Here Is Why Zynga’s CEO Expects a Strong 2014

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Since Zynga (NASDAQ:ZNGA) released fourth-quarter and full-year results a week early — ahead of the scheduled February 6 date — along with the surprise announcement of better-than-expected annual bookings, a smaller annual loss, the acquisition of Natural Motion, and a further “cost reduction plan” that will see the company’s workforce drop by 15 percent, or 314 employees.

“Over the last 7 months, our teams have been working with a sense of urgency,” CEO Don Mattrick, who began his tenure partway through last year, said in the company’s earnings statement. “We finished 2013 in a strong position and expect 2014 to be a growth year.”

Zynga investors, who bid shares of the company up 68 percent in the past 12 months, reacted to fourth-quarter and full-year earnings with optimism. Earnings were released after markets closed on January 30, and shares have advanced 27.71 percent since then, closing Thursday at $4.47.

Since becoming chief executive of Zynga in July, Mattrick has been staring down a huge problem: Consumers’ waning interest in the company’s online games. Conducting his first conference call with analysts on July 25, following the release of second-quarter results, Mattrick said the company’s financial performance would be volatile for the next two to four quarters, while Zynga returned to “basics.”

As part of a top-to-bottom review of the struggling social game developer, he told analysts he would be “getting under the hood” and look at the company’s entire business — including its new game pipeline — in order to determine where to make changes. “I’m also going to use the next 90 days to assess and reset our product pipeline,” he said during the July conference call.

While investors were pleased with Zynga’s fourth quarter, evidence of the ongoing volatility to which Mattrick referred to was visible. Zynga generated revenue of $147 million in the final three months of the year, surpassing the $141 million expected by analysts but well below the $261 million reported in the fourth quarter of 2012.

Full-year 2013 revenue came in at $873.3 million, a 32 percent decline from the year-ago quarter. Meanwhile, on a non-GAAP basis, the company recorded $716.2 million in annual bookings, a predictor of sales. That represented a decrease from the $1.1 billion Zynga posted in 2012 but also an improvement on the $712 million Wall Street expected.

More indicative of the company’s improving financial position was the fact that Zynga’s annual loss fell to $37 million, or 5 cents per share, from the $209.4 million, or 28 cents per share, loss reported in 2012. ”We took layers out of the reporting structure, we got more focus more discipline,” Mattrick said to CNBC. “We feel like we’ve made a lot of progress to achieve future growth in 2014.”

To further develop the company’s pipeline, Zynga purchased Natural Motion — creator of popular games like CSR Racing and Clumsy Ninja — for $527 million in cash and stock.

The acquisition will not only bring new games to its lineup but also the technology necessary to “accelerate Zynga’s move to mobile and the growth of the company,” Mattrick told CNBC in a recent interview. “Natural Motion has built core content that can build and scale, as well as breakthrough technology and tools that Zynga now owns the exclusive rights to.”

For 2014, the company has a bullish outlook, even though the year will see the difficult transition to mobile. Zynga has predicted improvements in each quarter, with total bookings of $760 million to $810 million, far greater than the $629 million expected by analysts. For the first quarter, the company has forecast revenue to come in between $138 million and $148 million.

Instead of earnings, Zynga announced on Thursday that Riches of Olympus, a social slots game, will be available on Apple’s (NASDAQ:AAPL) iPhone, iPad, and iPod touch.

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