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CEO Update

by on January 30, 2014

Zynga CEO Don Mattrick sent the following email to employees today regarding Zynga’s Q4 2013 financial results, 2014 outlook, cost reduction plan and intent to acquire NaturalMotion.

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Team,

Today we are making important announcements regarding our Q4 financial performance, outlook for Q1 and 2014 as well as our future growth strategy. We moved up the timing of our earnings call from February 6 in order to coincide with today’s announcement and company updates.

On our earnings call this afternoon, we will discuss the three key areas our teams have been focused on which align with the commitments and principles we have been working towards. First, how we grow and sustain hits that consumers have validated over multiple years. Second, is how we enhance our capabilities to create new hits. Third, is how we do both of the above in a more efficient manner.

Let me start by addressing the toughest of these topics, our need to create a more efficient organization. In the last two quarters, we have redeployed senior leaders against dedicated areas of focus. Taken layers of management overhead out of our reporting structure with a goal of being more focused and more disciplined as it relates to consumers and our ability to differentiate against competitors.  As we looked at our aspirations to run our live services and to create new games we wanted to create strong, dedicated teams that could succeed at the right size in relation to 2014 and beyond.

When we reviewed the support areas and looked at what was an appropriate size to have agile, dedicated teams, we decided to redeploy and right size against our best opportunities for growth. The final part of that effort is today we are implementing a 15% workforce and cost reduction plan which impacts 314 employees. We don’t take these decisions lightly but we believe these actions will allow us to create a clearer, faster path to win.

On a personal note, these are extremely difficult but important actions that are helping us drive improved results and create a new foundation for future growth. We are saying goodbye to good people and I want to thank them for all of their contributions to Zynga. We wish our friends and colleagues well and know that they will all have future successes.

Today we will also be detailing the progress we made in Q4 and how Zynga is planning to grow in the coming year. Looking at Q4, we had a solid finish to the year and generated momentum going into 2014. We delivered bookings of $147 million and Adjusted EBITDA of $3 million. In addition to our solid quarterly performance, we achieved our full-year profitability goal on an adjusted EBITDA basis.

I am proud of the team’s progress in stabilizing our core business over the last two quarters.

In Q4, the Words With Friends franchise generated record bookings, and our Casino franchise accomplished quarter over quarter bookings growth for the first time in the past 18 months. We also delivered new consumer experiences such as Hit It Rich! to tablet, the game is currently #1 on the free iOS Casino charts and we are launching another new mobile slots product Riches of Olympus to consumers in the next two weeks.

The investments we are making to grow and sustain our leading franchises are bearing fruit, and show that with improved quality, sharper focus and better execution we can achieve better results.

We now have a solid foundation for growth and we will continue to refine and enhance our capabilities to create new hits. I am pleased with the rigor our teams have applied in terms of learning valuable customer insights and thinking about how we can differentiate our offerings from competitors. Zynga is getting back to its roots of innovating in social. We are committed to refining our skills in the art and science of creating new hits and are excited about the mobile market opportunity in front of us.

Our goal from a content perspective is to create top hits that engage mainstream global audiences. Our winning aspiration is to be the industry leader by delivering more #1 games than any other competitor. To accelerate these efforts and build on our core growth strategy, I’m pleased to share the announcement that we have signed an agreement to acquire NaturalMotion, a leading mobile game and technology developer based in Oxford.

NaturalMotion expands Zynga’s creative pipeline, accelerates our mobile growth, and brings next-generation technology and tools to Zynga that will fast-track our ability to deliver consumers more hit games. Bringing Zynga and NaturalMotion together is a bold step in the right direction at the right time.

The NaturalMotion team is led by renowned technology innovators, including Chief Executive Officer and Co-Founder Torsten Reil and Vice President of Games Barclay Deeming. Over the last ten years, they have proven their ability to blend their breakthrough technologies like Euphoria, with high-fidelity animation to create delightful mobile hits. Their games CSR Racing in the Racing category and Clumsy Ninja in the People simulation category have both achieved top of the chart status. With NaturalMotion, we will – in total – have five top brands and capabilities in Farm, Casino, Words, Racing and People.

Combining NaturalMotion’s strengths with Zynga’s ability to develop breakthrough social features while sustaining live games over time, offers us a huge opportunity to redefine the gaming industry and deliver consumers blockbuster entertainment experiences.

Clive Downie, Mark Vranesh and I will discuss all of today’s news during our Q4 earnings conference call at 3 p.m. PST (6 p.m. EST). The webcast will be accessible on the Investor Relations page at investor.zynga.com and a replay will be archived after the call.

Tomorrow, please join Clive and me for an All-Hands meeting at 2 p.m. PST in the Café where we will answer any questions you have.

Best,

Don

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