Here's Proof That Zynga's Improving


Zynga shares experienced a 14% pop last week after the company reported a better-than-expected third quarter. The numbers were still down pretty much across the board as Zynga pursues rebranding as a mobile gaming company under new CEO Don Mattrick.

But one metric has continued to rise in the past few quarters -- and it shows that Zynga's slowly on the rebound.

Zynga's most important metric
I've written before about how average bookings per daily user, or ABPU, is the metric to watch with Zynga. Bookings are a non-GAAP metric that adds the quarter's revenue to the deferred revenue for the period. In-game purchases of virtual goods and advertising sales are considered deferred revenue.

Shorter version: Bookings essentially boil down to the in-game purchases that grant players extra levels or special features. In-game purchases account for the majority of Zynga's revenues -- and bookings -- since most of the games are free to play. And advertising isn't carrying its weight quite yet, accounting for about 14% of third-quarter revenues.

The "daily user" part of ABPU refers to daily active users, or DAUs. If Zynga's doing things right, then the ABPU should increase as the DAUs increase. But that wasn't what happened for most of last year, which signaled that fewer players in general were willing to spend money in-game.

Source: Company press releases

ABPU has begun its rebound this year, which is vital to Zynga's survival. But it comes as DAUs tank. That's not a good trade-off, but if Zynga can pull off its mobile transition and launch a new series of strong games, the company could face a much brighter future.

Game performance
According to Zynga, the company currently has three of the top 10 games on the Facebook platform: Farmville 2, Words with Friends, and Zynga Poker. The first is a sequel to the game that put Zynga on the map. And Poker has been around since 2007. These titles can help stabilize Zynga during its transition, but the company needs to come out with a new batch of hits. That holds particularly true for mobile titles if Zynga wants to break free of Facebook .

Zynga had a tough time trying to shake its Facebook dependence the last time around, when the gaming company tried to launch its own online platform. Facebook and Zynga shares were closely tied at the beginning, after Facebook's IPO admitted Zynga accounted for 12% of the social networking site's revenues. ,Zynga tried to move away from Facebook to lessen this correlation and to get out of having to hand over a portion of the in-game purchase fees. But the platform never really took off.

Will mobile prove more successful? Zynga has started picking up speed in mobile users. In the third quarter, nearly 47% of the $30 million DAUs were using mobile platforms. But the overall problem remains that Zynga's losing users in general -- and will continue to do so until it has a broader basket of successful titles.

Foolish final thoughts
Zynga still has a ways to go before it's competing head-to-head with King, creator of several wildly popular Facebook games including Candy Crush Saga. The ABPU numbers will show even more promise if the company can get players to come back. Investors who were checking Zynga's cold body for signs of life should now sense a pulse.

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