Zynga 2014 Annual Report Download - page 53

Table of Contents
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion of our financial condition and results of operations in conjunction with the consolidated financial
statements and the related notes included elsewhere in this Annual Report on Form 10-K. The following discussion contains forward-looking
statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking
statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Annual Report on
Form 10
-K, particularly in “Special Note Regarding Forward-Looking Statements” and “Risk Factors.”
Overview
We are a leading social game developer with approximately 108 million average MAUs for the three months ended December 31, 2014.
We have launched some of the most successful social games in the industry. Our games are accessible on Facebook and other social networks,
mobile platforms and Zynga.com. Our games are generally available for free, and we generate revenue through the in-
game sale of virtual goods,
mobile game download fees and advertising services.
We are a pioneer and innovator of social games and a leader in making play a core activity on the Internet. Our objective is to become the
worldwide leader in play by connecting the world through games.
Consistent with our free-to-play business model, compared to all players who play our games in any period, only a small portion of our
players are payers. Because the opportunity for social interactions increases as the number of players increases, we believe that maintaining and
growing our overall number of players, including the number of players who may not purchase virtual goods, is important to the success of our
business. As a result, we believe that the number of players who choose to purchase virtual goods will continue to constitute a small portion of
our overall players.
The games that constitute our top games vary over time but historically the top three revenue-generating games in any period contributed
the majority of our revenue. Our top three games accounted for 60%, 54% and 55% of our online game revenue in 2014, 2013 and 2012,
respectively.
During 2014 we continued to align our cost-structure with our key strategic initiatives. We reduced our headcount from 2,034, as of
December 31, 2013, to 1,974, as of December 31, 2014, and we consolidated certain facilities and data centers. We continue to invest in game
development, creating both new games and new features and content in existing games designed to engage our players on mobile devices and on
the web.
On February 11, 2014, we completed the acquisition of 100% of the equity interests of NaturalMotion, NaturalMotion’s shareholders and
vested option holders received an aggregate of $391 million in cash and 39.8 million shares of our Class A common stock. NaturalMotion
possesses industry leading technology and tools and its proven simulation technologies have powered some of the biggest console games and
blockbuster movies. Zynga’s acquisition of NaturalMotion expanded our creative pipeline into two new consumer categories—People
Simulation and Racing—and provided Zynga with cutting-edge technology and tools, including Euphoria, that we believe will help fast track
Zynga’s ability to deliver hit games.
How We Generate Revenue
We operate our games as live services that allow players to play for free. We generate revenue primarily from the in-game sale of virtual
goods, advertising and mobile game download fees. Revenue growth will depend largely on our ability to attract and retain players and more
effectively monetize our player base through the sale of virtual goods and advertising. We intend to do this through the launch of new games,
enhancements to current games and expansion into new markets and distribution platforms.
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