Zynga 2015 Annual Report Download - page 28

Table of Contents
In addition, our operating margin may experience downward pressure as a result of increasing competition. We expect to continue to expend substantial
financial and other resources on game development, including mobile games, our technology stack, game engines, game technology and tools, the expansion of our
network and international expansion. Our operating costs will increase and our operating margins may decline if we do not effectively manage costs, launch new
products on schedule that monetize successfully and enhance our franchise games so that these games continue to monetize successfully. In addition, weak
economic conditions or other factors could cause our business to further contract, requiring us to implement significant additional cost cutting measures, including
a decrease in research and development, which could harm our long-term prospects.
If our revenues do not increase to offset these additional expenses, if we experience unexpected increases in operating expenses or if we are required to take
additional charges related to impairments or restructurings, we will continue to incur losses and will not become profitable on a sustained basis. If we are unable to
significantly increase our revenues or reduce our expenses, it will continue to negatively affect our operating results and our ability to achieve and sustain
profitability.
Werelyonassumptionsandestimatestocalculatecertainofourkeymetrics,andrealorperceivedinaccuraciesinsuchmetricsmayharmourreputationand
negativelyaffectourbusiness.*
The numbers of our DAUs, MAUs, MUUs, MUPs, and ABPU are calculated using metrics tracked by our internal analytics systems based on tracking
activity of user accounts. The analytics systems and the resulting data have not been independently verified. While these numbers are based on what we believe to
be reasonable calculations for the applicable period of measurement, there are inherent challenges in measuring usage and user engagement across our user base
and factors relating to user activity and systems may impact these numbers. The calculation of these metrics and examples of how user activity and our systems
may impact the calculation of the metrics is described in detail under the heading titled “Management’s Discussion and Analysis of Financial Condition and Results
of Operations—Key Metrics.”
As we transition our business to focus on mobile products, there is more likelihood of having difficulty calculating these metrics. As described under the
heading titled Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Metrics,” we have recently updated our calculation
of these metrics to take into account our business’s transition to mobile and we rely on the veracity of data provided by individuals and reported by third parties to
calculate our metrics and eliminate duplication of data. The recent update to our calculation methodology resulted in a reduction in our as reported DAUs, MAUs,
MUUs, MUPs and ABPU for 2014. These metrics are disclosed under the heading titled Management’s Discussion and Analysis of Financial Condition and
Results of Operations—Key Metrics.”
We are unable to distinguish whether players of legacy NaturalMotion games and games from recently acquired Rising Tide are also players of other Zynga
games. As a result of this we exclude players of these games from our calculation of MUU to avoid potential double counting. This issue has been resolved for
future NaturalMotion releases, so players of new games released by NaturalMotion in 2015 and beyond will be included in our MUU calculations.
Our advertisers and investors rely on our key metrics as a representation of our performance. We regularly review and may adjust our processes for
calculating our internal metrics to improve their accuracy. If we determine that we can no longer calculate any of our key metrics with a sufficient degree of
accuracy, and we cannot find an adequate replacement for the metric, our business or revenue may be harmed. In addition, if advertisers, platform partners or
investors do not perceive our user metrics to be accurate representations of our user base or user engagement, or if we discover material inaccuracies in our user
metrics, our reputation may be harmed and advertisers and platform partners may be less willing to allocate their budgets or resources to our products and services,
which could negatively affect our business and operating results.
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