Zynga Inc.
Q3 2019 Earnings Call Transcript

Published: 31 Oct 2019

[Operator:]

Ladies and gentlemen, thank you for standing by and welcome to the Zynga Third Quarter 2019 Result Earnings Conference Call. I would now like to hand the conference to your speaker today, Rebecca Lau, Vice President of Investor Relations and Corporate Finance. Please go ahead, madam.

[Rebecca Lau:]

Thank you, and welcome to Zynga's Third Quarter 2019 Earnings Call. On the call with me today are Frank Gibeau, our Chief Executive Officer; and Gerard Griffin, our Chief Financial Officer.

[Frank Gibeau:]

Thanks, Rebecca. Good afternoon everyone and thank you for joining our earnings call. In Q3 we achieved our highest quarterly revenue and bookings ever, driven by strong momentum across our live services as well as contributions from our recently launched titles. In the quarter revenue grew 48% year-over-year to $345 million and bookings increased by 59% year-over-year to $395 million. Additionally, we operated cash flow of $69 million, up 67% year-over-year and finish the quarter with approximately $1.45 billion in cash and investments. Based on this strong performance, we are raising our full year 2019 guidance, which Gerard will discuss in more detail later on this call. We are on track to deliver our best annual revenue and bookings in Zynga history and continued to be one of the fastest growing public game companies in 2019. Now I would like to discuss the key drivers of our performance in the quarter, including our strength in live services, successful new product introductions and growth in international markets. First, we have strong momentum across our highly diversified portfolio of live services, starting with Merge Dragons! this franchise has taken our bold beat strategy to a whole new level with new events, challenges and meaningful social interaction. It has more than tripled its Q3 revenue and bookings year-over-year and achieved another record topline quarter. In the period players enjoyed a steady cadence of themed events that featured unique items, in game rewards and special dragons. We also release Dragon Dens, a new social feature that gives players the ability to play and chat with friends in game for the first time. Together these bold beats enabled Merge Dragons! to repeatedly break into the Top 10 Android and Top 15 iOS U.S. grossing game charts.

[Gerard Griffin:]

Thank you, Frank. We closed our great Q3 with strong mobile live service momentum and operating leverage. Building on our strong performance to-date we are raising our full year outlook for revenue and bookings, but first let's discuss Q3. Revenue was $345 million comprised of bookings of $395 million all offset by a net increase in deferred revenue of $50 million. Revenue was $20 million ahead of our guidance on a $15 million bookings beat and a lower increase in deferred revenue of $5 million. Our topline 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 Merge Magic! which released on September 18. Revenue was up $112 million, 48% year-over-year driven by bookings growth of $146 million or 59% year-over-year partially offset by growth in deferred revenue of $34 million. This was driven by our best mobile revenue and bookings performance in Zynga’s history with mobile revenue of $328 million, up 54% year-over-year and mobile bookings of $378 million, up 64% year-over-year. Our year-over-year bookings growth was driven by our mobile live services including a full quarter of Empires & Puzzles, continued growth in Merge Dragons! and initial bookings from our recently released games. The net increase in deferred revenue of $50 million was driven primarily by bookings growth from Empires & Puzzles and Merge Dragons! While the release of this GAAP deferral will have a positive impact on revenue and profitability in future periods, it represented a $50 million reduction in revenue, net income and Adjusted EBITDA in Q3. On a year-over-year basis, the difference in the change in deferred revenue represented a $34 million decrease in the year-over-year change in revenue, net income and adjusted EBITDA. We ended Q3 with a deferred revenue balance of $403 million versus $174 million a year ago.

[Frank Gibeau:]

Thanks, Gerard. Before we open the call for Q&A, I'd like to take a moment to discuss how we are uniquely positioned today. In 2019 we are on track to deliver our best annual revenue and bookings in Zynga history, driven by the strength of our live services, which is powered our bold beats We expect to build upon this momentum in 2020 by continuing to execute our growth strategy. To expand our live services, create new forever franchises and invest in emerging markets and platforms. We also see opportunities to further accelerate our growth through acquisition. It's an incredibly exciting time for Zynga. We are well positioned as a leading mobile-first free-to-play live services company on the largest and fastest growing gaming platform in the world. We are confident in our ability 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. Our first question comes from Michael Ng with Goldman Sachs. Your line is now open.

[Michael Ng:]

Great. Thank you for the question. I just have two. First, I was just wondering if you could update us on your capital allocation plans and what the M&A environment looks like. What criteria are you looking for in an M&A candidate? And then second, could you just talk to us about the low-double-digit organic revenue and bookings growth guidance for 2020. Would you just remind us what's assumed in there from a forever franchise growth perspective as well as any new title benefits? Thank you.

[Frank Gibeau:]

In terms of M&A, I'll start and Gerard can talk about 2020. In terms of what we looked for in the marketplace, you know it starts with a recognition that mobile is a global platform and there's talent all over the world. A lot of the great teams in mobile are international. And so we start by looking globally for teams that have great leadership, strong creative cultures, that have franchises that are either at scale or coming of scale that can really benefit from the unique publishing platform that Zynga has for live operations. When you look at data science, product management, the marketing and the other platform capabilities we have and the unique studio culture that we have with so many diverse teams, we look for those types of opportunities. We don't look at a particular size. It could be a company that is what we'd call a plug-in, which is something that's smaller in nature. It could be a company that's larger. We really don't walk in with too many constraints there. Our criteria really is looking at team, leadership and also the nature of their franchises and the types of products that they build.

[Gerard Griffin:]

In terms of just on the capital allocation as we said on the call, the primary use of our cash and investments will be against acquisitions or against obviously the payout on some of the earn-outs that were accruing on existing acquisitions. So as we look forward that that is the primary use of our cash. Given the success we've had in the past with our acquisitions and the attractiveness of Zynga as a destination for creative teams. We see opportunities to continue to grow through acquisition in addition to organically. To your question in terms of 2020, where our expectation is that our forever franchises collectively will grow in 2020. We haven't given specific breakdown of the low-double digit growth. But obviously a key driver of our business and key contributor to our overall bookings is the forever franchises followed by our slots portfolio or casual cards portfolio. There will be an element of new in our bookings for 2020, but we'll give more color on the overall shape of the bookings when we get through our Q4 earnings.

[Operator:]

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

[Alex Giaimo:]

Great, thanks for taking the question. So two for me as well. First it looks like the commentary in the letter around outlook for 2020 margin changed a bit from last quarter. Not to get to in it a little bit last quarter was operating leverage. Now you're pointing towards operating results improving in absolute terms. So is there anything different planned on the expense side or am I just reading too much into that? And then going back to the previous question on capital allocation, appreciate the color around M&A, but I do think you guys have a $200 million buyback authorization. So maybe just general thoughts on potentially leaning heavily into that if there are no attractive options in the market right now? Thanks.

[Frank Gibeau:]

So taking your last question first. The primary use of our funds will be against acquisitions. We do have a buy back with $174 million outstanding. Obviously if we see the opportunity to buy back stock at the right levels, we will but again when we look at, and we've done this analysis, when we look at our investment against buybacks over the past years, in our investment against acquisitions. Since the current management team took over, the returns were delivering to shareholders on the acquisition side have been more compelling. But again the next use of cash outside of acquisitions would be a return to shareholders. We don't have any other material uses of cash given we're a digital business, so it's not like we've got a bunch of warehouses or anything else we'll be building on. In terms of the 2020 outlook, there was a clarification of sorts in the way I explained the operating results. Obviously we're ending this year stronger than we guided to at the start of the year. If you look at the margin flow true and actually the absolute dollars and we started the year with a guidance of bookings of 1,350, expecting some points pressure in terms of our EBITDA or operating contribution. We're actually – and in the year well over $150 million above that and in terms of the bookings and we're delivering obviously in absolute terms and in March in terms of stronger results. Part of that is a function of the strength of our live services and part of that's a function in terms of how we faces our new games. As you think about next year, a very – we've said this in the past, we are going to increase the overall operating results of the company based on the stronger bookings contribution in 2020. In terms of the actual margin in any given quarter and for the full fiscal, yes, we do expect to continue to see very strong margins coming from our live services. But the timing of new games and the level of marketing against new games can have an impact in any given quarter and ultimately on the outcome. And so all we are trying to do there is just sort of reconfirm or reemphasize the fact that we do expect to grow in absolute terms but the ultimate percentage flow through will be highly dependent on the timing and scale of new game investments.

[Operator:]

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

[Drew Crum:]

Okay, thanks. Hey guys. Kind of related to the last question let me ask this part first. The increase to your margin guidance for 2019, can you address the impact, the timing of FarmVille and Puzzle Combat have on anyway suggest some pullback in marketing spend that's getting pushed into 2020, maybe that's having some impact on how you're thinking about margins? And then separately maybe for Frank you seem pretty optimistic on Merge Magic! I know it's very early, but how has that trended relative Merge Dragons! at the same point its life cycle X?

[Gerard Griffin:]

This is Gerard. In terms of when we started the year we outlined that the majority of our bookings was going to come from our live business. We did indicate that we had put a small amount in for new games. And as we upgrade that guidance through the year, we broadly speaking above $50 million that we had put in for new games. What we did say is though that we had at least a placeholder initial marketing particularly in the second half of the year against potential new game launches. We have launched some new games. We have launched our Social Casino slots game and we've launched Merge Magic! but when you look at the overall contribution from our live business that's been better than expected. So that's obviously helped margins and also the phasing of marketing against our launches both the ones who've launched and some other placeholders for additional marketing is definitely less than we originally anticipated at the start of the year. So the combination of those two things obviously helped improve the margins and as you've seen in the past when we're dealing with purely a live service quarter, we've delivered at or even above a 20% flow through. That's EBITDA excluding the impact of the deferred revenue. As you're layering in marketing, so some of that marketing placeholder that we had in the second half of the year. Yes, some of that's going to turn off next year for obvious reasons. And in terms of the number of launches next year, we're not going to give any color around that. But depending on the number of launches and the timing of launches, you could see some ups and downs. But our expectation is still in terms of absolute terms that we will grow the business obviously topline we will and then bottom-line it'll be that the level of growth will depend on the overall level of marketing against new games.

[Frank Gibeau:]

On your question about Merge Magic! the game is actually off to a very good start. It's actually scaling faster than Merge Dragons! did initially. It benefits from a lot of the key learning’s that we developed over time from Merge Dragons! It has some similarities, but it also has some very key differences in terms of the player experience, the design, how the elder game works especially. And so what we're finding is that the games are very complimentary that they appeal to people for different reasons. There is some crossover clearly between the audience base, but it's something that we're very comfortable with and we believe that the two together will perform very well for us over the long-term.

[Operator:]

Thank you. And our next question comes from David Klonowski with JPMorgan. Your line is now open. Pardon me, David, if your line is muted, please unmute.

[David Klonowski:]

Hi, thank you for taking the question. I was hoping you could discuss your outlook for advertising ahead and what opportunity you see for further network optimizations and then just on Game of Thrones slots, how much do you think the brand value of the IP versus driver and making that game a success, right at the start. And as you sort of move further away from the TV Show on HBO, does that create any engagement risk around the game at all? Thanks.

[Gerard Griffin:]

This is Gerard. On advertising as we've said in the past and through the first half of the year we saw really strong growth in advertising around 33%. And we expected to obviously hit some tougher comps for the second half. So we still expect our advertising for the full fiscal to be in the double-digit growth level. In terms of where it will be for next year, I'm going to hold off until end of the year to deal with that. For those of you that heard my advertising before, we've grown advertising over the last three years, but again it's better to wait to see how we end the year and see how we're trending into next year. I would just add – we do spend a lot of time as we've said in the past working with our partners to optimize our yields and we also look very closely with our studio teams to see how we can introduce additional infantry or addressable advertising inventory into our games, but always in a player focus manner. So it is true to say that we will continue to look for ways to grow our advertising. But in terms of what next year’s advertising output will be, I'll give more details on that on the Q4 call.

[Frank Gibeau:]

For the question about Game of Thrones Casino, the product is obviously doing great. Its first full quarter, it’s the fastest growing slots game we've ever produced. A lot of that, yes, does have to do with the license. There's a very strong user base there that is familiar with the Game of Thrones machines that are on the casino floors in the real world. And the idea that they can play those at home is very compelling. But in addition to that we spend a lot of time innovating new social and RPG mechanics that allow players to play together. They can join different houses; compete in a social group jackpot kind of manner and we found that that is a very compelling product feature for our fans. And we haven't seen any dip in the intensity or the time that people are spending in the game as we move further from the television show. So I think this will be one of those evergreen brands for this particular category. And given the stickiness of the design, I think that we'll be able to hold and grow the audience base over the long-term.

[Operator:]

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

[Unidentified Analyst:]

Hi guys. It's Matt on for Brian. Thanks for taking the question. So two if I can. On FarmVille exiting like the technical soft launch which you mentioned in the prepared remarks. Is that faster than expected and then kind of how is the game – how is the game tracking, and then just in terms of that and Puzzle Combat, I apologize if you're explicit here, but are we no longer expecting Puzzle Combat to potentially be in 4Q or is it more likely a 2020 event? And then if you wouldn't mind just an update on what you're seeing in Korea and Japan for Empires? Thanks.

[Frank Gibeau:]

In terms of FarmVille 3, a technical soft launch went according to plan. So we were in it just as long as we were supposed to be in it. The results were very good. The device coverage, the frame rate, the downloads everything was exactly what we wanted to be. We now moved into the stage where we're looking at retention, engagement, monetization player reaction, early results we're very encouraged by. We think we've got something really interesting in terms of what's coming together in FarmVille 3. We will continue to expand more countries as soft launch unfolds. As Gerard noted our guide for Q4 of $415 million in bookings does not include any contributions from FarmVille 3 or Empires or Puzzle Combat. I think what we need to really understand overall here is that we're in a position as a company where we've got tremendous momentum coming from live, Merge Magic! and Game of Thrones slots are up to a very good start. And we're in a position where we can really take our time with making sure that these games have the right long-term engagement, retention metrics so that these are games that can be successful over many years and be forever franchises for us. We don't feel any quarterly pressure to rush the games. It's really one of those things where we're going to put it through a rigorous test market and when we see green indicators and we can go to market like we did on Merge Magic! and like we did on Game of Thrones slots we'll release those titles. And that's one of the reasons why we've configured the company this way and why we emphasize growth in live and how it's contributing overall. The majority of our revenue and profits year-on-year, we like where we're positioned and we think that that configuration will serve as well. In terms of Korea and Japan, we took an approach there. We did not partner with any local companies. We self published the games in the markets. We bought performance marketing initially. We made some changes in the titles, not extensive ones and we started out by releasing the games into the market without a lot of marketing just to see how they settled in, to see what the fan reaction was and we saw very encouraging results in terms of engagement, retention especially in Korea, largely in Android market as you know and it's very encouraging for us to see it pop into the Top 20 on Android, this quickly after introduction. So we like what we're seeing there and as we look at Asia for Empires & Puzzles longer term we'll start to address additional countries. It just went into Japan and its starting to move up the charts. So it's exciting to see a global IP like that. Find audiences in Asia. Traditionally Zynga has not generated very much revenue at all from Asia, so this is a very positive development for us.

[Operator:]

Thank you. Our next question comes from Eric Sheridan with UBS. Your line is now open.

[Eric Sheridan:]

Thanks for taking the question. So guys, just curious maybe a bigger picture question on the marketing side. It sounds like obviously one of the things you're sort of indicating as we get into 2020, we see more game launches, that'll put a pressure on the overall marketing budget of the company. But as the company continues to scale and you have a breadth of offering in a number of different sectors of the industry, are you gaining scale efficiencies of being able to cross promote games across your player ecosystem and/or can you give us a little bit more color what some of the more successful channels have been for you in terms of both launching games and promoting sort of re-engagement with games so we can get a better understanding of what sort of ROI you're getting on a marketing dollar as you continue to scale the company on the back of all the M&A we've done over the last couple of years? Thanks so much.

[Frank Gibeau:]

Eric, in terms of scale, obviously growing the company from close to $1 billion of bookings last year to $1.5 billion gives us more air cover in terms of having a stronger and contributing portfolio forever franchises plus the rest of the games in our portfolio. So from that perspective, there is more scale and obviously with the new teams on board, we're leveraging our existing publishing capabilities, but obviously they brought some interesting insights to the table as well in terms of marketing their games pre-acquisition. As it relates to where we go fishing for players, I think we're a digital business, so we were – we're obviously investing into digital channels. I'm not going to specifically call out any specific channel that's better than anyone else specifically because I'd like my competitors to go figure that out for themselves. But we have a very talented UA Group and they're investing in a lot of different channels and testing a lot of channels to see where we can engage with players. Some of those channels will be obvious games do advertise in other games but we also are looking broader at channels where our target player bases are.

[Gerard Griffin:]

And this is Gerard, I’ll just add one thing which is the Zynga historically has had hundreds of millions of installs across multiple of our brands like the FarmVille days and Zynga Poker or Words With Friends and so we spend a lot of time in data science, product management, and in our marketing platform looking at how do we recapitalize players that have lapsed. Many times those players are more efficient to re-acquire and especially if they come back to a game that has evolved and has a whole bunch of new features than the last time they were there. So we look at what was their experience like the last time they were in the game, why did they leave? And we start to make adjustments to potentially how do we market to bring them back. And so Words With Friends is a great example as we've added more and more features like booze, like the daily challenge, like dual, like lightning round. We're able to go out and remarket to those folks. All these new features that they – in a game that they love, they just for whatever reason moved on we're able to bring them back pretty efficiently. That's one of the real strengths of Zynga‘s publishing platform is looking. Not necessarily at brand new player acquisition, but really looking at recapitalizing lapsed players and getting existing players to play more.

[Frank Gibeau:]

Sorry, the other two points I would make because I think it's important to understand and we've talked about this in the past. When our UA team looks at their overall budget for user acquisition for the year, they are obviously looking at it on a total basis, but they're also looking at it by game and by genre. And given the diversified nature of our portfolio they're always looking for the best returns and where they feel they need to invest money to continue to drive growth, sustainability and individual franchises. So there is a continual rebalancing and reprioritizing of money. So it's not always additive, in other words there's many times where I've had discussions with my studio and UA teams where one studio will say, hey listen we're performing well. It'd be good if we had a few more dollars but when we've looked at the overall prioritization, we've invested that across on some other titles. The other thing I would say is when you think about 2020 and you think about the second half of this year, while we're indicating in terms of the 2020 teams is not that there's a permanent pushdown in margins. What we're saying is that as you launch new games, there is an additive element to that marketing investment. You can redeploy live services, UA marketing, two new games but in general terms there is a pick-up as you start to launch the game. As that game becomes a, what I call a contributor to society in other words it starts generating bookings. Then it becomes an obviously an operating contribution contributor as well. And so you moved through that sort of phase of the life cycle. But you need to get through that life cycle and depending on when those titles arrive and the level of scale you want to invest against them that can impact your margins in any given quarter and potentially over the fiscal.

[Operator:]

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

[Doug Creutz:]

That last answer is a good lead-in to the next question, I'm just curious for the launches you have had this year. Have they been contributors to EBITDA, positive contributors? Or you're not at that point in the lifecycle yet?

[Gerard Griffin:]

Like Game of Thrones Slots is a net non-contributor at the moment from an EBITDA perspective. Obviously it’s contributing bookings. But as you know, with these – with Slots games they scale on a very measured level and they grow over time and we're very happy with the results we're seeing in terms of engagement and monetization, but overtime as we invest against that title we'll see it grow. Merge Magic! just launched. So from that perspective, it's really early stage. Again early indicators are really good in terms of the player engagement, but again as we scaled our business, it won't be a surprise to you that the marketing investment against that title will be higher than the gross margin contribution in its early months.

[Doug Creutz:]

Okay, thank you.

[Operator:]

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

[Ryan Gee:]

Hey guys, thanks for taking my question. Two if I may. So in the letter, you guys mentioned how you expect to continue making progress towards achieving margins in line with your peers on a like-for-like basis. So I would really love to unpack that a little more? Maybe help us the opportunity. So against the 19% EBITDA margin that you probably exit 2019 at, what are the peers that you guys are referring to when you make that statement? Is it companies like NCSOFT and Nexon in the 40% EBITDA margin? Is it companies like EA and Activision in the high 30s operating margins? Just help us think about what you see as a peer that you guys could target? And then what do you mean on a like-for-like basis? And then I have a follow-up.

[Gerard Griffin:]

Yes. We look at our Western peers and our Eastern peers. So it's all of the above. What we mean on a like-for-like basis, one of the vagrancies of our industry is some of our peers report on a net basis. They're showing net bookings, in other words, they take the revenue share with the platforms and they deduct that from the revenue numbers. So their 100 is 70, even though they call it 100, and so that gives their operating margins – they look higher. So if you take a 20% margin and you literally more a pure play, user pay business, the 20% is actually 28%. So when we look at our peers, we have to obviously dissect our numbers, because some of those numbers you quoted are often that basis as opposed to gross. We report of gross. So when we can generate $1 from our players on a user pay basis, you see $1 in our reported bookings, you see a $0.30 in our cost of sales in the 70% gross margin in simple terms. So that's what we mean. So on a net basis, we're trending quite nicely, we're heading towards 30%. On a gross basis, we're trending towards obviously – this year, we're coming close in somewhere around 19%, 20%.

[Ryan Gee:]

Okay. So your basis there is that some of those companies, I mentioned, are reporting on a net basis for the 40% EBITDA margin, it's probably 30% and you guys are tracking towards 30%?

[Gerard Griffin:]

Yes. We have to go literally company by company, but if you look at the way they disclose their rev rec you should be able to figure out. A lot of them have a lot of this information in their GAAP to non-GAAP reconciliations. The other thing I would note and it's just a function of portfolio. When you look at our live business, our live business is generating north of 20% on a gross basis in terms of flow through. But obviously, we're investing in the future and so we're looking to create additional forever franchises that we can scale into our live service business overtime. And as those games are being built there, call centers, so they obviously are a drag. So as we get those games into market, our Casino game or our Merge Magic! game, they became contributors to the overall live service business. So it's a balancing act there, but we're very happy with the scale of our live service business. We're very happy with the portfolio of games we've got in development to launch over the next two, three, four years. But yes, as we launch those games, if you go back in history and you look at somebody like King, when you have one game that gets to the kind of scale that Candy Crush got to, that's how you get to 40% fairly easy. It wasn't easy for them, but they got there, where we have obviously got a portfolio of performing titles. And if we can scale those titles, especially when they're live, that's a meaningful way of getting there. If we can add additional forever franchises into the mix, that's how you get there. And having any title scale over and above where it is right now is a meaningful improvement to our margins.

[Operator:]

Our next question comes from Ray Stochel with Consumer Edge Research. Your line is open.

[Ray Stochel:]

Great, thanks for taking my question. To what extent does Merge Magic! currently have – Merge Dragons! bold beats embedded within the game? And for what's not really in there for Merge Magic! is the roadmap of bold beats going to look pretty similar here? Just trying to get a sense of how confident we can be in this becoming a growth game?

[Frank Gibeau:]

Yes. There's a lot of knowns in both games as it relates to how the Merge Mechanic! actually works, how the cam, the collection, the different puzzles and harnesses works. We operate of what we believe a series of key components that we believe will generate success with players and help us grow the game to a forever franchise some day. But we also are purposefully teasing the games apart and making them differentiated. So in terms of the types of creatures that you can collect, the way things play, the elder games will be different. So we're actually looking to make them very complementary, and they're almost siblings as opposed to a replacement cannibalization strategy. So very early on, we're starting to, as you can see in Merge Dragons! put the Dragon Den and really invest in social features that are tied to that. We're not doing as much of that right now in Merge Magic! and we'll take a different approach to solving for social and collaboration. So I would not necessarily think about them as a one-for-one replacement. It is absolutely living alongside and growing together.

[Ray Stochel:]

Got it. Thanks. And then when you make the decision about your – across your portfolio as to whether or not to ramp content for some of your live games, we know that some games you can sort of get caught in a content ramp cycle where players continue to start more and more content gets harder and harder to deliver and more costly. How do you think you are on that continuum? And broadly speaking, can you add a developer talent to grow content in some of your games? Is there sort of room to do that in your portfolio? Hope that make sense. Thanks.

[Gerard Griffin:]

It does. The first thing we look at is the difference between is an event bold beat or is it a game – a new game feature, an all-new way to play the game. Those tend to operate differently and the consumption of event-driven content is very high. It goes faster usually than you think, and it's something that players get used to. But when you introduce an all-new way to play like what we saw with boost in Words With Friends, you can fundamentally change the way the engagement with the game occurs. So as we look at our bold beat road maps, we differentiate between is this a Pagani event, where we're releasing a new car that people can experience for a period of time or are we adding an all-new way to play like Showdown, which is a new way to play PDP and CSR, which we think has a longer-term impact on engagement retention. So we deploy a lot of product management, data science and studio teams, time and energy against looking at these road maps. And sometimes you are in a place where you can scale up the content that you put in your roadmap by using contracted services or internal teams to ramp more content for events or to double down on a particular feature. So if we see the opportunity, we do it. But in general, we feel like we have the right cadence of bold beats across these games. Now it is entertainment. So not all bold beats are created equal. Some outperform others and sometimes things level out a little bit and you got to come back at it, but – so it's definitely an art form in terms of how you keep a player community engaged with a very long-term. But it's something that we work very hard at Zynga making a competitive advantage, and it is the engine for why we grow.

[Operator:]

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

[Mike Hickey:]

Hey Frank, Gerard, congrats on a quarter guys. Just a couple of quick questions for me. Words With Friends I know that you'd recently made some adjustments to the model there in terms of monetization, sort of enabling MTX, microtransactions, to maybe offset some of the – give yourself a new opportunity outside advertising. Just curious if you still see that as an opportunity and if that can track to something meaningful over time? And then, I guess, just looking at sort of your soft launch, Public Combat, FarmVille 3. I know you've got Star Wars, Harry Potter; you've got CityVille, a bunch of games sort of thinking about launching in 2019/2020. Just sort of curious if you could sort of rank your excitement in terms of potential impact on bookings or the most meaningful impact on bookings top pipeline would be helpful? Thank you.

[Frank Gibeau:]

Sure. On the first question, Mike, the boost economy and the way to play Words With Friends with consumables has – is really taken a hold. It's something that the fans really like. In fact, we're looking at additional boost that we can add to the game. We want to do it in a way that it really doesn't disrupt the traditional Words With Friends dynamic and the way that community likes to play the game, but it's definitely been a net positive and we believe that it still has room to grow. At the same time, we've been innovating and adding new ad products to the game that allows fans to engage with the advertising in a way that extends the experience. And so, I think, there's interesting opportunities to grow Words With Friends in the future because of this new base of boost features and the economy that you see there. In terms of the new product pipeline look I think we've got an extremely product pipeline coming between FarmVille and CityVille, Harry Potter, a couple of Star Wars games in addition to what Gram and Small Giant are working on. I think we never – we love all our children equally. So we never try and pick favorites here. But I think all of them are going to have a profound impact on the company in a positive way over the long-term. And it's really great to be in a position where we don't have to rush the game development. We can really look at what's best for our players, what's the highest quality experience we can configure and design and then bring them out in a way that leads to long-term success as opposed to is driven by some quarterly pressure or not.

[Mike Hickey:]

All right, thanks guys. Best of luck.

[Operator:]

Thank you. Our last question will now come from Mario Lu with Barclays. Your line is now open.

[Mario Lu:]

Hey guys, thanks for squeezing me in. A couple questions on Empires & Puzzles. So you've done really well driving up the ARPU with the introduction of new heroes and costumes. Any color you can provide on how much runway for ARPU growth that you think is left? What ending would you say you're in? And secondly, I understand as a VIP pass in the game that costs $5 for 30 days. But have you thought about or test to implementing a battle pass mechanism as well? Other mobile titles have implemented to great success. So I am just wondering if you think that's an option to drive ARPU further or do you think it's better fitted for titles at the later stage of its mind station cycle? Thanks.

[Frank Gibeau:]

I think as we look at Empires & Puzzles, we think that there is more value to create for players in game, which will lead to the change in that dynamic in terms of the ARPU. We look at the increasing opportunity with PDP, base building, the ability to go deeper in your alliance. So the guys in Helsinki have a tremendously, a vibrant road map ahead of us on Empires & Puzzles. And so we're very excited about putting more content, more features, more ways for the players to engage inside the product. So it's definitely – it just had its best quarter ever. And we said that last quarter and we said that the quarter before. So, we were on a pretty good tear here and we'd like to see it keep going. In terms of battle pass mechanics, it's certainly something that we're definitely analyzing. I don't think battle passes necessarily are tied to a life cycle stage. I think it's absolutely that the price value proposition that the player goes through in terms of how they're thinking about engaging with a product, so you can introduce them very early on, I believe. And in the case of the game from Helsinki and Empires & Puzzles, the VIP pass is something that we're analyzing and looking at the, the folks that use it really like it and when we're looking at ways that that could potentially play a role in the future growth of the game.

[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 any further 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, this concludes today's conference call. Thank you for participating. You may not disconnect.