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Zynga turnaround hinges on epic battles being played on phones

Thursday, December 8, 2016 - 21:04

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[LOS ANGELES] Arvan is a Thor-like giant with flowing blond hair, a breast plate and flaming axes in each hand.

[LOS ANGELES] Arvan is a Thor-like giant with flowing blond hair, a breast plate and flaming axes in each hand.

Zynga Inc investors are counting on him and other ferocious characters in Dawn of Titans to reverse years of losses and help the video-game designer regain its growth trajectory.

The goal is to establish a new generation of mobile titles that can take on games designed for Sony Corp's PlayStation and Microsoft Inc's Xbox consoles.

"If Dawn of Titans proves to be a hit, Zynga stock will likely go higher and it will validate their new strategy," said Michael Olson, an analyst with Piper Jaffray Cos in Minneapolis who is neutral on the stock.

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"This is a game that, as they continue to reduce the number of titles, has increasing importance."

More than two years in the making, Dawn of Titans launches Thursday as a free download for Apple Inc and Android-based phones and tablets. Players can command armies of archers, soldiers and superhuman titans in epic battles across a Medieval landscape.

While the game is free, Zynga is hoping players will pay anywhere from 15 US cents to US$10 to speed up construction of their castles or buy a titan. Early versions of the game, already available, suggest they will, according to Torsten Reil, chief executive officer of Zynga's NaturalMotion subsidiary, which designed Dawn of Titans.

"We're seeing very strong monetization, much stronger than anything we've made," Mr Reil said in an interview.

"Stronger than any other Zynga game."

Zynga needs a hit. The San Francisco-based company pioneered the business of social games on Facebook.com with early successes such as FarmVille and Words With Friends.

The company has had less luck with the transition to mobile devices, where a few big games such as Activision Blizzard Inc's Candy Crush have dominated and new ones rise and fall as fast as you can say Kim Kardashian: Hollywood, a title from Glu Mobile Inc.

Frank Gibeau, who took over as CEO of Zynga in March from co-founder Mark Pincus, has been employing a "fewer, bigger, better" strategy to boost results by focusing on a smaller number of higher-quality releases.

It's a strategy used by Mr Gibeau's previous employer, video-game maker Electronic Arts Inc, to increase sales and profit. Zynga lost US$41.7 million in the most recent quarter. Sales fell 6.8 per cent to US$182.4 million.

The company has struggled to deliver, according to Mr Olson. The new version of Empires & Allies, released in May, has suffered declining use. Since its June debut, CSR Racing 2, a drag racing title that's also from NaturalMotion, has from bounced from No 13 to No 57 and back to No 22 in Apple apps game downloads, according to Mr Olson.

The company paid US$527 million in 2014 for NaturalMotion, a British software company. The unit has been using its design tools, previously applied to more intricate console-based games, to make Dawn of Titans, according to Reil. That lets users of newer phones see details such as flowing waterfalls, clouds and shadows behind even the tiniest characters.

"These new devices are so powerful," Mr Reil said.

"You don't have to pay US$60" for a console title.

Zynga has learned from the beta tests to put the popular titans front and center in the game and to make it easier for players to communicate with each other so they can form alliances and defeat common enemies, Mr Reil said.

Dawn of Titans appeals to a different customer than other Zynga titles, such as its poker and slot machine games. While that makes it harder for the company to cross-promote Titans in its other games, it could take sales from rivals, according to Michael Pachter, an analyst with Wedbush Securities in Los Angeles who rates the stock a buy. The game could generate more than US$25 million in revenue per quarter, starting next year, he said, with even better results possible.

Other game makers are also watching Zynga's effort.

"It would certainly be a boon for the company if they can make that game work," said Chris DeWolfe, CEO of Jam City, a social game maker in Culver City, California.

"It feels like they're on somewhat of a comeback."

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