As we learned in Part 1 of this series, Zynga (ZNGA) beat analyst expectations on both the revenue and EPS (earnings per share) fronts in 1Q15. Profitability, meanwhile, remains elusive. To cut back on costs, the company announced it would layoff 18% of its workforce. As well, Zynga is focusing on the mobile gaming space to revive its success with Facebook (FB) games FarmVille and Words With Friends.
According to comScore (SCOR), Zynga was ranked second in terms of total time spent on mobile gaming per user in December 2014. The company was ranked seventh in terms of total time spent on mobile.
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On May 6, 2015, another player in the gaming space, Activision Blizzard (ATVI), maker of the Destiny and Call of Duty video games, raised its revenue and EPS guidance for fiscal 2015. The company’s digital revenue growth precipitated the upward revision.
Growth in the digital space has allowed game publishing companies including Electronic Arts (EA) and Activision Blizzard to post record revenues and experience margin expansion. As the above chart shows, EA and ATVI are gaming companies that generate a majority of revenues from the digital space. In 2014, Take-Two Interactive Software (TTWO) also reported triple-digit growth.
In its earnings release, Electronic Arts management claimed that in fiscal year 2015, it was the top publisher on Japan’s (EWJ) Sony (SNE) PlayStation 4 and Microsoft (MSFT) Xbox One consoles. Its popular franchises and releases include Battlefield Hardline, Dragon Age: Inquisition, FIFA 15, NHL15, Madden NFL 15, Battlefield 4, and FIFA 14.
In its fiscal 3Q15 earnings, EA stated that Dragon Age: Inquisition had the most successful launch in BioWare’s history. Its success and that of other games boosted EA’s digital revenues to the extent that the company derived more than 50% of its overall revenues from the digital segment in fiscal 2015.