Zynga 2014 Annual Report Download - page 27

Table of Contents
Zynga Poker , outside of our games. We have also employed technological measures to help detect unauthorized transactions and continue to
develop additional methods and processes by which we can identify unauthorized transactions and block such transactions. However, there can
be no assurance that our efforts to prevent or minimize these unauthorized or fraudulent transactions will be successful.
The value of our virtual goods is highly dependent on how we manage the economies in our games. If we fail to manage our game economies
properly, our business may suffer.
Paying players purchase virtual goods in our games because of the perceived value of these goods which is dependent on the relative ease
of securing an equivalent good via non-paid means within the game. The perceived value of these virtual goods can be impacted if one of our
platform providers offers discounted local currency or other incentives to our players, or by various actions that we take in the games including
offering discounts for virtual goods, giving away virtual goods in promotions or providing easier non-paid means to secure these goods. If we
fail to manage our virtual economies properly, players may be less likely to purchase virtual goods and our business may suffer.
If we are able to develop new
games that achieve success, it is possible that these games could divert players of our other games without
growing our overall user base, which could harm operating results.
Although it is important to our future success that we develop new games that become popular with players, it is possible that these games
could cause players to reduce their playing time and purchase of virtual items in our existing games. We plan to cross-
promote our new games in
our other games, which could encourage players of existing games to divert some of their playing time and spend on existing games. If new
games do not grow our player base or generate sufficient new bookings to offset any declines from our other games, our bookings and revenue
could be adversely affected.
We derive a significant portion of our revenues from advertisements and offers that are incorporated into our free-to-play games through
relationships with third parties. If we lose the ability to provide these advertisements and offers for any reason, or if any events occur that
negatively impact the revenues we receive from these sources, it would negatively impact our operating results.
We derive revenues from our free-to-play games though in-app purchases, advertisements and offers. We incorporate advertisements and
offers into our games by implementing third parties’ software development kits and we have direct relationships with third parties regarding
advertising. We rely on these third parties to continue our advertising relationships and/or to provide us with a sufficient inventory of
advertisements and offers to meet the demand of our user base. If direct advertising relationships change or we exhaust the available inventory of
these third parties, it will negatively impact our revenues. If our relationship with any of these third parties terminates for any reason, or if the
commercial terms of our relationships do not continue to be renewed on favorable terms, we would need to locate and implement other third-
party solutions, which could negatively impact our revenues, at least in the short term. Furthermore, the revenues that we derive from
advertisements and offers is subject to seasonality, as companies’ advertising budgets are generally highest during the fourth quarter and decline
significantly in the first quarter of the following year, which negatively impacts our revenues in the first quarter (and conversely significantly
increases our marketing expenses in the fourth quarter).
Any restructuring actions and cost reduction initiatives that we undertake may not deliver the
e xpected results and these actions may
adversely affect our business.
In 2013 and 2014, we implemented certain restructuring actions and cost reduction initiatives to better align our operating expenses with
our revenue, including reducing our headcount, rationalizing our product pipeline, reducing marketing and technology expenditures and
consolidating and closing certain facilities, and we plan to continue to manage costs to better and more efficiently manage our business. We also
recently announced we are closing our studio in Beijing, China. Our restructuring plans and other such efforts could result in disruptions to our
operations and adversely affect our business.
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