Zynga Inc.
Q2 2019 Earnings Call Transcript

Published: 2 Aug 2019

[Operator:]

Good day, ladies and gentlemen, and welcome to Zynga Second Quarter 2019 Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. . As a reminder, this conference call is being recorded. I would now like to introduce your host for today’s conference, Ms. Rebecca Lau, Vice President of Investor Relations and Corporate Finance. Ms. Lau, you may begin.

[Rebecca Lau:]

Thank you, Joelle, and welcome to Zynga’s second quarter 2019 earnings call. On the call with me today are Frank Gibeau, our Chief Executive Officer; and Gerard 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 Web site in a few hours. Now, I’ll turn the call over to Frank for his opening remarks.

[Frank Gibeau:]

Thanks, Rebecca. Good afternoon everyone and thank you for joining our Q2 earnings call. We delivered great Q2 results ahead of our guidance and finished the first half of 2019 with strong momentum in our live services. In the quarter, revenue grew 41% year-over-year to 306 million and bookings increased by 61% year-over-year to 376 million. Q2 was our best mobile revenue and bookings quarter in Zynga history, with mobile revenue up 49% year-over-year and mobile bookings up 69% year-over-year. Operating cash flow was 99 million, our best performance since Q4 2011 and up 140% year-over-year. Given the strength of our live services, we are raising our full year 2019 guidance, which Gerard will discuss in more detail later on the call. We are on track to deliver our best annual revenues since 2012 and the highest bookings in Zynga history. Looking back over the first half of the year, I would like to highlight some of the key drivers of our strong performance. Starting with live services, our focus on driving recurring growth through steady release of innovative bold beats is working. Empires & Puzzles and Merge Dragons! both delivered record top line performances in the quarter as Empires & Puzzles repeatedly broke into the Top 5 U.S. Gross Gaming charts on Android and iOS. While Merge Dragons! entered the Top 10 on Android and the Top 20 on iOS.

[Gerard Griffin:]

Thank you, Frank. We closed on a great first half performance with Q2 finishing ahead of our expectations on strong mobile live service momentum and better than expected operating leverage. Given the strength of our mobile live services, we are raising our full year outlook for revenue and bookings. But first, let’s discuss Q2. Revenue was 306 million comprised of bookings of 376 million, offset by a net increase in deferred revenue of 70 million. Revenue was 26 million ahead of our guidance, driven by 16 million bookings speed and a lower increase in deferred revenue of 10 million. Our top line beat was driven by strong mobile live service performance, in particular outstanding performances from Merge Dragons! and Empires & Puzzles as well as initial contributions from Game of Thrones Slots Casino which released on May 30. Revenue was up 89 million or 41% year-over-year, driven by bookings growth of 142 million or 61% year-over-year, partially offset by the significant growth in deferred revenue, up 53 million. The strength of our portfolio drove our best mobile revenue and bookings performance in Zynga history. Mobile revenue was 287 million, up 49% year-over-year and mobile bookings were up 358 million, up 69% year-over-year. Our year-over-year bookings growth was driven by our mobile live services, including full quarter contributions for Merge Dragons! and Empires & Puzzles. The growth collectively in our forever franchises more than offset the continued declines in our legacy mobile and web games. The increase in deferred revenue was driven by Empires & Puzzles, continued bookings growth for Merge Dragons! in addition to initial bookings from Game of Thrones Slots Casino. In assessing year-over-year variances, please note that the increase in deferred revenue represents a 53 million negative component to the year-over-year variance in revenue, net income and adjusted EBITDA.

[Frank Gibeau:]

Thanks, Gerard. Before we open the call up for live Q&A, I want to take a moment to highlight how Zynga is uniquely positioned within the interactive entertainment industry. Zynga is a leading, mobile-first, free-to-play, live services company with the mission of connecting the world through games. Mobile is the largest and fastest-growing gaming platform in the world, with mobile games expected to reach 2.4 billion people in 2019. This platform is constantly evolving with new devices, technologies, and distribution innovations that will expand the overall accessibility of games and, therefore, Zynga’s total addressable market. As a nimble, mobile-first company, we are well positioned to capitalize on this rapidly evolving game landscape at a time when demand for interactive entertainment is reaching new highs. Our great results through the first half of 2019 put us well on track to be one of the fastest growing public game companies this year. We are focused on executing our multiyear growth strategy to further scale our business and generate more value for players and shareholders. With that, we’ll open up the call for your questions.

[Operator:]

Thank you. . In the interest of time, we ask that you please limit yourself to one question and one follow-up. Our first question comes from Colin Sebastian with Baird. Your line is now open.

[Colin Sebastian:]

Great. Thanks. A great quarter. I have a couple. First, could you talk about the levers driving continued strong growth in Empires & Puzzles including the mix of paid user acquisition versus specific monetizing events or other activities? And then secondly, raising the full year bookings guidance by more than the Q2 beat, if you could just maybe talk a little bit more specifically about what parts of the business you think are showing more sustainable, faster growth? Thanks.

[Frank Gibeau:]

Hi, Colin. This is Frank. I’ll start with the Empires & Puzzles question. It’s going to be a combination of things. We have a fairly aggressive bold beat calendar in front of us for these next couple of quarters where we will be expanding the number of systems that players can engage with. One example is we’ll continue to expand the base features that we introduced this quarter, including stronghold max levels, new characters and new ways to compete. Also, we are investing more in our operations in Asia against this title. It’s out in South Korea and Japan as we mentioned. And we’re seeing some very promising early indicators. So expect that we’ll also ramp geographic expansion over the coming quarters that should also help drive the growth of that franchise.

[Gerard Griffin:]

This is Gerard. In terms of the full year guide, as we stated, the primary rationale for the increase was how we see our live services progressing over the second half of the year. Obviously, we expect Game of Thrones Social Slots to ramp. It’s obviously progressing through this quarter and then through the end of the year. But also as we look across the rest of the portfolio, we still believe there is room for growth as we assess the various bold beats that we’re going to prosecute both in Q3 and Q4.

[Colin Sebastian:]

Okay. Thanks.

[Operator:]

Thank you. Our next question comes from Mike Ng with Goldman Sachs. Your line is now open.

[Mike Ng:]

Hi. Thank you very much for the question. I have one for Ger and one for whoever would like to take it. Ger, could you talk a little bit about how much incremental marketing spending you’re putting against the three soft launches this year? I’m just trying to better understand the impact to margins on the third quarter and full year and what I would consider growth investments that likely won’t pay off until 2020. And my second question, and I apologize if I’m being a little bit pedantic, but it seems like your language around using capital allocation to fund acquisition seems a little bit more intentional that in previous quarter. Has your intention increased since your last earnings report? And could you just update us on your progress there? Thank you.

[Gerard Griffin:]

Yes, we don’t break out specifically the exact number against what we may apply against the soft launches. It’s just as we now have three games in soft launch, they’re obviously in different levels of maturity. I did consider that as I was setting guidance. What I will say, if you think about the last quarter from Q2 to Q3, we essentially indicated there’s about three points of pressure and I gave a little bit of an outline in my prepared remarks to say that a point is fundamentally coming from the gross margin side of the equation, a point is coming from the rent on the real estate, and then the other point is broadly related to marketing. So a little element of that relates to what I’m talking about in terms of soft launch. The majority of it, it relates to the ramp of Game of Thrones Social Slots game and obviously continued investment against Empires & Puzzles as it ramps in Asia and Merge Dragons!. On your second point, from our perspective, I don’t think we amplified our intention on acquisitions other than prosecuting our objective to refill our cash reserves. Obviously, it is indicative that we now have the capital in-house should additional opportunities arise. But it has always been our attention to be prepared if other opportunities similar to Casual Cards or Gram Games or Merge Dragons! are on the offing. And so from our perspective, there’s no rush to do another acquisition, but we feel the sale of the building and the convert gives us the opportunity to execute from a financial perspective if an opportunity arises.

[Mike Ng:]

Great. Thank you very much for the color. Those are helpful.

[Operator:]

Thank you. Our next question comes from Alex Giaimo with Jefferies. Your line is now open.

[Alex Giaimo:]

Thanks for taking the question. I guess from a high level, it seems as if mobile is quickly becoming the most competitive subsector within gaming. Can you just talk a bit about how your team is adapting to that competitive environment? And if you do feel acquisitions are necessary to maintain growth rates, are you confident that your existing portfolio can drive the low-double digit future growth rate that you referred to? Thank you.

[Frank Gibeau:]

Yes, Alex, I think that if you look at mobile overall, it’s as competitive as it’s always been. I wouldn’t subscribe to the point of view that mobile is getting more and more competitive. I think that it is a very dynamic marketplace. It has innovation happening in the hardware handsets, in the distribution channel, in the business model and it’s also expanding into new markets in the emerging world at a very aggressive rate. So from our perspective, we look at it as, yes, sure, it’s competitive; you need to have – you need to know what you’re doing in this category. It needs to be something that isn’t a hobby. It needs to be something that’s your primary focus in many ways to really break out. And so that’s where we keep our management attention very much focused on our live ops. We have a very rigorous process to continually look at our franchises in terms of, are we bringing new people into the franchises, are people that are playing the games playing more, our lapsed players, we have plans to bring them back? And keeping that drumbeat and that discipline is integral to our overall strategy of producing growth inside this overall marketplace. It’s also a marketplace that I would point out is very broad in its demographics. So a lot of the franchises that we have, whether it’s Words With Friends, the upcoming FarmVille 3, Merge Dragons!, they’re reaching audiences that traditionally a lot of other game companies haven’t reached, and that’s exciting for us because we’re just starting to tap into that and grow it and especially internationally. So from our perspective, we’re going to keep our eye focused on the fundamentals in mobile, but we’re also going to be aggressive. Our new product pipeline is just starting to show up in terms of the marketplace with Game of Thrones Social Casino and the three titles that we have in soft launch, they’re all very big potential titles; FarmVille 3, Puzzle Combat, Merge Magic!, those titles have real potential, and that doesn’t even include the games that we’re working on in the future with Star Wars, Harry Potter in the future pipelines that we have coming. So the combination of those two elements we think can continue to deliver on our strategy of a strong foundation of growing live services with incrementally layering in new titles. And we believe that that execution will continue to deliver the growth rates that we’ve committed to our shareholders into the marketplace. The M&A is actually a lever on top of that. And we take it in a very considered and thoughtful manner. We’re not in a rush to do any deals. But if we see something that we can plug into our live services platform and then we find a game team and a franchise that we really believe in, we’ll go for it. And that would increase the growth rates from what we’ve already committed to. So we don’t really have any assumptions in our projections against further M&A. It’s all based on organic growth from existing live services and with a very small assumption against new title releases.

[Alex Giaimo:]

Thank you.

[Gerard Griffin:]

The only thing I would add to what Frank said is as you think about 2020, and we’ve talked about this before, as these new games come out, they’ll start contributing. Games that come out obviously in 2019 will give us a full year contribution similar to Game of Thrones Social Slots. As you get into 2020 then, depending on the timing of the additional games when they turn up, that will ultimately define the level of operating leverage we can command. Obviously, if we get the games out earlier in the year, there’ll be contributing more to the year than if they come out later in the year, but that’s all a TBD depending on the cadence of our new games.

[Alex Giaimo:]

Okay. Thank you, guys.

[Operator:]

Thank you. Our next question comes from Brian Nowak with Morgan Stanley. Your line is now open.

[Matthew Cost:]

Hi, guys. It’s Matt on for Brian. Thanks for taking the question. So can you discuss the puts and takes that you saw in Words With Friends and Zynga Poker in the quarter? Obviously, you grew bookings sequentially in both of the games but cited them as a driver of the slight decrease in users sequentially? And then can you discuss kind of what you’re seeing in the chat games and Solitaire as well on that point? Thanks.

[Frank Gibeau:]

With regards to Poker and Words With Friends, there is a lot to celebrate in terms of the features that were released. In Poker, there was a new boost system that was introduced to the game that fans really, really liked. We also made some changes to the infrastructure and the production cycle so we can actually get bold beats out faster, and that was very encouraging to see the return to growth on a sequential basis. As we discussed on prior calls, we felt that that was going to be a second half event. So the fact that it’s a little early is very positive to us. And we anticipate that the velocity of bold beat releases on Poker will increase as we enter into the second half. In terms of the audience level, there’s some puts and takes on Poker in terms of some different markets that we’ve been active in on UA, some places we pulled back a little bit, some places we leaned in. We wanted to see how the boosts were really working before we look at that on a more long-term basis. In terms of Words With Friends, again, best quarter it’s ever had on mobile, big driver of the result on advertising. The new achievements bold beat was very well regarded. We also had a promotion with Garth Brooks, and so we had a really good May and June on that title. We just released celebration of the 10th year anniversary with Friendaversary event which is off to a good start. We’ve got in-game giveaways and exclusive titles coming. So what we’re seeing is the existing base of users is playing the game more. We’re seeing more moves per player. And as we get Friendaversary out, we’re going to look at ways to expand the audience through UA and further investments. In terms of the legacy titles, there have been some changes in terms of how Facebook has been approaching Messenger and movement of that app from where it was into the new blue app that they have and where it’s been surfaced and how discovery works. We have decided to focus our efforts there on Draw Something and Words With Friends, and we’ve sunsetted the rest of the chat games there. So that was a negative impact on audience as we sunsetted those games and focus more in on the two titles that had substance in off audience.

[Matthew Cost:]

Great. Thank you.

[Operator:]

Thank you. Our next question comes from Drew Crum with Stifel. Your line is now open.

[Drew Crum:]

Okay. Thanks. Hi, guys. To talk about the CSR2, it sounds like you have a deeper lineup of content bold beats coming in 3Q versus 2Q plus an easier comp. How are you thinking about that franchise in the second half? And then separately, and I apologize if I missed this, can you comment on your plans for marketing support of new initiatives beyond 3Q aside from the seasonality you see in 4Q? Should we expect another step up going from 3Q to 4Q around marketing? Thanks.

[Frank Gibeau:]

Yes, Drew, on CSR2 we do have an ambitious bold beat roadmap for us starting in Q3. Today, you saw the announcement of the Pagani Huayra Roadster that was released exclusively for the first time ever in a game, very well received. We have a new beta testing feature, a PDP feature called Showdown which really is focused on expanding the player versus player modes inside CSR2 that we’re very excited about and that should have a long-term impact on the franchise. We’ll also have some new Fast & Furious events coming. So we do have a lot of ambition for the game in the second half. The investment in the PDP feature is substantial. And in terms of the release calendar, you’ve seen a lighter cadence in this last Q2 and coming off Q1. So we’ll start to ramp CSR2 as we go into the second half. I’ll let Ger talk about the sequencing of marketing from Q3 to Q4.

[Gerard Griffin:]

Yes. Our guidance for Q3 and if you think about my overall color I’ve given on margins for the full year would indicate a similar sort of pressure on margins for Q4 as we do invest against our current live titles and the potential of investment against new titles. So from a quarter-on-quarter perspective, without putting any major dollars against new games, you should sort of assume that Q3 and Q4 broadly look the same from a top line and a margin profile as of now.

[Drew Crum:]

Okay, helpful. Thanks, guys.

[Operator:]

Thank you. Our next question comes from Ryan Gee with Bank of America. Your line is now open.

[Ryan Gee:]

Yes. Hi. Good afternoon. Thanks for taking the question. So the first one is on Puzzle Combat. We’re watching it in soft launch and in our view it kind of looks like a modern combat versus fantasy re-skin of Empires & Puzzles. So we’ve seen this at your competitor that did a bunch of different themed Match-3 games in the past and sequels weren’t really that incremental. So I’m curious how you guys are internally forecasting the contribution of that sequel. Is it just about moving users from one game to the other and then focusing on retention, or do you plan to see incremental users and revenue once Puzzle Combat does launch? And then a follow up along those lines. You now have three titles in soft launch. So have you guys committed to a specific number of titles for 2019? I think going into the year, you were looking at four, possibly five if CityVille makes it. So I’m just curious if that’s still the case and if that was a factor in the 50 million bookings guidance raise? Thanks.

[Frank Gibeau:]

Yes, Ryan, I’ll start with the Puzzle Combat question. It’s very early in soft launch. We are looking at all different types of player behaviors, how cohorts come in, what features they like? I think it’s – you haven’t seen the full feature set rolled out against the game in soft launch. So I’m not sure I would characterize it as a re-skin of Empires & Puzzles. It certainly is embracing a different theme in modern combat which we’ve seen in testing really does open up incrementally new audiences. So our goal is not to create a cannibalistic sells less than the last game type strategy here. So I think it’s a little too early to read too much into what the game eventually is going to look like in soft launch. From a modeling standpoint, we’re not doing a lot of deep modeling in terms of the revenue contributions on Puzzle Combat right now. We’re looking at frankly what’s the player behavior in the franchise. All the projections that you’ve seen from us on the future really are more related to how live ops and the titles that we discussed rollup. In terms of the three titles in soft launch, we committed to having games in soft launch and releasing a few titles. I don’t think we ever committed to five games releasing this year. But really the beauty of how we’ve constructed the company is that we can deliver recurring predictable growth off the live services that are strong. This quarter’s up 61% on the bookings level without major contributions from new titles. We did not want to design a company that was beholden to the risk of new product introductions. And so from that standpoint, it takes a little bit of pressure off of new product development process if we’re not trying to land it in a quarter and we’re able to just more focus in on the product quality, the engagement metrics and the lifetime value that we can generate inside the title. So that’s why we’re not as vocal about we have to get these games out in this quarter. It’s really more about, let’s get into soft launch, let’s see what we learn. If things look really good, it can go pretty fast. If things need more work and more polish and iteration, fortunately, the way that the live services are performing, we have that flexibility and opportunity to do so.

[Operator:]

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

[Doug Creutz:]

Thanks. Obviously, FarmVille is an important title for you guys. It’s kind of was the face of the company for a long time. You’ve now got FarmVille 3 in soft launch. Can you talk about what you’re doing with that game that’s going to kind of update it for what modern audiences are looking for in a Top 5 mobile game and what you’re doing you think you can make it successful? Thanks.

[Frank Gibeau:]

Yes, the game is innovative on a lot of levels and we’re encouraged by what we’re seeing in terms of research and test in terms of the appeal. It starts by building it from the ground up for modern mobile user experiences, modern mobile technology. It has a lot of new things and it was related to event harnesses so that we can frequently update it in live operations. But it really does start with a new look and feel to the game. It’s actually 3D, not 2D. It has a really accessible UI and it’s focusing in on some key elements on the farm that I think people are really going to gravitate to which is the animals, the ability to interact with farm animals; horses, dogs, cats. And we’ve added a layer of story in RPG related to farmhands with the different characters who operate on the farm. So it embraces a lot of the tried and true builder mechanics from the original FarmVille and from what’s popular in the category, but it adds a few new twists with collection, RPG, depth in terms of how the stories unfold. And we haven’t unveiled them yet in soft launch, but there are also elder game features related to social co-op play and other things that we feel can drive the elder game retention that this type of franchise will enable. And so very early days. It’s only been in soft launch a few weeks and we expect that we’ll be polishing and testing this game over the next couple of quarters.

[Doug Creutz:]

Great. Thank you.

[Operator:]

Thank you. Our next question comes from Ben Schachter with Macquarie. Your line is now open.

[Ben Schachter:]

Hi, guys. I hopped on late, so I apologize if this was already asked. But one, can you update anything on the strategy for Asia, for China specifically, anything new there either near-term or long-term? And then secondly, I don’t know if you’ve seen what’s happened with Tinder recently, but it’s the first time that I’ve seen anyone in-app go around the payment systems from Android. And we think that we know how they did it. But the question is, can a game company do it as well? And if there’s any update in terms of how you’re thinking about the ability to go around the 30% tax rate or negotiate that lower? Thanks.

[Frank Gibeau:]

Yes. On the first question regarding Asia, our focus was very deliberate and one game at a time and do it in a way that we don’t rush in and end up making mistakes in terms of how you enter Asia like a lot of companies have. So we focused in on Empires & Puzzles which we saw was testing well. We started with the markets that we felt we could self-publish in with Korea and Japan where we could actually get direct feeds on the data. We would control more of our own destiny in terms of how we can invest and change the games, and give us much more flexibility for how to bring the games to market and then grow them over time. I’m happy to report that very encouraging early metrics from both markets, so much so that we will be increasing the marketing expenditures against that title in the coming quarters. As it relates to China, given a lot of the dynamics related to how games are regulated, how you go into the market, we’ve decided to focus more in on Korea and Japan on the titles, get to success and scale there. And while we do have games available in China, Merge Dragons!, for example, has a fairly good audience there, that’s going to be part of a next wave of efforts as we look at how to expand further into Asia. As it relates to the app stores and there’s a lot of dialogue about the distribution channel, the rates, the fees, how to go around it. I can only say this. It’s really a dynamic environment. The mobile ecosystem is subject to constant change and there’s a lot of attention and pressure on the current structure of how it’s operating. Zynga is a great partner to Apple and Google. And our perspective is, let’s do what we do best which is made games, run live services. And if they’re shifts in the channel as it relates to some of these dynamics, those will probably benefit us, but it’s not a forecastable event. And as far as going around some of these systems and policies that they have, a dating app where a lot of the activity happens off the application is a little bit different than a game where most of the activity happens inside the application. So I think there is some more fundamental structural issues there to look into that. It doesn’t make it a perfect North Star for how to potentially go after that activity. So from our perspective, we love mobile because of the opportunity it presents for growth and change, but at the same time the current system is benefiting us well.

[Operator:]

Thank you. Our next question comes from Ray Stochel with Consumer Edge. Your line is now open.

[Ray Stochel:]

Great. Thanks for the question. So a couple on new platforms. What would be the long-term opportunity for you all with cross-platform play? Historically, you ran your own Web site and portal historically, but we know that there’s pressure of web-based games. Is there a scenario where you have cross-platform play with third party distribution as we see there continues to be a growth of third party distribution on PC? And then secondarily would be on chat, is there any way that you can quantify the audience impact either for Facebook Instant Games in 2Q and 3Q or Tiny Royale in 2Q and 3Q? Thanks.

[Frank Gibeau:]

So the cross-platform opportunity for us we think is profound and it is something that Zynga teams and Zynga intellectual properties, we think they can appeal across platforms. The most adjacent, clear opportunity is on the PC, not just the Web but also in a fully downloadable game type environment. Free-to-play is a very proven model on PC. There’s a lot of great distribution channels with Steam and Epic and others that you can go direct on, that we think over the long term, as we look at how we grow our forever franchises, there will come a day where Zynga will be able to launch games that have cross-platform play and cross-platform audiences. PC is also very appealing to us because of the presence that it has in Asia and as we grow our global footprint, the ability for mobile players and PC players to comingle, play against each other is really exciting and something that we’re looking at. The next step out from that with console and streaming systems, I think it’s simple to say, we are a platform-agnostic company. We start with the games, the teams and where can we generate audiences profitably. And if we can figure out paths for franchises in IPs that makes sense, that would be something that we’d evaluate. It’s not anything that’s eating up R&D right now, but it’s certainly something that we think about as we contemplate 2020 and beyond. As it relates to chat, we recently announced or we recently released Tiny Royale in Snap and we’ve been very pleased with the partnership with Snap. They’re a very good company and their approach to gaming we really like. And it’s exciting to see the reception that Tiny Royale has received. So the idea that you can build games on chat platforms in the West, I think is still in its very early days. Snap just got in. Facebook is recalibrating in terms of how it wants to approach that. So I think when you look at audience numbers, they’re going to jump around a lot. There’s a lot – there are going to be a lot of noise in them. We don’t really break them out, so I can’t give you a quantitative assessment of how big they are. But from the standpoint of over the long term, there’s audiences there in chat that find Zynga intellectual properties like Words With Friends and Draw Something and Tiny Royale very appealing. And so it’s a place that we’ll continue to look to innovate. It’s also going to be an ad-driven business, which also works well for us. So there’s still a lot of structural things that we like there. But again, the cautionary note that I would say is it’s early days, so reading too much into audience or how it unfolds is a do at your own risk.

[Ray Stochel:]

Great. Thanks, again.

[Operator:]

Thank you. . Our next question comes from Mike Hickey with Benchmark. Your line is now open.

[Mike Hickey:]

Hi, Frank, Ger, Rebecca. Congrats on the quarter, guys. Thanks for taking my questions. I guess the first one, just looking at your 20 bookings guidance 10% to 15%, obviously, your live service games are cranking here. Just curious how you sort of balance growth in the existing live services versus new games? They obviously are inherently more risky into that 10% to 15% guided range. And then I have a follow up.

[Gerard Griffin:]

The way we think about planning both current year and future years is we do have – obviously, we’ve got a perspective on our new game slate and potential launch windows. As we thought about giving our guidance for 2020, we said low-double digits. So in that guidance, we implied we would get growth from our core live portfolio, but we do expect that we get some contribution from new games, whether it’s a full year contribution of the game launch in this year or some additional games that would launch in 2020. So in setting that guidance, there is a component that relates to new. And from our perspective, as we look at the portfolio, both our live portfolio and the potential games that could soft launch over the next year or so, we felt low-double digits was a reasonable expectation. As you think about it from a mix point of view, the majority is still going to be coming from what we would call live games. Live by definition is any games that is in the market prior to the end of 2019.

[Mike Hickey:]

Okay. Thank you, Ger. The last question from me on Small Giant Games, it looks like Empires & Puzzles is north of 80 million bookings for the quarter. I think it’s probably a top performing game by quite a bit. When you acquired that asset, I think the run rate – forgive me if my math is wrong, but it was around 200 million. So now it looks like you’re sort of looking to be well over 300 million. So one, is that math right? And two, can you sort of help us bridge that sales growth from that game that you generated?

[Gerard Griffin:]

Yes, I think the math is broadly correct. The game has – as we said when we brought Small Giant into the family we were really excited with the performance of the game that was starting, obviously, its journey in terms of ramp. It had a very good Q4, had an excellent Q1 and it continued to grow. So in terms of how much of that was baked into our initial expectations, we obviously took a more conservative view. Hence, you see the contingent consideration built. But if we sort of step back in the time machine and look at it versus our case that was hitched to our Board, it’s obviously performing ahead of our expectations. And to a similar extent, we have a similar situation going on with Gram. Those titles, the core – as Frank said in his opening remarks, the core team and their creativity, we haven’t messed with that there. They’re part of the Zynga family. But what we’ve been layering into them is our publishing experience, our studio ops and our ability to help them scale better. And the combination of the two has worked really, really well.

[Mike Hickey:]

Thanks, guys.

[Operator:]

Thank you. Our last question comes from Jeff Cohen with Stephens. Your line is now open.

[Jeff Cohen:]

Hi, guys. Thanks for taking my question. So one of your competitors made an acquisition today in the hyper-casual space. Could you maybe just talk about that genre and any ambitions you might have to get bigger there?

[Frank Gibeau:]

Yes, it’s a category that is very interesting to us. It’s very high DAU, very casual, very easy to get into. It tends to skew a little younger than a lot of the main native apps. It’s an ad-driven business right now. It could start to evolve more toward IAP or in-app purchase. So when we look at the overall download charts on the platforms, you do see the charts dominated by these very quick, easy-to-play, easy-to-get-into games. The challenge is just how do you get to scale, how do you maintain that sustainable – make the DAUs sustainable. You have to have really good systems for cross promotion. You have to have really good advertising systems. We like the category. It remains to be seen how long it will stay at this rapid growth rate, if it’s going to start to slow down in the second half or not. But from our perspective, we think that hyper-casual is a strong sector of growth inside the mobile ecosystem.

[Jeff Cohen:]

Thanks.

[Operator:]

Thank you. I’m not showing any further questions at this time. I would now like to turn the call back over to Rebecca Lau for closing remarks.

[Rebecca Lau:]

Thank you, Joelle. We want to thank everyone for joining our earnings call today. We look forward to connecting with you more over the coming weeks.

[Operator:]

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude today’s program. You may all disconnect. Everyone, have a wonderful day.