Zynga 2012 Annual Report Download - page 22

Our growth prospects may suffer if the With Friends Network is unsuccessful.
We plan to expand our With Friends Network in 2013 to be more accessible to both web players and mobile
players alike to make games more engaging, more social and more profitable. We began this effort with our beta
launch of Zynga.com on the web in 2012. Our ability to increase our player base and revenue will depend, in
part, on the successful operation and growth of the With Friends Network, including its extension to mobile. If
the With Friends Network fails to engage players, interest third-party game developers or attract advertisers, we
may fail to generate sufficient revenue or bookings to justify our investment in the development and operation of
the With Friends Network. We have limited experience launching third-party developed games on the With
Friends Network, or supporting games developed by third parties. We may also encounter technical and
operational challenges operating a network
On November 28, 2012, we amended our agreements with Facebook such that our use of the Facebook
platform and any data from Facebook on any Zynga service offered through a Zynga game page (for example,
the With Friends Network) will be governed by Facebook’s standard terms of service beginning on March 31,
2013. Under the current terms of service, we will be limited in our ability to use a Facebook user’s friends list
and Facebook’s communication channels to promote the With Friends Network. This may limit our ability to
reach Facebook users from the With Friends Network, and may limit the number of players that use the With
Friends Network. In December 2012, Facebook amended its standard terms of service to prohibit (i) apps on the
Facebook canvas from promoting or linking to game sites other than Facebook and (ii) the use of emails obtained
from Facebook to promote or link to desktop web games on platforms other than Facebook. We will be
prohibited from cross-promoting traffic to games that are offered on platforms other than Facebook from our
games on Facebook. We will not be permitted to use e-mail addresses obtained from Facebook to promote
desktop web games that are not on the Facebook platform, subject to certain limited exceptions. If we are not
successful with the overall monetization of the With Friends Network, we may not be able to maintain or grow
our revenue as anticipated and our financial results could be adversely affected.
Our revenue, bookings and operating margins may decline.
From 2010 to 2011, our revenue increased from $0.60 billion to $1.14 billion and from 2011 to 2012, our
revenue increased from $1.14 billion to $1.28 billion, which represent an annual increase of 91% and 12%,
respectively. From 2010 to 2011, our bookings increased from $0.84 billion to $1.16 billion, which represents an
annual increase of 38%, and from 2011 to 2012 our bookings decreased from $1.16 billion to $1.15 billion,
which represents an annual decrease of approximately 1%. We expect that our revenue and bookings will decline
in the first quarter of 2013. In addition, we believe that our operating margin will continue to experience
downward pressure as a result of increasing competition and the need for increased operating expenditures for
many aspects of our business. Further, the increased stock-based expense associated with restricted stock units
(“ZSUs”) issued to our directors, employees and consultants, which we had not recognized prior to our initial
public offering, will also exert downward pressure on our operating margin. We expect to continue to expend
substantial financial and other resources on game development, including mobile games, the expansion of our
With Friends Network, international expansion and our network infrastructure. Our operating costs will increase
if we do not effectively manage costs. In addition, weak economic conditions or other factors could cause our
business to contract, requiring us to implement significant additional cost cutting measures, including a decrease
in research and development, which could harm our long-term growth.
Our growth prospects will suffer if we are unable to continue to develop successful games for mobile platforms
or successfully monetize mobile games we develop or acquire.
Developing games for mobile platforms is an important component of our strategy. We have devoted and
we expect to continue to devote substantial resources to the development of our mobile games, and we cannot
guarantee that we will continue to develop games that appeal to players or advertisers. In addition, we may
encounter difficulty in integrating features on games developed for mobile platforms that a sufficient number of
players will pay for or otherwise sufficiently monetizing mobile games. Generally, our mobile games monetize at
a lower rate than our web-based games and we may not be successful in our efforts to increase our monetization
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