Zynga 2015 Annual Report Download - page 60

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Table of Contents
to a faster decline in DAUs than the decline in bookings. DAUs decreased from 36 million (37 million as reported) in 2013 to 26 million (27 million as reported) in
2014 and MUPs decreased from 1.8 million (1.8 million as reported) in 2013 to 1.2 million (1.4 million as reported) in 2014.
Online game revenue decreased $222.0 million in 2014 as compared to the same period of the prior year. This decrease is primarily attributable to decreases
in revenue from FarmVille, ChefVille , CastleVille, Zynga Poker , CityVille and FrontierVille in the amounts of $87.7 million, $37.1 million, $36.6 million, $35.5
million, $23.7 million and $13.7 million, respectively. The decreases in online game revenue from these games were due to overall decay rate in bookings and
audience metrics. The decrease in online game revenue was partially offset by an increase in online game revenue of $47.1 million from Hit it Rich! Slots . All
other games accounted for the remaining net decrease of $34.8 million.
International revenue as a percentage of total revenue was 38% and 40% in 2014 and 2013, respectively.
In 2014, FarmVille 2 and Zynga Poker were our top two online game revenue-generating games and comprised 28% and 23%, respectively, of our online
game revenue for the period. No other game generated more than 10% of online game revenue during the year.
Consumable virtual goods accounted for 38% and 29% of online game revenue 2014 and 2013, respectively. Durable virtual goods accounted for 62% and
71% of online game revenue in 2014 and 2013, respectively. The estimated weighted-average life of durable virtual goods was 12 months in 2014 and 2013.
Changes in our estimated average life of durable virtual goods during the twelve months ended December 31, 2014 for various games resulted in a decrease in
revenue, income from operations and net income of $1.2 million, which is the result of adjusting the remaining recognition period of deferred revenue generated in
prior periods at the time of a change in estimate. These changes in estimates did not impact our reported earnings per share for the twelve months ended
December 31, 2014. For 2013, changes in our estimated average life of durable virtual goods resulted in an increase in revenue, income from operations and net
income of $12.3 million. These changes in estimates resulted in a $0.01 increase in our reported earnings per share for the year ended December 31, 2013.
Advertising and other revenue increased $39.1 million from 2013 to 2014, due to a $39.3 million increase in in-game display ads as a result of better
optimization on mobile platforms and a $7.6 million increase in licensing revenue driven by the final licensing payment from a strategic partner, offset by a $5.6
million decrease in in-game sponsorships and a $2.2 million decrease in in-game offers, engagement ads, and other advertising revenue.
Costofrevenue
Year Ended December 31, 2014 to
2015
% Change
2013 to
2014
% Change 2015 2014 2013
(in thousands)
Cost of revenue $ 235,985 $213,570 $248,358 10% (14)%
2015 Compared to 2014. Cost of revenue increased $22.4 million in the twelve months ended December 31, 2015 as compared to the same period of the
prior year. The increase was primarily attributable to a $27.1 million increase in payment processing fees from bookings generated from mobile payment
processors, a $14.4 million increase in hosting costs due to data center migration and a $12.2 million increase in royalty expense for licensed intellectual property,
offset by a $26.4 million decrease in depreciation expense due to the consolidation of data center facilities and the related disposition of certain data center assets in
prior periods, a $3.9 million decrease in headcount-related expense and a $3.6 million decrease in third party customer service expense which is in line with the
discontinuance of certain games. We expect our cost of revenue to increase as a result of payment processing fees from mobile payment processors as players of
our games continue to transition from web to mobile.
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