Zynga 2012 Annual Report Download - page 29

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• generating legal claims relating to the diminution of value of our virtual goods; and
• increasing customer support costs to respond to dissatisfied players.
To discourage unauthorized purchases and sales of our virtual goods, we state in our terms of service that
the buying or selling of virtual currency and virtual goods from unauthorized third-party sellers may result in
bans from our games and/or legal action. We have banned players as a result of such activities. We have also
filed lawsuits against third parties attempting to “sell” virtual goods from our games, particularly poker chips
from Zynga Poker, outside of our games. We have also employed technological measures to help detect
unauthorized transactions. If we decide to implement further restrictions on players’ ability to transfer virtual
goods, we may lose players, which could harm our financial condition and results of operations.
The proliferation of “cheating” programs and scam offers that seek to exploit our games and players affects
the game-playing experience and may lead players to stop playing our games.
Unrelated third parties have developed, and may continue to develop, “cheating” programs that enable
players to exploit vulnerabilities in our games, play them in an automated way or obtain unfair advantages over
other players who do play fairly. These programs harm the experience of players who play fairly and may disrupt
the virtual economies of our games. In addition, unrelated third parties attempt to scam our players with fake
offers for virtual goods or other game benefits. We devote significant resources to discover and disable these
programs and activities, and if we are unable to do so quickly our operations may be disrupted, our reputation
damaged and players may stop playing our games. This may lead to lost revenue from paying players, increased
cost of developing technological measures to combat these programs and activities, legal claims relating to the
diminution in value of our virtual currency and goods, and increased customer service costs needed to respond to
dissatisfied players.
Our quarterly operating results are volatile and difficult to predict, and our stock price may decline if we fail
to meet the expectations of securities analysts or investors.
Our bookings, revenue, traffic and operating results could vary significantly from quarter-to-quarter and
year-to-year and may fail to match our past performance or the expectations of securities analysts or investors
because of a variety of factors, some of which are outside of our control. Any of these events could cause the
market price of our Class A common stock to fluctuate. Factors that may contribute to the variability of our
operating results include the risk factors listed in these “Risk Factors” and the factors discussed in the section
titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Factors
Affecting Our Performance.”
In particular, we recognize revenue from the sale of our virtual goods in accordance with U.S. GAAP, which is
complex and based on our assumptions and historical data with respect to the sale and use of various types of virtual
goods. In the event that such assumptions are revised based on new data or there are changes in the historical mix of
virtual goods sold due to new game introductions, reduced virtual good sales in existing games or other factors or
there are changes in our estimates of average playing periods, the amount of revenue that we recognize in any
particular period may fluctuate significantly. For further information regarding our revenue recognition policy, see
the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—
Critical Accounting Policies—Revenue Recognition” in this Annual Report on Form 10-K.
Given our short operating history and the rapidly evolving social game industry in which we operate, our
historical operating results may not be useful in predicting our future operating results. In addition, metrics we
have developed or those available from third parties regarding our industry and the performance of our games,
including DAUs, MAUs, MUUs, MUPs and ABPU may not be indicative of our financial performance.
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