350 million, up 128 million or 57% year-over-year. Year-over-year, GAAP and non-GAAP operating expenses increased due to the step-up driven by the incremental expenses from our acquisitions in 2020 and Q1 2021. In particular, the increase was primarily attributable to development and marketing expenses for Toon Blast and Toy Blast as well as Rollic’s hyper casual portfolio. Outside of this step-up for acquisitions, other drivers or the increase in growth marketing on Harry Potter

[Operator:]

Our first question comes from the line of Mike Ng of Goldman Sachs. Your line is open.

[Mike Ng:]

Hey good afternoon. Thank you very much for the question. I was just wondering if you could expand a little bit more on what you are seeing today in terms of the cost to acquire players as it relates to the Apple privacy changes. You mentioned scaling back on sales and marketing towards the end of the second quarter. How are you approaching that now for 3Q and then the rest of the year? Thank you very much.

[Ger Griffin:]

Hey Mike, obviously, there is a variety of channels that we operate, given the diversity of our portfolio and the scale of our UA. But we are seeing, obviously, improvements in channels now versus what we were seeing as we were going through the latter half of Q2. We have scaled back our UA, because as you know, we are looking for opportunities to get returns and investment that are in-line with our targeted returns. And so we continue to calibrate our investment against channels where we are seeing improvements. And over the coming quarter, we expect to see that trend continue. There are still channels out there that are not optimal for us, and we are obviously not going into those channels. We are operating in channels where we do see improvement and the right kind of returns.

[Operator:]

Thank you. Our next question comes from Tyler Parker of KeyBanc Capital Markets. Please go ahead.

[Tyler Parker:]

Hey thanks for the question guys. Just on the reopening commentary in the letter, talking about a decline in newer cohorts in late Q2. Just curious if there is any more color you can provide on whether that is broadly across franchises or geographies or maybe it is more nuanced than that. And secondly, it sounds like your older cohorts are still relatively strong so far. So I guess how confident are you in the other cohorts retaining well and spending further into the year opening? Thanks.

[Frank Gibeau:]

Hey Tyler, thanks for the question. The weakness that we saw starting to emerge in late May in July and June was from cohorts that joined our network in 2021. So these were cohorts that were recently acquired. And as the COVID restrictions started to lift, we saw people starting to play less or obviously other things to do. The economy has opened up. And that was an area where we started to see the weakness. That was compounded by the fact that IDFA was also hitting at the same time, so we weren’t acquiring new players, because we weren’t seeing the paid returns. And so that is what dampened a little bit of that part of the business. Now at the same time, players that had been with us before COVID hit, even early cohorts in COVID, they are playing as much, they are engaged as much, if not more and also monetizing more. So for the vast majority of our revenue, that audience base is very resilient, very strong. And even through this period of weakness in these new cohorts, they have held in there. And that has been a very encouraging thing for us to see. And as we have moved through July and started to move into August, and we are starting to see more networks respond to the changes in IDFA and starting to be able to demonstrate improving returns that gives us encouragement for why we think these are short-term in nature. As we move into the holiday, as we move into the back half of the year, we have already started acquiring new players starting to spend into some of our franchises. On a category basis, in this period of time, social casino did really well. I think you see that in our numbers that we talked about towards the end of Q2. Poker had an amazing quarter. In that period, we saw those hanging in there very nicely. Hypercasual did well. Some of the areas where you saw weakness was in our merged titles, and that is where we saw audience drops that were probably most pronounced in terms of our portfolio.

[Operator:]

Thank you. Our next question comes from Eric Handler of MKM Partners. Your lines is open.

[Eric Handler:]

Good afternoon. Thanks for the question. I wonder if you could talk a little bit about the Merge games. Is there anything you are seeing there that is causing some weakness? How is your rollout schedule for add-on content you know what your plans are with those games?

[Frank Gibeau:]

Yes, Eric. This is a category that Graham created, honestly. The Merged category really didn’t exist until they launched Dragons and then followed it up with Merge Magic!. And they saw the opportunity to really grow those franchises without any competition. They grew up in a wide-open marketplace. As competitors and others saw that this is a category that was emerging that was very popular, a lot of people dove into that category with new products, copycats and the spending really drove the CPIs up in the category. And what we have seen with Graham is their growth slowed as a result of that very intense competitive response. And what we have been doing at Graham is really retooling our live services teams get into position with new bold beats that are planned in Q3 and Q4, that starts to bring the games back to a degree of growth. They really leveled out over these last few quarters, largely because of the competition that we have seen in the drive-up of CPIs in the category. We remain very bullish on the mechanic. We think the Merge mechanics still has a lot of potential for innovation. The Merge Dragons! franchise in particular, has a very large audience base. And it is still the number one game in the category. So as we start to transition out of this period of intense competition, we have seen some of that start to fall away. And we are doubling down our investment in the bold beats and get into position to grow Merge Dragons! into the second half of this year and into 2022.

[Ger Griffin:]

The other thing I would add is as you look at our portfolio, one of the powers of saying it has some capability is there can be times when live services are weaker than you would expect in a situation like Graham. We had the same situation with Poker a few years ago and we brought it back to some of its best results in the last quarter. So while it is something that we are focused on and we need to get after, what I will tell you is the project management teams we have at Zynga are more than capable of dealing with these kind of challenges.

[Eric Handler:]

Great. And then just as a follow-up, your mobile app - a little over $0.18 in the quarter, the lowest it is been in about two-years. Can you talk about some of the dynamics that you are seeing there?

[Frank Gibeau:]

Yes. That is related to the hyper casual portfolio getting to scale. That vast large amount has really made it caused the jump if you pull out Rollic, it is much higher than that.

[Operator:]

Thank you. Our next question comes from Doug Creutz of Cowen. Your line is open.

[Douglas Creutz:]

Thanks. Just looking at your guidance, you are guiding bookings down about 50 million sequentially. Can you give a sense of how that splits between online game bookings and ad bookings given your comments about advertising being softer as well?

[Frank Gibeau:]

Yes. The larger element is in user pay as for the factors that we experienced in the second half of our late in Q1. How I would characterize it as, broadly speaking, I would say it is roughly a third of it you could attribute to advertising with the bonds to user pay.

[Eric Handler:]

Okay. And then this is just a real detail, but in the headlines that came out on Reuters, when your shareholder letter came out, there was a statement saying company believes they are seeing initial indicators of bookings trends are beginning to stabilize. But I couldn’t find that phrase anywhere in the actual shareholder letter. So I mean, is that a statement that you are comfortable with?

[Frank Gibeau:]

I think, listen, like if you look across our portfolio, we are seeing improvement in some of our games. Obviously, it is early indicators, but what I think is more interesting for us is we are seeing improvement in the CPIs and yields that we are achieving in user acquisition. Because, Doug, if you step back from it, when we look at our core cohorts and these are cohorts that were with us pre-COVID, actually cohorts that joined us during COVID, those cohorts are engaging and monetizing strongly. So the MO against those charts is to continue to drive engagement, drive bold beats and, obviously, monetization. The next phase is, okay, how do we bring new cohorts in? Now we have calibrated our user acquisition spend last quarter and into this quarter, given what we saw in terms of yields. As we see yields ease up, that means we will be able to invest more against channels that are now performing and that should enable us to drive obviously a stronger booking performance, which is - it is essentially implied as we get into Q4. We are assuming some moderate improvement in our live service bookings into Q4.

[Operator:]

Thank you. Our next question comes from Matthew Cost of Morgan Stanley. Please go ahead.

[Matthew Cost:]

Hi gents, thanks for talking the questions. So I guess between reopening and then the changes to the marketing ecosystem, can you break out sort of the magnitude of the impact of each of those elements in the decline in the 3Q guide versus 2Q? And then just looking out from here, obviously, reopening is passing thing, the changes to the marketing ecosystem are permanent. But for both of them, what steps are you taking to work through those issues and particularly on the marketing side? And how confident are you in their ability to work and get your marketing efficacy back to where it has been historically?

[Frank Gibeau:]

Yes. I think if you look at the two factors that we are dealing with in terms of the reopening with audience choppiness and then IDFA when we talked about IDFA before, we had said that it was going to be a short-term headwind that we would work through because of our advantages in scale in advertising and product management. We remain committed to that. Well we are already seeing an improvement in early UA trends. Really, what had to happen was new tools, new ad products, the networks need to retool. We needed to look at real data in terms of the supply and demand factors. And that is what when iOS hit 80% in June, that June period in July is really working through that, and we have seen that improvement in late July and going into August, where we feel very confident that IDFA is something that we are working our way through. And it is had an impact, but again, a short-term nature type thing that we communicated in the long-term, we don’t see it as a negative. It is something that we just have to adjust for, and we have started to do that by looking at different networks. We have started to buy on networks that we weren’t buying on before because they have done a good job improving their products. As an example, Unity is a network that has done a good job adjusting to IDFA. In addition to that, we have used some other techniques in terms of how do we value a player, what types of calculations we are doing in terms of looking at the spread between install and LTV. So it is a variety of different techniques that you experiment against you see the results, you see if they are predictive and then we start deploying those. So I’m very confident and feel very good that the IDFA issue is well in hand and operating within expectations. The softness in the cohorts that we acquired in 2021, that choppiness has had more of an impact on the run rate. That has been where we have seen a little bit more of an adjustment that we have had to make with regards to how they were operating versus earlier cohorts in COVID. They seem to have been less committed to the games. They have been in the games for a less period of time. And as things reopened and they were able to go back outside or go do other things, we saw that trade-off in time spending games towards other things start to increase. So that is where we saw the impact mainly and that, again, was something that started to happen in late May and carry forward. Now usually, what you would do is you would additionally you would spend money to acquire new users with good ROIs and that would offset it. Unfortunately, with IDFA happening at the same time of that softening, that is where we hit this turbulence inside of our run rates against live services that is lasted from late May through July. And the thing that we are encouraged by is the cohorts outside of those late additions have been strong, and they have been very engaged and they have been very lucrative and they have been very committed. And in addition to that, with IDFA starting to improve in terms of the UA trends improving that is why we are confident that these are short-term factors and that we are moving through them. And as we look forward into our more long-term growth strategy in 2022 and beyond, our business fundamentals are strong. Our investments are sound. We just we have adjusted for market turbulence related to COVID, and we feel like we are working our way through that. And that was part of our adjustment today for the second half trend line inside of live services.

[Matthew Cost:]

Great, thank you.

[Operator:]

Thank you. Our next question comes from David Kanovsky of JPMorgan. Your question please.

[David Karnovsky:]

Frank, maybe just ask a longer-term question on the impact of IDFA. Historically, your bookings have been more skewed towards iOS versus Android, given the relative difference in the platforms around privacy and some of the challenges you are seeing, do you see a need or opportunity at all to optimize your games or new game launches maybe more towards Android?

[Frank Gibeau:]

Yes, it is an interesting question as we look at platform mix. I can tell you that we have been investing in Android as we have seen the dynamics unfold inside of iOS. And Android has always been a parity platform for us. It is a strategic platform for us. We don’t do anything necessarily special for Apple versus Android. So from that standpoint, I think we will continue with that strategy. But for sure, we have been spending more money on Android platforms to acquire users there in the short-term. And in particular, we have seen explosive growth of Rollic Hypercasual on the Android platforms is very popular, and you see a mix more towards that. I think longer term, as we see the innovation in ad products start to offset the changes in the ecosystem, I think it will start to come back around we are leaving out as we get further into the year and into the start of 2022. But right now, I think you are seeing a lot of people put money in Android right now, which obviously is driving prices up. But in general, that part of the ecosystem is functioning very much normally.

[Ger Griffin:]

The other thing I would add, as you think to your point about think beyond 2021 and into 2022, once we get going with the enhancements and the bringing together of Chartboost and Zynga, see we do see opportunities to, obviously, use that lever to improve our leverage and yield capabilities within user acquisition across all platforms. So when you look at the size of our audience and you look at the scale, the scale we have in our ad tech platform, I think that is going to be an important driver too, as we think about user acquisition efficiency going forward.

[David Karnovsky:]

Okay. If I could ask one on StarLark. Your portfolio has largely stayed away from sports games to this point. So I guess, why is now a good time for sports and is this a genre where you want to expand your presence more either through new games or M&A? Thanks.

[Frank Gibeau:]

Yes. When we looked at the opportunity to work with StarLark, and we played golf rivals, it really is a highly social casual PDP experience. And the fact that it is in the Gulf genre is important, but at the same time, it really appeals broadly. And it is a very fun fantasy-based experience. So we are not really looking to enter the sports simulation category. What we are entering in is the social PVP casual game category. And that is why we really were attracted to this design and also to this development team. And so for long-term, if we look at their pipeline, I think what you can expect from us is highly engaging PVP experiences that are social in nature and with features and monetization that is optimized for that kind of growth and that type of player behavior, but it is not necessarily hard core sports simulations. If you play golf rival, it is definitely not a realistic simulation of golf. And so that is why we think of it more in that casual category as opposed to we are starting to put down more investment in a sport genre.

[Operator:]

Thank you. Our next question comes from Mario Lu of Barclays. Please go ahead.

[Mario Lu:]

Great. First question is on Peak Games. So now that IDFA is rolled out, does this open the door to implement advertising in both Toy and Toon Blast. I believe that was one of the low-hanging fruits once you acquired them. So any update there would be helpful.

[Frank Gibeau:]

Yes. We are continuing to evaluate and plan to bring advertising to the games. It is more a function of timing and making sure that we deliver the kind of ad experiences that are pay positive for the Peak Games. We have done testing with Peak Games and demonstrated that actually the advertising when you tune it the right way as we can is actually a retentive mechanism. When you deliver ads to players where they actually receive value and return, those are very positive experiences. So it is still in our road map to deliver. Obviously, it is not something that is coming by the end of 2021, but it is something we are looking at into 2022 and beyond.

[Mario Lu:]

Great. Thanks and kind of a clarification question on the Star Wars’ title. So you guys said entering - well, we will enter the test markets in 4Q. Does that mean there is still a possibility that the game launches in 2021 or does that assume that 2022 title as well? Thanks.

[Frank Gibeau:]

Yes, Hunter’s will go into test in Q4. It is more likely to release in the early part of 2022. So that is why we don’t have Hunters in our forward look and from a financial standpoint. The game is doing really well, but we would like to get it into test and see what we hear and learn. And we are adding a lot of new features because of the early response has been so positive on iOS, Android and Switch.

[Mario Lu:]

Got it. Thank you.

[Operator:]

Thank you. Our next question comes from Martin Yang of Oppenheimer. You line is open.

[Angie Song:]

Hi. This is Angie Song speaking on behalf of Martin Yang. So for your recently launched Puzzle Combat, what is the initial audience reception of the game? And what are some of the key learnings that you can apply to for future games or versions of the game? And what do you expect the game to achieve in around a year’s time, given tougher than normal year-over-year comps?

[Frank Gibeau:]

Yes, Angie, thanks for the question. Puzzle Combat is off to a good start from the standpoint of player reception, the quality scores are very high. The cohorts that are in the game are highly engaged and enjoying it because of the reaction that we have seen in IDFA in terms of some of the tools, the scaling of the game is going a little bit slower right now. And so we are taking the time to really maintain an approach where we are looking at the telemetry from what the players are telling us, adding new features, tuning things. So it is scaling a little bit slower than we want because of the IDFA impact over the summer. But as we get into more normalized conditions, I expect that we will be able to scale it more aggressively as we get into the fall. We are very excited about the game, the change of content from fantasy to more combat has been well received. We have added some new subsystems around collecting equipment. And we are adding new features like robots, Max that I think that is going to be very well received. So we are very excited about the title. We remain committed to making the title to hit product, and it will be a big contributor for us in 2022.

[Angie Song:]

Great. Thank you.

[Operator:]

Thank you. Our next question comes from Brian Fitzgerald of Wells Fargo. Your line is open.

[Brian Fitzgerald:]

Thanks guys. Frank, maybe just a follow-up to previous comments. When you think about SP12 Cross-platform titles like Hunters, can you give us a sense of the difference in the development costs are they dramatically different? Do they hit at different cadences or maybe is the greenlight process or the soft launch process different for those cross-platform titles? And then I have one follow-up on IDFA. Thanks.

[Frank Gibeau:]

Yes. In terms of development, early on, the costs aren’t incrementally that high. The issue is when you get to soft launch, you have to test the games differently because you have very different test marketing conditions. It is hard to test launch a switch game, for example, versus an Android or an iOS where you can really break it down by region or a specific country. So really where the differences start to get pronounced is in the test marketing and also in the live services update. You can go very, very fast with a mobile game. There is a lot more requirements to work with the first party and get it tested on the console side. It takes a little bit longer. And so those are some of the things that we are mastering right now. You do not see a big increase in costs related to the engines because we are using common engines like Unreal or Unity. The art translates pretty nicely. There are a few extra things that we will do with regards to resolution or a specific platform capability because the processors are slightly faster or you are on a big screen TV. But in general, those costs are not excessive. The depth of the games can be a little bit different. In mobile, you probably don’t need the same degree of depth in some of the shooter mechanics, for example. But that is something that we are very focused on making sure that the experiences are high-quality, both on mobile and console so that they are very playable together. We never want to release a game that isn’t cross-play capable, like where there is a mobile version that can’t talk to the Switch version. From the very beginning, we want these games to be fully interoperable, simultaneously playable and at a quality level where (Ph) doesn’t look like an afterthought. And so we are very excited by the reaction that we are seeing right now on Hunters from not only our first-party teams, but also from the consumer testing that we are doing. And it is going to be really interesting to see what the testing material tells us in Q4, but we are very excited to get those games out.

[Brian Fitzgerald:]

Awesome. And then a quick follow-up on IDFA was just are you seeing any ROI differences by genre in any material way based on IDFA, maybe no, but just curious.

[Frank Gibeau:]

Not material. You do see some subtleties in some categories like social casino, some more broad-based casual stuff has held in there on the ROIs. The problem is that there is a lot of muddiness in the data, for example. So if you include organic attribution, it looks a lot better than if you pull it out, a more strict way to measure your returns is to take the organics out. And if you do that, the CPIs bounce around a little bit. That might be a little bit overly technical, but depending on how you count it, that is where the category differences can be become very pronounced. But during IDFA, hyper casual, social casino have hung in there nicely. And again, some of the franchises that have more narrow arbitrages where you need more detail on who you are buying, those ones have suffered more, and that is where you have seen some of the weakness for us on games like Merge Dragons!, for example.

[Operator:]

Thank you. Our next question comes from Mike Hickey of the Benchmark. Please go ahead.

[Mike Hickey:]

Hey Frank and Ger, thanks for taking my question guys. Just to clarify on the Merge tiles, do you sort of expect a sustained downturn here in performance and can you remind us sort of the size of those games in revenue? And I have a quick follow-up.

[Frank Gibeau:]

Yes. I think we have kind of hit bottom on the Merge games in terms of their performance over these last couple of quarters. We believe that we are going to be in a position that they will start to collectively grow as we head towards the holidays and start to release some of the bold beats that we have been working on in the first half here. So as you know, Graham was a very successful acquisition for us and had explosive growth. They have leveled off a bit here. And now what we are doing is retooling and doubling down so that we can start growing them again, much like what we have done with other live service franchises like whether it is been Words With Friends or Zynga Poker over the years.

[Ger Griffin:]

Mike, in terms of the overall size, obviously, Merge Dragons! is still a very strong and large franchise north of 200. Merge Magic! is a smaller franchise and it is south of 100 million.

[Mike Hickey:]

Thank you. I guess on the hyper casual side, Frank, I think I heard you talk about maybe transitioning some of those gains into live services. Can you talk more about the opportunity there? And I guess you would also look to do M& A in that category. But that sounds interesting. And then within hyper casual, what is the UA opportunity there for some of the other live services? Thank you.

[Frank Gibeau:]

Yes. With what we are experimenting at Rollic is expanding the development community so that we can bring more games into the Rollic network, because it is a combination of small external teams and internal teams. And over the last few quarters, we have been acquiring small teams that have built some of the games that have been hit. So we have been adding to our internal capability by bringing in some of these IPs and teams. Recently, we launched in Hair Challenge, the first time we put a bold beat inside of a hyper-casual game, and we saw a really nice pickup in engagement. And so you are going to see from us over these next couple of quarters where we are going to start adding bold beats to some of the hyper casual games to elongate the engagement curves which will increase the amount of monetization that we see and that should attract more expansive or bigger scope games into that category, which is exciting to us. And we think that, that will attract more developers into the Rollic network because of how successful they are in putting out hits. We put out a really great string of products that have driven audience and the advertising dollars that we have generated there have been a major contributor in Q2, we were up 111% in advertising, and a lot of that had to do with Rollic.

[Ger Griffin:]

Mike, the other thing I would add is we have spent a lot of time with Boraq. And one of the reasons we decided to accelerate the acquisition of the 20% was there was a lot of energy on both sides to really focusing on some of these longer-term opportunities. And as you can imagine, sometimes earn outs can become too short-term in nature for some of the shareholders. But as we think about Rollic, we are thinking about some of their games have the characteristics of being franchises where you can have a continued iteration of different smaller events or different smaller games coming out under the same banner similar like Words With Friends or CSR2 or any of our other franchises. The other interesting point, which as you think about user acquisition and you think about cross promoting into some of our other franchises. We are also looking at some of our larger franchises and saying, well, is there an opportunity to create smaller hyper casual versions of those games that could actually sort of coalesce within a hyper casual universe and sort of be across filter. They could be games on for themselves or they could actually be more promotion vehicles to bring players into other franchises.

[Operator:]

Thank you. Our last question comes from Richard Greenfield of LightShed Partners. You line is open.

[Richard Greenfield:]

Hi. A couple of questions. I don’t want to beat this IDFA thing to death, but just Frank, you sort of seem to be alluding to things certainly getting better as sort of you exited July into August. If you could just sort of like on a - I don’t know if it is a one to 10 scale, but like is it some way of gauging we were to think about where things were before the latest changes to where we are now. Are we 30% of the way back, 60% of the way back, like how much better or worse are we than before this all started? And then second, it seems like your acquisition of Chartboost seems to be transformative in terms of giving you first-party data and a lot more knowledge so that things like this won’t impact you to the extent they change again. Maybe if you could just comment on how quickly you can ramp that acquisition to sort of take advantage of you leverage that data to improve UA as you look out whether it may not be, I guess, a third quarter event, but as you look certainly into 2022, how do you think it changes the UA acquisition side of the equation?

[Frank Gibeau:]

Yes. Thanks for the question, Rich. Giving it a rating scale is a little tough, but what I can tell you is we weren’t spending in June and July at a high expense. And now we are starting to put money back to work. So I would say we have definitely started on the road to recovery, if you will. But Android, we have been spending all the whole way through. On iOS, we took a pause, and now we started to see the yields improving on networks like Unity, for example, where we are starting to put the money to work. And we think that trend will continue. And as we get into the holiday and early part of 2022, that short-term headwind that IDFA was will be in the rearview mirror and we will be moving forward. So good progress and positive progress on that front. As it relates to Chartboost, they just got in the building as it were on Tuesday, and they really they really can’t get to work fast enough because that vertical integration to ad tech on the DSP side and starting to have more Intel about what is happening in the ad markets. It is going to be vital for us in the second half and beyond as we start to even out accelerate the normalized trends of getting back into UA here. So we are very excited about the impact that Chartboost is going to have long-term on the company. They are going to start to ramp up here August through December. But the synergies case, the revenue case, the third-party ad business, the more information and intelligence that will gather through the systems we will make better decisions. I’m very excited about having that capability inside Zynga.

[Ger Griffin:]

Rich I would just add to that. We are tracking as it relates to the synergies we expect in 2022 that we communicated back in the last earnings call. So we still believe that Chartboost will be a meaningful delivery of synergies in 2022 and beyond. So there has been no change in our expectations there. We are very happy to have them in the building now, but now it is to let them get their legs under the table.

[Richard Greenfield:]

Thanks so much for filling it in. I think that just seems like such an important part of the story to help you - because I’m sure Apple may change things in the future. And so the bigger they get, the faster they get, the less this becomes an issue going forward.

[Operator:]

Thank you. At this time, I would like to turn the call back over to Rebecca Lau for closing remarks.

[Rebecca Lau:]

Thank you, Latif. We want to thank everyone again for joining our earnings call today. We look forward to connecting with you over the coming weeks and hope everyone is continuing to stay safe and healthy during these times.

[Operator:]

This concludes today’s conference call. Thank you for participating. You may now disconnect.