Zynga Announces First Quarter 2022 Financial Results

Delivers Strong Quarterly Revenue and Bookings

Reports Highest Ever Q1 Advertising Revenue and Bookings

Continued Execution Across Multi-Year Growth Strategy

Zynga Inc. (NASDAQ:ZNGA) today released financial results for the first quarter ended March 31, 2022.

"We started off 2022 with a strong quarterly performance, achieving our highest ever Q1 advertising revenue and bookings led by our hyper-casual portfolio," said Frank Gibeau, CEO of Zynga. "Through continued execution across all aspects of our multi-year growth strategy including live services, new game development and investments in our advertising platform, new markets and technologies, we are strengthening our position as a leading mobile-first, free-to-play live services company."

First Quarter 2022 Financial Summary

• Revenue & Bookings: In Q1, we achieved revenue of $691 million, up 2% year-over-year, and quarterly bookings of $695 million, down 3% year-over-year. Online game or user pay revenue was $538 million, down 3% year-over-year, and user pay bookings were $528 million, down 11% year-over-year. Advertising & other revenue was a Q1 record of $154 million, up 24% year-over-year, and advertising & other bookings reached its highest Q1 performance of $167 million, up 35% year-over-year.
• Audience Metrics: Average mobile daily active users (DAUs) were 40 million, up 3% year-over-year, and average mobile monthly active users (MAUs) were 209 million, up 27% year-over-year. Mobile average bookings per mobile DAU (ABPU) of $0.190 were down 6% year-over-year.
• Costs & Expenses: Cost of revenue was $252 million or 36% of revenue, compared to 38% of revenue in the year-ago quarter. Non-GAAP cost of revenue was $185 million or 27% of bookings, down from 29% of bookings in the year-ago quarter. GAAP operating expenses were $424 million, representing 61% of revenue and an improvement from 62% in the year-ago quarter. Non-GAAP operating expenses of $364 million represented 52% of bookings, versus 49% in the year-ago quarter.
• Profitability & Cash Flow: Net loss was $25 million, compared to a net loss of $23 million in the year-ago quarter, and Adjusted EBITDA was $144 million, up $21 million year-over-year. We had an operating cash outflow of $203 million versus a cash outflow of $164 million in the prior year quarter. In the quarter, we completed the final earn out payments related to the acquisitions of Small Giant Games and Rollic, totaling $265 million.

Due to the pending transaction with Take-Two Interactive Software, Inc. ("Take-Two") announced on January 10, 2022, Zynga is not hosting a conference call or providing forward guidance in connection with the release of its quarterly results.

Additional information regarding the pending transaction with Take-Two is provided in a registration statement on Form S-4 filed by Take-Two with the U.S. Securities and Exchange Commission (the "SEC") in connection with the transaction, which includes a joint proxy statement/prospectus of Zynga and Take-Two, and all other relevant documents filed with the SEC. The registration statement was declared effective on April 7, 2022 and the definitive joint proxy statement/prospectus was sent to Zynga and Take-Two stockholders.

About Zynga Inc.

Zynga is a global leader in interactive entertainment with a mission to connect the world through games. With massive global reach in more than 175 countries and regions, Zynga has a diverse portfolio of popular game franchises that have been downloaded more than four billion times on mobile including CSR Racing™, Empires & Puzzles™, FarmVille™, Golf Rival™, Hair Challenge™, Harry Potter: Puzzles & Spells™, High Heels!™, Merge Dragons!™, Merge Magic!™, Toon Blast™, Toy Blast™, Words With Friends™ and Zynga Poker™. With Chartboost, a leading mobile advertising and monetization platform, Zynga is an industry-leading next-generation platform with the ability to optimize programmatic advertising and yields at scale. Founded in 2007, Zynga is headquartered in California with locations in North America, Europe and Asia. For more information, visit www.zynga.com or follow Zynga on Twitter, Instagram, Facebook or the Zynga blog.

Key Operating Metrics

We manage our business by tracking several operating metrics: "Mobile DAUs," which measure daily active users of our mobile games, "Mobile MAUs," which measure monthly active users of our mobile games, and "Mobile ABPU," which measures our average daily mobile bookings per average Mobile DAU, each of which is recorded and estimated by our internal analytics systems. We determine these operating metrics by using internal company data based on tracking of user account activity. We also use information provided by third parties, including third party network logins provided by platform providers, to help us track whether a player logged in under two or more different user accounts is the same individual. Overall, we believe that the amounts are reasonable estimates of our user base for the applicable period of measurement and that the methodologies we employ and update from time-to-time are reasonably based on our efforts to identify trends in player behavior. However, factors relating to user activity and systems and our ability to identify and detect attempts to replicate legitimate player activity may impact these numbers.

Mobile DAUs. We define Mobile DAUs as the number of individuals who played one of our mobile games during a particular day. Average Mobile DAUs for a particular period is the average of the Mobile DAUs for each day during that period. Under this metric, an individual who plays two different mobile games on the same day is counted as two DAUs. We use information provided by third parties to help us identify individuals who play the same game to reduce this duplication. However, we do not have the third party network login data to link an individual who has played under multiple user accounts for our hyper-casual games (which includes the games acquired from Rollic in October 2020), mobile messenger games (prior to the third quarter of 2021), Puzzle Combat, Merge Magic! and games acquired from Gram Games in May 2018, Small Giant in January 2019, Peak in July 2020 and StarLark in October 2021, and accordingly, actual Mobile DAUs may be lower than reported due to the potential duplication of these individuals. We use Mobile DAUs as a measure of audience engagement.

Mobile MAUs. We define Mobile MAUs as the number of individuals who played one of our mobile games in the 30-day period ending with the measurement date. Average Mobile MAUs for a particular period is the average of the Mobile MAUs at each month-end during that period. Under this metric, an individual who plays two different mobile games in the same 30-day period is counted as two Mobile MAUs. We use information provided by third parties to help us identify individuals who play the same game to reduce this duplication. However, we do not have the third party network login data to link an individual who has played under multiple user accounts for our hyper-casual games (which includes the games acquired from Rollic in October 2020), mobile messenger games (prior to the third quarter of 2021), Puzzle Combat, Merge Magic! and games acquired from Gram Games in May 2018, Small Giant in January 2019, Peak in July 2020 and StarLark in October 2021, and accordingly, actual Mobile MAUs may be lower than reported due to the potential duplication of these individuals. We use Mobile MAUs as a measure of total game audience size.

Mobile ABPU. We define Mobile ABPU as our total mobile bookings in a given period, divided by the number of days in that period, divided by the average Mobile DAUs during the period. We believe that Mobile ABPU provides useful information to investors and others in understanding and evaluating our results in the same manner as management. We use Mobile ABPU as a measure of overall monetization across all of our players through the sale of virtual items and advertising.

Our business model around our social games is designed so that, as more players play our games, social interactions increase and the more valuable our games and our business become. All engaged players of our games help drive our bookings and, consequently, both online game revenue and advertising revenue. Virtual items are purchased by players who are socializing with, competing against or collaborating with other players, most of whom do not buy virtual items. Accordingly, we primarily focus on Mobile DAUs, Mobile MAUs and Mobile ABPU, which we believe collectively best reflect key audience metrics.

Non-GAAP Financial Measures

We have provided in this press release certain non-GAAP financial measures to supplement our consolidated financial statements prepared in accordance with U.S. GAAP (our "GAAP financial statements"). Management uses non-GAAP financial measures internally in analyzing our financial results to assess operational performance and liquidity. Our non-GAAP financial measures may be different from non-GAAP financial measures used by other companies.

The presentation of our non-GAAP financial measures is not intended to be considered in isolation or as a substitute for, or superior to, our GAAP financial statements. We believe that both management and investors benefit from referring to our non-GAAP financial measures in assessing our performance and when planning, forecasting and analyzing future periods. We believe our non-GAAP financial measures are useful to investors because they allow for greater transparency with respect to key financial measures we use in making operating decisions and because our investors and analysts use them to help assess the health of our business.

We have provided reconciliations of our non-GAAP financial measures used in this press release to the most directly comparable GAAP financial measures in the following tables. Because of the following limitations of our non-GAAP financial measures, you should consider the non-GAAP financial measures presented in this press release with our GAAP financial statements.

Key limitations of our non-GAAP financial measures include:

• Bookings does not reflect that we defer and recognize online game revenue and revenue from certain advertising transactions over the estimated average playing period of payers for durable virtual items or as consumed for consumable virtual items; bookings also includes other adjustments, if applicable;
• Adjusted EBITDA does not include the impact of stock-based compensation expense, acquisition-related transaction expenses, contingent consideration adjustments, legal settlements and related legal expense, and expenses incurred from vacated leases (which includes impairment charges recognized);
• Adjusted EBITDA does not reflect provisions for or benefits from income taxes and does not include other income (expense) net, which includes foreign exchange and asset disposition gains and losses, interest expense and interest income;
• Adjusted EBITDA excludes depreciation and amortization of tangible and intangible assets. Although depreciation and amortization are non-cash charges, the assets being depreciated or amortized may have to be replaced in the future;
• Free cash flow is derived from net cash provided by operating activities less cash spent on capital expenditures; and
• Non-GAAP Cost of Revenue and Non-GAAP Operating Expenses do not include the impact of amortization of intangible assets from acquisitions, contingent consideration adjustments, acquisition-related transaction expenses, legal settlements and related legal expense, expenses incurred from vacated leases or stock-based compensation expense.

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