Zynga 2015 Annual Report Download - page 27

Table of Contents
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 competitors’ advertising efforts change these third parties’ fill rates of available adverting inventory, 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).
Wehaveahistoryofnetlossesandourrevenue,bookingsandoperatingmarginsmaydecline.Wealsomayincursubstantialnetlossesinthefutureandmay
notachieveprofitability.*
The industry in which we operate is highly competitive and rapidly changing, and relies heavily on successful new product launches and compelling content,
products and services. As such, if we fail to deliver such content, products and services, do not execute our strategy successfully or if our new content launches are
delayed, our revenue, bookings and audience numbers may decline, and our operating results will suffer. We have incurred significant losses since inception,
including a net loss of $37 million in 2013, a net loss of $226 million in 2014 and a net loss of $122 million in 2015. As of December 31, 2015, we had an
accumulated deficit of $1.3 billion.
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