Zynga Inc.
Q1 2016 Earnings Call Transcript

Published: 5 May 2016

[Operator:]

Good day, ladies and gentlemen, and welcome to Zynga's First Quarter 2016 Results Conference Call. At this time, all participants are in a listen-only mode. As a reminder, today's conference is being recorded. I would like to introduce your host for today's conference Miss Joo Mi Kim, Senior Director of Finance and Investor Relations. Ma'am, please go ahead.

[Joo Mi Kim:]

Thank you, and welcome to Zynga's first quarter earnings call. As you have seen, we published our quarterly earnings letter on our investor website so that we can increase the time you have with Frank Gibeau, our Chief Executive Officer, and Michelle Quejado, our Interim Chief Financial Officer, to answer questions. Shortly we will open it up for live questions, interspersed as appropriate with questions submitted to me in advance. During the course of today's call, we will make forward-looking statements related to, among other things, our business plan, strategy and expectations for future performance, including our guidance for Q2, and our plans for our game slate and launches in 2016. Actual results may differ materially from the results predicted. Factors that could cause or contribute to such differences are detailed in our press release, quarterly earnings letter, and under the caption "Risk Factors" in our Form 10-Q and 10-K and elsewhere in our SEC filings. We will also discuss non-GAAP financial measures. Our quarterly earnings letter, press release and the investor presentation on our website, and when filed, our 10-Q, will include reconciliation of GAAP and non-GAAP financial measures. Be sure to look at these reconciliations, as the non-GAAP measures are not intended to be a substitute for our GAAP results. This conference call is being webcast on the Internet and is available through Zynga's Investor Relations website. An audio replay of this call will also be available on our website in a few hours. Now I'll turn the call over to Frank for his opening remarks.

[Frank D. Gibeau:]

Good afternoon, and thank you for joining us for Zynga's Q1 earnings call. Earlier today we released our quarterly earnings letter, which details our progress and performance over the last quarter. It's been a productive two months leading Zynga as CEO. Across the company I am seeing our momentum and pace improve as our teams continue their commitment to growing our established live franchises, and demonstrating more cost and operating discipline. As a result, we delivered a strong Q1 and a good start to the year. In terms of our Q1 performance, bookings were above the high end of our guidance range at $182 million, and adjusted EBITDA was above our range at $11 million. There were three key factors that drove the outperformance. First, in live game services, our teams executed well, with our core mobile franchises driving our performance in the quarter. Bookings are up 54% from last year and up 5% sequentially. Second, our mobile momentum continued, with mobile bookings now representing 76% of total bookings and mobile audience up 7% sequentially. Apple is now our largest platform partner, surpassing Facebook in terms of online game bookings. Third, disciplined cost control remains a focus for us. This past quarter, gross margins benefited from our migration to AWS, and operating margins were further boosted as operating expenses decreased as a percentage of bookings. Before turning to guidance, I'd like to tell you more about where we want to take the company. My priority is to bring Zynga's unique social gaming vision to life in our games, and lead our teams to deliver high-quality experiences for our players, on time and profitably. In a competitive mobile market with increasing user acquisition costs, our approach is to build games around social features and systems to deliver a high-quality player experience with increased levels of engagement, organic acquisition and long-term retention. In order to deliver on that, we're building a world-class studio and innovative creative culture. In my experience, the best games in the world are made by small, complete teams with great chemistry, who build games in a predictable and profitable way. We'll be aggressive in bringing in additional creative talent and leadership, while maintaining our financial discipline. The biggest surprise to me since joining Zynga has been how much operating leverage we have across the company that we are just starting to unlock. We need to do more to concentrate our best and brightest on our biggest ideas. There is an opportunity to create more rigorous and consistent development practices across our studios. That includes more focused green-light process, increasing cross-team collaboration to cut down on duplication, and rising the bar on ROI for our new product starts and marketing spends. We believe that over the long term, there is no reason why Zynga's margins can't be more in line with its peers. An example of how we've unlocked this operating leverage in our live services is in our Words With Friends franchise. Words With Friends just had its highest Q1 bookings performance in six years, with mobile bookings up 60% year-over-year, driven by our weekly challenge's bold beat. A key component of our Words With Friends live service strength is our advertising business. Overall, advertising and other bookings grew 42% year-over-year, generating $47 million in the quarter. We're confident that going forward we can continue to grow our core live mobile franchises

[Operator:]

Thank you. Our first question comes from the line of Brian Pitz with Jefferies. Your line is open. Please go ahead.

[Brian J. Pitz:]

Thanks for the questions. Frank, maybe you could outline your strategic vision for the company and what may be different or changed under your leadership? Also maybe you could weave into there, any comments – additional comments on NaturalMotion, leveraging some of those other game engines or assets embedded in there? And then finally, any thoughts on monetizing the San Francisco real estate asset? I know, there was some talk in the papers a few months back, but love to get your current take on that. Thanks.

[Frank D. Gibeau:]

Yeah. Thank you for the question. I'd like to start with the vision that we are looking at, and as you look at Zynga as a company and where it was founded around the idea that it's more fun to play games with friends and family and to build games around the notion that you create core loops in systems that create a social experience from the outset, that's a unique vision that I think is as relevant today on mobile as it was when it was originally brought to life in Facebook. So the founding principles of the company are based on social gaming, and bringing that gaming vision to life in our products is really job one and what we are focused on these early stages. What I bring to the table, I think, is over the last two years I was running basically a mobile division at a company, and I'm steeped in what works and doesn't work in mobile. And bringing that insight and some of that experience to bear at Zynga I think can help accelerate the transition to mobile, and then start to grow the company accordingly. When I look at what we have inside the company from an asset standpoint, we've got a collection of proven brands in very popular genres. We've got some talented studio teams and partner teams, an excellent balance sheet. But what we haven't been really doing a great job at is operationally bringing those to life. As I walk around the company, I see more great ideas on the white boards than anywhere else I've been, but my job is to get it off the white boards and into code. And to focus our efforts so that we can get into a place where the company is really delivering on what it says it wants to do, and grow (10

[Brian J. Pitz:]

Great. Thanks for the color.

[Operator:]

Thank you. And our next question comes from the line of Eric Sheridan with UBS. Your line is open. Please go ahead.

[Eric J. Sheridan:]

Great. Thanks for taking the question. I wanted to come back to some of the key titles for later this year, CSR2, Dawn of Titans; Dawn of Titans in particular has been in beta for a quite a while. What have you learned as those properties have made their way through geolock (12

[Frank D. Gibeau:]

When you look at CSR2 and Dawn of Titans, they're operating at the very highest ends of performance in the mobile marketplace. They really are pushing the envelope in terms of 3-D graphics, production values and technology. So they've really carved out a position I believe in the marketplace that stands out, that people really like, and that's reflected in the feedback that we're getting from soft launch. Our fans are giving the games very high ratings. CSR2 in its current 11 test markets is scoring about a 4.8 star level, Dawn of Titans is at a 4.6 level. What's been critical for NaturalMotion in the soft launch periods and what they learned the most has been about driving long-term engagement with our players and understanding retention. Both games have very good levels of, if not great levels, of monetization. The key is keeping the players in the games for long periods of time. What I'm trying to drive at the company is, get to a place where we have sustainable mobile games. Games that don't get into the charts and then fall out, but actually get into the charts and stick. And I think that's the big difference maker between the games that are succeeding in mobile and the games that are failing in mobile, is that they've solved for long-term engagement. So as you look at the time that we have between now and the release around Dawn of Titans this holiday, our focus is really getting the games ready for live ops. And there is a lot of things that Zynga has learned over the years about how to run live ops that NaturalMotion is learning from, and that we're putting into place. And in addition, we're optimizing the player retention curves and looking at how we keep them engaged for as long as possible. It's pretty expensive to acquire customers in mobile, and so you want to have designs and systems that keep them engaged for a very long time so you can hold on to them. Both products will be supported by the company, and what I am excited about with Dawn of Titans in Q4 is the holiday is a terrific time to really leverage a lot of the organic platforms and programs that we can put in place. A lot of new devices are brought to market in that timeframe, too. So I've had pretty good experience bringing games to market in holidays, and so I'm excited to try and leverage that.

[Eric J. Sheridan:]

Thank you.

[Joo Mi Kim:]

Great. We're ready for our next question.

[Operator:]

Your next question comes from the line of Chris Merwin with Barclays. Your line is open. Please go ahead.

[Chris Merwin:]

Great, thank you. So I just had a couple of questions. Frank, you talked about the potential for operating leverage at Zynga and the long-term margin opportunity for the business. So just curious what you see as the biggest areas of savings, and if those savings can be achieved with the workforce at its current size? And then just a second question on the advertising business, where you guys have showed some strong momentum for a while now. The question is really, when you layer in ad, especially reward-based ads, how do you make sure that they're not cannibalizing a potential payer? In other words, if someone gets another life by watching an ad, will they maybe not be inclined to pay in the future? So just kind of curious how you're able to leverage your data asset to manage that? Thanks.

[Frank D. Gibeau:]

Sure. I'll take the second question first, if that's all right. One of the things that was really impressive to me when I came to Zynga was the quality, the aggressiveness and the effectiveness of the ad business here. And the team that runs that is very data-driven. So they're constantly looking at how the ads are running in games, we have a very robust set of rules about who sees ads when. And we monitor that very carefully, as we look at engagement and ratings about the games' quality and engagement and retention curve. So, I'm very confident that the team has a good handle on that and it's a combination of data driven best practices, as well as just frankly always keeping in mind that advertising wants to be something that doesn't get in the way of the player experience, and as understood in the context of the overall game service. In terms of the first question, the operating leverage piece, I think across the board we can get more yield out of what we've got. And so that's kind of job one for me, as I look at the company. If you just take marketing spends, for example, I think that we need to raise expectations around what our ROIs are there. I think we can get more leverage and we can open more channels by being more aggressive about looking at things internationally, looking at what our return on spends are, and increasing the capabilities in our user acquisition teams. On the studio level, it's a great collection of game companies that come into Zynga over the years, but – and I think there is an opportunity to harmonize our tech strategy, our tool strategy; I find that game teams are solving the same problems across the studio multiple times. And what I'd love to see is an innovation or a breakthrough that happens on one team be more easily shared across the whole enterprise so that we benefit from that and we get more leverage. So as we start to put in place more rigorous and consistent development practices, combined with looking at enhancing our UA capabilities, I think we'll get some really good leverage from those areas. Another place that I think we'll get leverage is frankly being more rigorous about what we green-light and start. A company can only have so much talent, and I think there's been a tendency at times in Zynga's history to start too many projects and spread that talent to thinly. And so I think that there is a lot of opportunity for us to concentrate our efforts and our focus around the, frankly the businesses that are really showing growth, have momentum; and get out of businesses that don't have that opportunity or don't have that ultimate go much sooner in development. So, again, you've heard me talk a little bit earlier about the Words With Friends example, but that game team doubling down on bold beat around the weekly challenges had a profound impact on how the live services were going. And that was the business we already had scale in, we already had a large audience; we were able to use that development to reacquire users and bring them back into Words With Friends in a very efficient way and in a very leveraged way. And I see examples of that in our social casino business, and we're starting to do that more in our Ville business. So across the board, I see a lot of leverage opportunities.

[Chris Merwin:]

All right, great. Thank you.

[Operator:]

Thank you. And our next question comes from the line of Colin Sebastian with Robert Baird. Your line is open. Please go ahead.

[Colin A. Sebastian:]

Okay, great. Thanks. A couple of follow-ups to other questions. I guess first off on the operating leverage commentary, Frank, from the letter, and marketing expense. Can you talk about whether – or how much of that is making better use of the overall network of users that you have, and if you're also reallocating spend to better performing channels, what are those? And then on the advertising revenue portion, obviously very good growth there. I wonder if you could identify how much of that is related to Sponsored Play versus the partnership with Rubicon or the legacy ad business? Thank you.

[Frank D. Gibeau:]

So on the question regarding UA efficiencies, I think there are some very innovative new channels that we're looking at, that we're starting to open up. And the team has – I think there's probably 120 channels, when I look at UA, that have the opportunity to get leverage. I'd have to say we're probably only in 25 to 30 of those, and I think so we can expand the number of channels that we're going after aggressively. I think it's also related to upgrading and enhancing the technology that we have around cross-promotion in network. I think we have a very robust and highly engaged network of users, but the way that we get the right message to the right customer at the right time, I think, has a lot of opportunity to be enhanced. We do a pretty good job there, but there's a lot more work that we can do. And I think there's also a role of product development in that respect. If you look at the Match-3 strategy that we have as a company, it's really about looking at what's happening inside of our social casino games or slots games, where when you talk of those players, the next most likely game for them to play is a Match-3 game. And so we want to build on that relationship that we have with that player by being able to – and keep them in the Zynga ecosystem by giving them the opportunity to play a Match-3 game with the same brand, whether it's a Wizard of Oz, or even maybe it's a new brand like Crazy Cake Swap. So it's a combination of adding additional channels to our UA, it's about also doing a little bit more product development in the affinity adjacency areas that I discussed. And then, when we look at advertising, the Rubicon sponsorship stuff hasn't had a significant impact on the overall flow of the business. It's really much more traditional ad products, some direct ad selling and some other things, but the team is showing me a list of new ad products that they're investigating that are looking at them, I'm really impressed with what we can do there.

[Colin A. Sebastian:]

Thank you.

[Operator:]

Thank you. And our next question comes from the line of Mike Hickey with The Benchmark. Your line is open. Please go ahead.

[Michael Hickey:]

Hey, Frank, welcome and congratulations on your first quarter here. Good start. I'm curious, you obviously have a pretty good slate through fiscal 2016, most of which if not all are in beta. You've also provided us some more clarity, I guess, on expectation at least for when these products are actually going to launch. So thinking about Q2, relative – your fiscal year, obviously we don't have fiscal year guidance. But can we expect Q2 bookings and EBITDA, at least relative to your guidance, to be the low point for your fiscal 2016 year? And then second question, I'm not sure if this is in the letter or not, but can you update us sort of your perspective on the M&A opportunities you see moving forward.? Thank you.

[Frank D. Gibeau:]

Sure. I'll take the second question first. With regards to M&A, I'll just come out clearly on this. I'm not interested in big M&A. I think that Zynga is the type of company, and it has a proven track record for buying small companies and small developers that tuck in nicely to the studio culture and infrastructure. That's where I'd like to go in terms of M&A. It's absolutely a great opportunity for us to go out and look for good, great game teams that would fit with our culture and our mission. And we're seeing opportunities like that in the marketplace. As some of these consolidation forces start to hit mobile and some of the smaller companies start to feel some pain, we're seeing a nice inflow of talent and opportunities on that front. But in general, we're going to stay away from the big M&A activities. On the bookings and guidance front, I'm 60 days in and I'm trying to a handle on, frankly, how we think about the company over the next three years, not the next three quarters. And as I look at Q2 and what we're working through there on the legacy mobile games, and also the web business (23

[Michael Hickey:]

All right. Fair enough. Thanks, Frank.

[Operator:]

Thank you. And our next question comes from the line of Dean Prissman with Morgan Stanley. Your line is open. Please go ahead.

[Jonathan P. Lanterman:]

Hi, this is actually Jon Lanterman in for Dean. Just a question on advertising. Obviously a very strong quarter for you guys. It sounds like it's still predominantly driven by Words With Friends. We know you have advertising in some of your other games, so maybe, why has it not worked out so well in these other games? Is this just a function of the installed base at Words With Friends is just so much larger, or is there some kind of tradeoff between different monetization methods, between in-app purchases and advertising? Thanks.

[Frank D. Gibeau:]

It's a function of a couple of things. First off, Words With Friends is just a very large audience to monetize, and it really – the design of the game lends itself to add products. As you look at some of our other games, for one reason or another we have strong performing advertising, and then we don't in others. And so one of the things that I'm looking at right now is our overall ad network and inventory across the enterprise, are the ways that we can enhance and optimize that going forward. So it's something that we're definitely looking at. I don't think we are at a definitive point here, where the inventory won't be able to be increased and the effectiveness of new ad products can come to bear. So our goal is to continue to look at ways to bring the ad model to more of our games, because it's a great way to monetize in a free-to-play world, where relatively low percentages of your players are converting to in-app purchases. There is also a lot of traffic there that are more than willing to look at advertising or be able to have – see an ad, gets a batch of coins or a particular earn out. So we're seeing those kind of earn-out ads as something that's interesting to us longer-term, so that's how we're thinking about it.

[Jonathan P. Lanterman:]

Thank you.

[Operator:]

Thank you. And our next question comes from the line of Arvind Bhatia with CRT Capital. Your line is open. Please go ahead.

[Arvind Bhatia:]

Thank you. Frank, just a couple of questions. First on the discussion that you're going to be focusing on quality versus quantity, can you give us some early sense of how you are thinking about for 2017? And sort of, I guess you're saying that there are going to be fewer titles, but just to help us understand where we're going with that? And then as you think about the long-term margins, and I appreciate the color on that, but can you – when you think about the peers out there, it runs the gamut, and margins obviously can be very high, maybe provide us some more commentary on what's a good level to sort of shoot for, say within the three-year horizon that's you're targeting?

[Frank D. Gibeau:]

Okay. Let me start with the 2017 slate discussion. One of the things that was what we attacked first as we started working together a couple of months ago, as a board member and now as CEO, was I wanted to accelerate the development of our 2017 slate earlier in 2016, so that we had a much more predictable title plan in 2017. And that also meant that we could keep the teams smaller over a longer period of time, which is where I believe you get the best games. So I'm not prepared right now to give you a sense of how many titles that we're going to be able to release in 2017. I can tell you that we've begun a lot of work on our 2017 slate, and one of the key decision points on whether we're ready to commit to a game in 2017 is whether or not the game can demonstrate that it had long-term engagement. And so that when we do put the game out, that it goes into the charts and it sustains. And so that's, as I talked earlier about dev practices and how we're thinking about green-lights for 2017, those are some of the criteria that we're looking at. And I can tell you that we're staring earlier on our 2017 games than ever before, and that's every exciting and the teams are finding that that freedom and time to be able to innovate and focus is well spent. In terms of the margins in the peer set, when I say peer set, I'm thinking King, I'm thinking Activision, I'm thinking EA, I'm thinking Nexon; we're here to get into that conversation. And I've been on a journey where we've experienced those in other parts of my career, and I think it can be done here. It's a combination of really breakthrough creative ideas that manifest themselves in game, it's about making the social competitive advantage come to life in our products, and it's also being a really good steward of the resources and people that we have, and making sure that we're maximizing leverage. It means that we're going to focus on the biggest ideas that we have and go all-in on them, but we're not going to have a million ideas, and keep our partner – our focus much more narrow and much more oriented to creating that operating leverage over the long term.

[Arvind Bhatia:]

Again, one last one Frank, on Dawn of Titans, given the competition in the genre – and you touched on it a little bit from an marketing standpoint – is there – would you like to call out maybe, or maybe quantify some of the marketing resources you will be putting in place ahead of that? I mean in Q3, and then as the game launches in Q4?

[Frank D. Gibeau:]

Yeah. The category that it competes in is action strategy, which is a competitively intense category with some fantastic products from Supercell and Machine Zone and some of the others. The key thing is that Dawn of Titans is very differentiated versus those, it really stands out. It's positioning itself to really have a high-end look and feel, it's almost a console game on your mobile device. And so I feel really good about how it'll stand out in the marketing. And I think it has a unique position that will serve itself well as mobile game players are looking for something new at Christmas, or want to try something; it makes an incredible first impression. And so when I look at the release at holiday, I – we're really focused right now on trying to drive marketing programs that deliver great organic installs and gives us a great momentum out of the chute. And then look at how we use very selective and very surgical paid acquisition over that timeframe. One of the great things about holiday is there's a lot of organic acquisition opportunities, if you get ahead of it and you can start to go after it. But we'll look at the full marketing mix available to mobile games, and our focus right now in this early part of summer is nailing the organic programs, and then starting to get in position for the paid ac for later.

[Arvind Bhatia:]

Great. Thank you, Frank, and good luck.

[Frank D. Gibeau:]

Thank you.

[Operator:]

Thank you. And our next question comes from the line of Heath Terry with Goldman Sachs. Your line is open. Please go ahead.

[Heath Terry:]

Great. Thanks, I really appreciate that. Just wondering if you could give us a sense – I do want to follow up on this marketing question, given the importance of Dawn of Titans later this year. Should we expect a similar television-focused campaign there? You mentioned specifically in your prepared remark the organic opportunities that obviously come from the network that you have. But just sort of curious whether or not there's going to be sort of a similar-sized outside-of network-campaign along the lines of what you've seen for other big launch titles that at this level. And then also on the advertising side, to the extent you've started using third-party partners like Rubicon, is there any sort of early read on what the either effective CPMs or monetization rate that you're able to see through the third parties, relative to what you were doing on your own?

[Frank D. Gibeau:]

Great. So on the first part, when I think about how we're going to bring Dawn of Titans to market, we really want to engineer a hit. And we want to make sure that we give that product its maximum opportunity reach to the biggest audience possible. If that includes TV, then we'll evaluate it, and we'll look at the ROI. I think the larger point I would make in the context to that, is we're going to make commitments to driving, over the long term, much better margin performance for this company on an operating level. And that means that we need to be very clear about how we spend our marketing dollars and that we get the most out of them. I do not want to be in this arms raised of ever increasing marketing spends, because I don't necessarily believe that's the right thing to do for this company. We should spend to the level that we believe we can nail our objectives, and then look at very creative opportunities. But in general sometimes, we're just going to have to say no to some marketing spends. And we're going to have to be clever about, how do we generate that demand in another way, whether it's through network, whether it's through designing the game so that we don't lose the customers as quickly or we don't want have to reacquire them. There's other ways to try and deal with this issue that I've been trying to challenge the company and myself with, because I don't believe increasing marketing over the long term is going to be a smart strategy for us. If television makes sense and we get strong ROIs, no problem, we'll go for it, I've done a lot of television campaigns in my career and we'll use that tactic if it makes sense. But in general, it's always going to be keeping in mind the fact that we need to maintain cost discipline in how we're going to market, in addition to the effectiveness of the campaigns that we're putting together. On the advertising front, it's a little too early to tell on third-party versus direct sales on the internal team. That's something that we can update over time, but I would hesitate to give any updates right now, because I think it's too early to tell.

[Heath Terry:]

Okay. Great. Thank you.

[Operator:]

Thank you. And our next question comes from the line of Ben Schachter with Macquarie. Your line is open. Please go ahead. Benjamin Schachter - Macquarie Capital (USA), Inc. Frank, what is it about mobile gaming that allows so many of the top-grossing titles to stay there for such a long time? And then separately, any chance you'll move beyond mobile and reposition the content onto console, or go back to PC gaming in any other way? And then finally last one is just on ad revenue. As a percentage of revenue, how should we be thinking about that for 2Q 2106 and longer term? Thanks.

[Frank D. Gibeau:]

What I think separating game – look, there's, I think there's something like 400,000 mobile games released a year, and there's probably 100 that matter and 20 that really matter, in terms of their performance. Now you can run very successful businesses in the charts that are below 20, but in general you want to be in that conversation. What separates those games from everybody else is, I believe, long-term retention and having an engaging relationship with the player over their whole player lifecycle, not just day one through 30, but day 365. And having a core compulsion loop of the game that's surrounded by systems that allow you to give the player different things to do over that long period of time across different session lengths. Whether the session is an hour long or two minutes long, the games that are doing well at the top of the charts respect that player's time and give them something really cool to do in those different session lengths. So for me, it starts with long-term engagement. Now of course there's things related to that, but in general, that would be the headline there. In terms of expanding outside of mobile, it's not something I'm giving a lot of thought to right now, honestly. I think we have so much room to grow in the near term in mobile against our existing proven brands and categories that we'll think about it more long term as we start getting our momentum and start putting points on the board, in terms of the company. In terms of ad revenue, and guidance in terms of the second quarter, I think it's – I wouldn't consider it up or down, based on what our Q1 performance is. I think you can think of it in, generally in terms of it's flat, quarter over quarter. It's seasonal, coming off a holiday, obviously holiday is a big boom for us, and then we saw – it's actually, the ad market continued pretty strong into Q1, but seasonally Q2 and Q1 are usually flat.

[Operator:]

Thank you. And our next question comes from the line of Mike Olson with Piper Jaffray. Your line is open. Please go ahead.

[Mike J. Olson:]

Hey, good afternoon. So you described some of the categories that drove upside, but can you say which specific games in the quarter exceeded expectations? Was it primarily Words With Friends, and then some of the Slots games? And then secondly, it looks like you finished up the remaining amount on your $200 million share repurchase authorization in the quarter. Is there any remaining share repurchase authorization currently, or no?

[Frank D. Gibeau:]

The titles in the quarter that really drove performance on the live services level was our social casinos, slots business, Poker, and Words With Friends. In addition to that, Farmville Country Escape had a very nice first quarter. Those were the standout titles there. In terms of looking at the buyback, we completed the buyback that was authorized earlier in the year, and as it relates to go forward, there are no additional buybacks authorized at this time.

[Mike J. Olson:]

Thank you.

[Operator:]

Thank you. And our next question comes from the line of Justin Post with Merrill Lynch. Your line is open. Please go ahead.

[Mike J. Olson:]

Thank you. Craig, I don't know if you could just address this, but you did see mobile users uptick, quarter over quarter, after a few quarters of declines. Maybe talk a little about that? And then how do you feel about monetization of users? Do you still have a lot of room there, or are you doing a good job – is the company doing a good job monetizing the users that you have? Thank you.

[Frank D. Gibeau:]

Yes. We did see an uptick in our mobile users quarter-over-quarter, which was very encouraging. I think that's the function of the focus that Mark brought to the company when he came back earlier in the year, just really start to drive and prioritize our live services performance. And then as we accelerated it over the last few months. The bold beats is how we think about it. A live game that's operating, has a highly engaged large audience, and we need to put more development dollars and talent against creating big title updates and bold beats that reengages, and it drives things like the number of moves per player, session lengths; those are the things where I see a lot more yield opportunities inside the company, where we're treating our live services as important or more important than some of our new releases. Especially in our businesses where we have a lot of scale and momentum, like slots, Words With Friends and poker. So, very encouraging to see that we're now back in the business of trying to grow audience. That's going to be long term; really important thing for me is to make sure that we're making the moves and making the investments to grow our audience over the long term. In terms of monetization POV, I think that there's – when we convert somebody to a payer, we do pretty well relative to the competition, what I know is kind of the best practice, but I do think you can always improve. The key is to make sure that you're really giving the player value, and if they feel like, oh, wait, I just didn't buy something, they feel like they've extended their experience. So it's a bit of art and science, and I think we're pouring (39

[Mike J. Olson:]

Okay. Thank you.

[Operator:]

Thank you. And our last question comes from the line of Richard Greenfield with BTIG. Your line is open. Please go ahead.

[Rich Greenfield:]

Hi, thanks for taking my question. I wanted to come back to trying to get at what kind of the organic part of the business is. Because you've obviously got the sustaining games that obviously you have to invest in, and then all of your growth initiatives. And I haven't seen your new employee count in your Q, but as of the end of last year, you had roughly 1,700 employees, which I think is down over 1,000 over the last two years. And I'm wondering, out of those that 1,700, how many of those people do you actually need to run all of the existing games that are generating revenue, over the – if you look at it right now, how many people of the 1,700 are generating current steady-state revenue that you're generating? And how many are all focused on all of the new game initiatives that the company has, as you think about your 2017 slate and beyond? And how much actual – if you took away those incremental employees, or incremental investment, how much EBITDA or earnings would Zynga actually be generating now if it just focused on what it was already executing on?

[Frank D. Gibeau:]

It's a great question, and it points to some of the things that I've highlighted in, how are we going to get more yield out of what we've got? And it comes down to looking at the deployment of the teams and the talent inside the organization. And frankly, putting them in the places where they can have the most impact and can have a fantastic experience with Zynga. So, that's – I don't disagree with what you're raising, and in fact that I'm thinking about that as we're looking at our deployments and as we're starting to put in place our investment strategy on a go-forward basis. But that, that certainly is something that we look at, because the yield off of the live services at scale is extremely high. They are very good businesses. And what we can't do, though, is take all that goodness, and let it go to the – go to the wins by overdeploying and overcommitting to too many other things that take too long, or don't come to market, or frankly shouldn't have been started in the first place. And so, that's how we think about it.

[Rich Greenfield:]

I mean, is it at a couple of hundred million dollars, at least, of profitability on the EBITDA line?

[Frank D. Gibeau:]

On my first earnings call, I think it would be foolish for me to answer that question. So I will have to answer it over the course of my career at Zynga.

[Joo Mi Kim:]

Great...

[Unknown Speaker:]

Fair enough.

[Joo Mi Kim:]

That was our last question. Thanks everyone for joining us today. We appreciate your interest in Zynga, and we look forward to speaking with you soon.

[Operator:]

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