Zynga : Q2 2019 Earnings Slides

ZYNGA Q2 2019

FINANCIAL RESULTS

July 31, 2019

TABLE OF CONTENTS

• Overview of Q2 2019 Performance
• Q3 and Raised FY 2019 Financial Guidance
• GAAP to Non-GAAP Reconciliations
• Appendix

2

MANAGEMENT TEAM

CHIEF EXECUTIVE OFFICER

Frank Gibeau

CHIEF FINANCIAL OFFICER

Gerard Griffin

3

FORWARD-LOOKINGSTATEMENTS

This presentation contains forward-looking statements, including those statements relating to our outlook for the full year and third quarter of 2019 under the headings "Q3 and Raised FY 2019 Financial Guidance" and "Q3 and Raised FY 2019 Financial Guidance: GAAP to Non-GAAP Reconciliation" and our related estimates and assumptions including, among other things: our operational performance and strategy, including our focus on live services, growth projections relating to our forever franchises, and confidence in our ability to grow our business in 2019 and beyond; our plans to launch new games featuring owned IP and titles based on strategic licenses, enhance existing games with new features and updates, enhance soft-launched games based on player feedback and test results, and further invest in player engagement in new markets; the success of new product and feature launches and other special events, and the investments related to introductions of new games and features; growth projections as a result of new technologies and player preferences; our performance expectations regarding our legacy portfolio of web and older mobile games; and our ability and expectations to achieve financial projections, including revenue, deferred revenue, bookings, income, adjusted EBITDA, operating expenses, operating cash flow, free cash flow and margins.

Forward-looking statements often include words such as "guidance," "outlook," "projected," "intends," "will," "anticipate," "believe," "target," "expect," "positioned," and statements in the future tense are generally forward-looking. The achievement or success of the matters covered by such forward- looking statements involves significant risks, uncertainties, and assumptions. Our actual results could differ materially from those predicted or implied and reported results should not be considered as an indication of our future performance. Undue reliance should not be placed on such forward-looking statements, which are based on information available to us on the date hereof. We assume no obligation to update such statements. More information about factors that could affect our operating results are described in greater detail in our public filings with the Securities and Exchange Commission (the "SEC"), copies of which may be obtained by visiting our Investor Relations web site at http://investor.zynga.com or the SEC's web site at www.sec.gov.

In addition, the preliminary financial results set forth in this letter are estimates based on information currently available to us. While we believe these estimates are meaningful, they could differ from the actual amounts that we ultimately report in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2019. We assume no obligation and do not intend to update these estimates prior to filing our Quarterly Report on Form 10-Q.

4

OVERVIEW OF

Q2 2019 PERFORMANCE

5

Q2 2019 PERFORMANCE OVERVIEW

Q2 HIGHLIGHTS

• Revenue of $306 million, up 41% year-over-year. Bookings of $376 million, up 61% year-over-year.
• Our live services portfolio drove our Q2 topline performance. In particular, Empires & Puzzles and Merge Dragons! both had record revenue and bookings quarters, while Words With Friends achieved its best Q2 mobile revenue and bookings in franchise history. CSR2, Zynga Poker and Hit It Rich! Slots were also strong contributors in the quarter.
• Empires & Puzzles and Merge Dragons! were the primary contributors to our deferred revenue build of $70 million.
• The strength of our portfolio drove our best mobile revenue and bookings performances in Zynga history; mobile revenue of $287 million, up 49% year-over-year, and mobile bookings of $358 million, up 69% year-over-year.
• Record mobile online game - or mobile user pay - revenue of $224 million, up 56% year-over-year, and mobile user pay bookings of $294 million, up 83% year-over-year.
• Highest Q2 mobile advertising quarter with mobile advertising revenue of $64 million, up 28% year-over-year, and mobile advertising bookings of $64 million, up 27% year-over-year.

6

Q2 HIGHLIGHTS

• Launched Game of Thrones Slots Casino on May 30. Through its first two months, the title is off to a great start with strong player engagement and monetization metrics.
• Self-publishedEmpires & Puzzles in South Korea and Japan. Launched Tiny Royale, a team-based battle royale experience and one of the first games on Snapchat's Snap Games platform.
• Our recent acquisitions continue to perform ahead of our initial expectations resulting in an increase in contingent consideration of $24 million in the quarter.
• Issued $690 million of convertible notes, providing net cash proceeds of approximately $600 million.
• Entered an agreement for the sale-leaseback of our San Francisco headquarters building, which closed on July 1, generating net proceeds of approximately $580 million after taxes and fees.
• Generated operating cash flow of $99 million, our best performance since Q4 2011 and up 140% year-over-year.

Q2 2019 FINANCIAL GUIDANCE VS. ACTUALS

(in thousands, except per share data)
GAAP		Guidance (2)		Actuals
	Revenue	$	280,000	$	306,500
(B)	Net increase in deferred revenue (1)	$	(80,000)	$	(69,873)
	Net (loss) income	$	(70,000)	$	(55,830)
	Basic and diluted share count		935,000		937,334
	Basic and diluted net (loss) income per share	$	(0.07)	$	(0.06)
Non-GAAP
	Bookings	$	360,000	$	376,373
(A)	Adjusted EBITDA	$	(18,000)	$	2,885

Management Reporting = (A) - (B)

Footnotes:

1. For clarity, a net release of deferred revenue results in revenue being higher than bookings and is a positive impact to Adjusted EBITDA as reported; a net increase in deferred revenue results in revenue being lower than bookings and is a negative impact to Adjusted EBITDA as reported.
2. Q2'19 guidance as communicated in Q1'19 earnings letter and slides.

7

MOBILE HIGHLIGHTS

MOBILE REVENUE

94% OF TOTAL IN Q2'19

$400		Mobile Revenue	Mobile Revenue % Total Revenue
92%	93%	94%
91%

100% $400

IN MILLIONS

MOBILE BOOKINGS

95% OF TOTAL IN Q2'19

Mobile Bookings

Mobile Bookings % Total Bookings

90% 92% 93% 95%95% 100%

$350	89%
$300
	$287

80%

$350

$300

$341 $358 80%

$250
$200			$228	$246
	$212
	$193
$150

60% $250 $200

40% $150

$212

$230 $248

60%

40%

$100

$50

20%

$100

$50

20%

$0
	Q2'18	Q3'18	Q4'18	Q1'19	Q2'19
Net Release of (Increase in)	($19)	($17)	($20)	($95)	($71)
Deferred Revenue(1)
Mobile Bookings	$212	$230(2)	$248	$341	$358

0% $0

0%

Q2'18

Q3'18

Q4'18

Q1'19

Q2'19

Footnotes:

• (1) Refer to footnote (1) on slide 7
• 1. This measure, as presented, differs due to the impact of rounding

Q2 2019 ONLINE GAME REVENUE AND BOOKINGS BY FRANCHISE

Q2 2019 ONLINE GAME REVENUE

Total Amount: $241 million

Slots

Other18%Poker 27%

12%

Empires &				CSR
Puzzles		Merge		11%
14%		Dragons!
		18%

Q2 2019 ONLINE GAME BOOKINGS

Total Amount: $310 million (1)

Other	Slots
20%	14%	Poker
		9%

CSR 8%

Empires &
Puzzles	Merge
27%	Dragons!
	22%

Note: Franchises representing less than 10% of online game revenue are included in "Other".

Footnote:

1. Online game revenue of $241 million, plus the change in deferred revenue of $70 million, results in online game bookings of $310 million (this measure differs due to the impact of rounding).

9

ADVERTISING: REVENUE AND BOOKINGS

	IN MILLIONS
ADVERTISING REVENUE	ADVERTISING BOOKINGS
21% OF TOTAL IN Q2'19	17% OF TOTAL IN Q2'19

Advertising Revenue

$80		Advertising Revenue % Total Revenue		40%	$80
$70						35%	$70
$60		28%	29%			30%	$60
$50		$72	25%		25%	$50
24%	$65	21%
$40				$65	20%	$40
$52			$66
$30						15%	$30
$20						10%	$20
$10						5%	$10
$0						0%	$0
	Q2'18	Q3'18	Q4'18	Q1'19	Q2'19

	Advertising Bookings
	Advertising Bookings % Total Bookings	40%
					35%
					30%
	26%	27%			25%
23%	$65
$71
	18%	17%	20%
$53
		15%
			$65	$66
					10%
					5%
					0%
Q2'18	Q3'18	Q4'18	Q1'19	Q2'19

Net Release of (Increase in)	($1)	$0	$0	$0	$0
Deferred Revenue(1)
Advertising Bookings	$53	$65	$71(2)	$65	$66

Footnotes:

10 (1) Refer to footnote (1) on slide 7 for additional clarity on this financial measure

(2) This measure, as presented, differs due to the impact of rounding

REVENUE BY GEOGRAPHY

100%

34%

34%

35%

35%

37%

80%

60%	66%	66%	65%	65%	63%
40%

20%

0%

Q2'18	Q3'18	Q4'18	Q1'19	Q2'19
			USA			International

11

NET INCOME (LOSS) AND CASH FLOW

(in millions, except per share data)		Q2'19		Q1'19		Q4'18		Q3'18		Q2'18
Net income (loss)	$	(56)	$	(129)	$	1	$	10	$	(1)
Diluted net income (loss) per share	$	(0.06)	$	(0.14)	$	0.00	$	0.01	$	(0.00)
Operating cash flow	$	99	$	2	$	90	$	41	$	41
Free cash flow (non-GAAP)	$	94	$	(4)	$	86	$	37	$	39
Cash, cash equivalents and investments	$	831	$	252	$	581	$	420	$	392

12

KEY OPERATING METRICS

The company tracks operating metrics using internal systems which rely on internal company data and third party data. We rely on the veracity of data provided by individuals and reported by third parties to estimate our metrics. We believe that the amounts are reasonable estimates of our user base for the applicable period of measurement that the methodologies we employ and update from time-to-time are reasonably based on our efforts to identify trends in player behavior; however, factors relating to user activity and systems and our ability to identify and detect attempts to replicate legitimate player activity may impact these numbers.

Specifically, beginning with the first quarter of 2019, we updated our methodologies and approaches for identifying automated attempts to replicate legitimate player activity. Applying this new methodology, and assuming consistency in the player data profiles across periods, we estimate that the amounts previously reported during 2018 may reduce our average Mobile DAUs and average Mobile MAUs by approximately 5-10%. Our estimation of such invalid traffic can vary from period to period, and we have recorded periodic spikes in such activity (in particular, in December 2018, which resulted in our exclusion of audience data from that month).

Further, consistent with our operational focus on mobile gaming platforms, beginning with the first quarter of 2019, we now report these audience-related metrics based only on mobile platforms. We have ceased including our web-based games in these audience metrics as a result of their decreasing significance as part of our overall financial and operating results and the technical challenges resulting from increased volumes of apparent player activity that we are unable to reliably validate and de-duplicate, as these web-based games are generally more susceptible than mobile platforms in attempts to replicate legitimate player activity.

Mobile DAUs. We define Mobile Daily Active Users (DAUs) as the number of individuals who played one of our mobile games during a particular day. Under this metric, an individual who plays two different mobile games on the same day is counted as two Mobile DAUs. We use information provided by third parties to help us identify individuals who play the same mobile game to reduce this duplication. However, because we do not always have the third party network login data to link an individual who has played under multiple user accounts, a player may be counted as multiple Mobile DAUs. Average Mobile DAUs for a particular period is the average of the Mobile DAUs for each day during that period. We use Mobile DAUs as a measure of audience engagement.

Mobile MAUs. We define Mobile Monthly Active Users (MAUs) as the number of individuals who played one of our mobile games in the 30-day period ending with the measurement date. Under this metric, an individual who plays two different mobile games in the same 30-day period is counted as two Mobile MAUs. We use information provided by third parties to help us identify individuals who play the same mobile game to reduce this duplication. However, because we do not always have the third party network login data to link an individual who has played under multiple user accounts, a player may be counted as multiple Mobile MAUs. Average Mobile MAUs for a particular period is the average of the Mobile MAUs at each month-end during that period. We use Mobile MAUs as a measure of total game audience size.

Mobile ABPU. We define Mobile Average Daily Bookings per Average Mobile DAU (ABPU) as our total mobile bookings in a given period, divided by the number of days in that period, divided by, the average Mobile DAUs during the period. We believe that Mobile ABPU provides useful information to investors and others in understanding and evaluating our results in the same manner as our management and Board of Directors. We use Mobile ABPU as a measure of overall monetization across all of our players through the sale of virtual items and advertising.

13

MOBILE AUDIENCE METRICS

IN MILLIONS

25		Mobile DAU (1)		100		Mobile MAU (1)
			22
20	21	20	21	21	75
	78	78
					76
							72
									70
15
						50
10
5						25

Q2'18

Q3'18

Q4'18

Q1'19

Q2'19

Q2'18

Q3'18

Q4'18

Q1'19

Q2'19

Footnote:

1. We do not have the third party network login data to link an individual who has played under multiple user accounts and accordingly, actual Mobile DAU and Mobile MAU may be lower than reported due to the potential duplication of these individuals. Specifically, Mobile DAUs and Mobile MAUs incrementally include the games acquired from Gram Games in May 2018 and the game acquired from Small Giant Games in January 2019

Additionally, refer to Slide 13 - "Key Operating Metrics" for further discussion on the comparability of the 2018 figures presented.

14

MOBILE MONETIZATION

MOBILE AVERAGE BOOKINGS PER

MOBILE DAU (ABPU)

$0.200 $0.180 $0.160 $0.140 $0.120 $0.100 $0.080 $0.060 $0.040 $0.020 $0.000

$0.122

$0.110

$0.188

$0.170

$0.130

Q2'18

Q3'18

Q4'18

Q1'19

Q2'19

Please refer to Slide 13 - "Key Operating Metrics" for further discussion on the uses, limitations and comparability of the operating metrics presented.

15

Q3 AND RAISED FY 2019

FINANCIAL GUIDANCE

16

Q3 AND RAISED FY 2019 FINANCIAL GUIDANCE

	(in thousands, except per share data)
	GAAP	Q3'19 Guidance			Q3'18 Actual			Variance
	Revenue	$	325,000	$	233,243	$	91,757
	(B) Net increase in deferred revenue (1)	$	(55,000)	$	(15,632)	$	(39,368)
	Net income (2)	$	250,000	$	10,200	$	239,800
	Diluted share count		970,000			887,228			82,772
	Diluted net income per share	$	0.26	$	0.01	$	0.25
	Non-GAAP
	Bookings	$	380,000	$	248,875	$	131,125
	(A) Adjusted EBITDA		7,000	$	38,028	$	(31,028)
	GAAP		Raised FY'19
		Guidance			FY'18 Actual			Variance
	Revenue	$	1,240,000	$	907,208	$	332,792
	Net increase in deferred revenue (1)	$	(260,000)	$	(62,334)	$	(197,666)
	Non-GAAP
	Bookings	$	1,500,000	$	969,542	$	530,458
	Management Reporting = (A) - (B)
	Footnote:
	(1) For clarity, a net release of deferred revenue results in revenue being higher than bookings and is a positive impact to Adjusted EBITDA as reported; a net
17	increase in deferred revenue results in revenue being lower than bookings and is a negative impact to Adjusted EBITDA as reported.
(2) Guided net income for Q3'19 includes a one-time gain related to the sale of our San Francisco headquarters building.

GAAP TO NON-GAAP

RECONCILIATIONS

18

NON-GAAPFINANCIAL MEASURES

We have provided in this presentation certain non-GAAP financial measures to supplement our consolidated financial statements prepared in accordance with U.S. GAAP (our "GAAP financial statements"). Management uses non-GAAP financial measures internally in analyzing our financial results to assess operational performance and liquidity. Our non-GAAP financial measures may be different from non-GAAP financial measures used by other companies.

The presentation of our non-GAAP financial measures is not intended to be considered in isolation or as a substitute for, or superior to, our GAAP financial statements. We believe that both management and investors benefit from referring to our non-GAAP financial measures in assessing our performance and when planning, forecasting and analyzing future periods. We believe our non-GAAP financial measures are useful to investors because they allow for greater transparency with respect to key financial measures we use in making operating decisions and because our investors and analysts use them to help assess the health of our business.

We have provided reconciliations of our non-GAAP financial measures used in this presentation to the most directly comparable GAAP financial measures in the following tables and elsewhere in this presentation.

Because of the following limitations of our non-GAAP financial measures, you should consider the non-GAAP financial measures presented in this presentation with our GAAP financial statements. Key limitations of our non-GAAP financial measures include:

• Bookings does not reflect that we defer and recognize online game revenue and revenue from certain advertising transactions over the estimated average playing period of payers for durable virtual items or as consumed for consumable virtual items;
• Adjusted EBITDA does not include, as applicable, the impact of stock-based compensation expense, acquisition-related transaction expenses, contingent consideration fair value adjustments, legal settlements and related legal expense and/or restructuring expense;
• Adjusted EBITDA does not reflect provisions for or benefits from income taxes and does not include other income (expense) net, which includes foreign exchange gains and losses, and interest income;
• Adjusted EBITDA excludes depreciation and amortization of tangible and intangible assets. Although depreciation and amortization are non-cash charges, the assets being depreciated or amortized may have to be replaced in the future; and
• Free cash flow is derived from net cash provided by operating activities less cash spent on capital expenditures.

19

REVENUE TO BOOKINGS: TOTAL

		3 months ended					6 months ended
(in thousands, unaudited)	6/30/2019	6/30/2018	6/30/2019	6/30/2018
Reconciliation of Revenue to Bookings: Total
Revenue	$	306,500	$	217,045	$	571,903	$	425,277
Change in deferred revenue		69,873		16,884					163,955		28,124
Bookings: Total	$	376,373	$	233,929	$	735,858	$	453,401

20

REVENUE TO BOOKINGS: MOBILE

		3 months ended					6 months ended
(in thousands, unaudited)	6/30/2019	6/30/2018	6/30/2019	6/30/2018
Reconciliation of Revenue to Bookings: Mobile
Revenue	$	287,442	$	192,744	$	533,535	$	375,345
Change in deferred revenue		70,855		18,858					166,160		29,680
Bookings: Mobile	$	358,297	$	211,602	$	699,695	$	405,025

21

REVENUE TO BOOKINGS: ADVERTISING

		3 months ended				6 months ended
(in thousands, unaudited)	6/30/2019	6/30/2018	6/30/2019	6/30/2018
Reconciliation of Revenue to Bookings: Advertising
Revenue	$	65,649	$	52,246	$	130,844	$	97,071
Change in deferred revenue		383		792				117		1,088
Bookings: Advertising	$	66,032	$	53,038	$	130,961	$	98,159

22

REVENUE TO BOOKINGS: BY PLATFORM

				3 months ended						3 months ended
	(in thousands, unaudited)			6/30/2019								6/30/2018
	Reconciliation of Revenue to Bookings: Online Game		Mobile		Other (1)		Total				Mobile		Other (1)		Total
	Revenue	$	223,779	$	16,929	$	240,708		$	143,026	$	21,654	$	164,680
	Change in deferred revenue		70,472		(943)		69,529					18,066		(1,865)		16,201
	Bookings: Online Game	$	294,251	$	15,986	$	310,237		$	161,092	$	19,789	$	180,881
				3 months ended						3 months ended
	(in thousands, unaudited)			6/30/2019								6/30/2018
	Reconciliation of Revenue to Bookings: Advertising & Other		Mobile		Other (1)		Total				Mobile		Other (1)		Total
	Revenue	$	63,663	$	2,129	$	65,792		$	49,718	$	2,647	$	52,365
	Change in deferred revenue			383		(39)		344					792		(109)		683
	Bookings: Advertising & Other	$	64,046	$	2,090	$	66,136		$	50,510	$	2,538	$	53,048

23	Footnote:
(1) Includes web for "Online Game" and web advertising and other revenue for "Advertising and Other"

REVENUE TO BOOKINGS: BY PLATFORM

				6 months ended						6 months ended
	(in thousands, unaudited)			6/30/2019								6/30/2018
	Reconciliation of Revenue to Bookings: Online Game		Mobile		Other (1)		Total				Mobile		Other (1)		Total
	Revenue	$	406,612	$	34,260	$	440,872		$	282,856	$	43,377	$326,233
	Change in deferred revenue		166,043		(2,126)		163,917					28,592		(1,213)		27,379
	Bookings: Online Game	$	572,655	$	32,134	$	604,789		$	311,448	$	42,164	$353,612
				6 months ended						6 months ended
	(in thousands, unaudited)			6/30/2019								6/30/2018
	Reconciliation of Revenue to Bookings: Advertising & Other		Mobile		Other (1)		Total				Mobile		Other (1)		Total
	Revenue	$	126,923	$	4,108	$	131,031		$	92,489	$	6,555	$	99,044
	Change in deferred revenue			117		(79)		38					1,088		(343)		745
	Bookings: Advertising & Other	$	127,040	$	4,029	$	131,069		$	93,577	$	6,212	$	99,789

24	Footnote:
(1) Includes web for "Online Game" and web advertising and other revenue for "Advertising and Other"

NET INCOME (LOSS) TO ADJUSTED EBITDA

		3 months ended				6 months ended
(in thousands, unaudited)	6/30/2019	6/30/2018	6/30/2019	6/30/2018
Reconciliation of Net Income (Loss) to Adjusted EBITDA
Net income (loss)	$	(55,830)	$	(911)	$	(184,658)	$	4,698
Provision for (benefit from) income taxes		(2,805)		2,330				(13,057)		6,189
Other (income) expense, net		(3,877)		(2,614)				(7,252)		(6,020)
Interest income		(889)		(1,800)				(1,332)		(3,610)
Interest expense		2,167		9				3,430		14
Restructuring expense, net		-		400				-		871
Depreciation and amortization		19,669		9,178				40,749		16,909
Acquisition-related transaction expenses		232		1,283				7,588		1,283
Contingent consideration fair value adjustment		23,900		1,500				109,400		1,500
(Gain) loss on legal settlement and related legal expense		(1,037)		-				(10,664)		-
Stock-based compensation expense		21,355		17,369				40,128		31,482
Adjusted EBITDA	$	2,885	$	26,744	$	(15,668)	$	53,316

25

NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES TO FREE CASH FLOW

		3 months ended				6 months ended
(in thousands, unaudited)	6/30/2019	6/30/2018	6/30/2019	6/30/2018
Reconciliation of net cash provided by (used in)
operating activities to free cash flow
Net cash provided by (used in) operating activities	$	98,617	$	41,139	$	100,164	$	37,188
Acquisition of property and equipment		(4,900)		(2,255)				(9,958)		(3,679)
Free cash flow	$	93,717	$	38,884	$	90,206	$	33,509

26

GAAP TO NON-GAAPCOSTS AND EXPENSES

								Adjustments to GAAP to arrive at non-GAAP measures
Three months ended June 30, 2019													(in thousands, unaudited)
																						Gain (loss) from
							Amortization of				Contingent								legal settlements			Stock-based
		GAAP			Restructuring		intangible assets			consideration fair				Acquisition-				and related		compensation			Non-GAAP
		measure			Expense		from acquisitions			value adjustment			related expenses				expense			expense			measure
Cost of revenue	$	126,872	$	-	$	(16,524)		$	-		$	-		$	-	$	(397)	$	109,951
Operating expenses
Research and development		102,094			-			-					(23,900)					-					-			(12,238)			65,956
Sales and marketing		113,529			-			-					-					-					-			(2,920)			110,609
General and administrative		25,239			-			-					-					(232)					1,037			(5,800)			20,244
Total operating expenses		240,862			-			-					(23,900)					(232)					1,037			(20,958)			196,809
Total costs and expenses	$	367,734		$	-		$	(16,524)			$	(23,900)			$	(232)			$	1,037		$	(21,355)		$	306,760
								Adjustments to GAAP to arrive at non-GAAP measures
Three months ended June 30, 2018													(in thousands, unaudited)
																						Gain (loss) from
							Amortization of				Contingent								legal settlements			Stock-based
		GAAP			Restructuring		intangible assets			consideration fair				Acquisition-				and related		compensation			Non-GAAP
		measure			Expense		from acquisitions			value adjustment			related expenses				expense			expense			measure
Cost of revenue	$	74,182	$	-	$	(5,297)		$	-		$	-		$	-	$	(564)	$	68,321
Operating expenses
Research and development		67,391			108			-					(1,500)					-					-			(10,363)			55,636
Sales and marketing		52,878			-			(467)					-					-					-			(2,214)			50,197
General and administrative		25,580			(508)			-					-					(1,283)					-			(4,228)			19,561
Total operating expenses		145,849			(400)			(467)					(1,500)					(1,283)					-			(16,805)			125,394
Total costs and expenses	$	220,031	$	(400)	$	(5,763)		$	(1,500)		$	(1,283)		$	-	$	(17,369)	$	193,716

27

GAAP TO NON-GAAPCOSTS AND EXPENSES

								Adjustments to GAAP to arrive at non-GAAP measures
Six months ended June 30, 2019													(in thousands, unaudited)
																						Gain (loss) from
							Amortization of				Contingent								legal settlements			Stock-based
		GAAP			Restructuring		intangible assets			consideration fair				Acquisition-				and related		compensation			Non-GAAP
		measure			Expense		from acquisitions			value adjustment			related expenses				expense			expense			measure
Cost of revenue	$	248,515	$	-	$	(33,797)		$	-		$	-		$	-	$	(681)	$	214,037
Operating expenses
Research and development		263,974			-			-					(109,400)					-					-			(23,953)			130,621
Sales and marketing		215,540			-			(291)					-					-					-			(5,407)			209,842
General and administrative		46,743			-			-					-					(7,588)					10,664			(10,087)			39,732
Total operating expenses		526,257			-			(291)					(109,400)					(7,588)					10,664			(39,447)			380,195
Total costs and expenses	$	774,772		$	-		$	(34,088)			$	(109,400)			$	(7,588)			$	10,664		$	(40,128)		$	594,232
								Adjustments to GAAP to arrive at non-GAAP measures
Six months ended June 30, 2018													(in thousands, unaudited)
																						Gain (loss) from
							Amortization of				Contingent								legal settlements			Stock-based
		GAAP			Restructuring		intangible assets			consideration fair				Acquisition-				and related		compensation			Non-GAAP
		measure			Expense		from acquisitions			value adjustment			related expenses				expense			expense			measure
Cost of revenue	$	143,224	$	(27)	$	(9,234)		$	-		$	-		$	-	$	(995)	$	132,968
Operating expenses
Research and development		128,216			(78)			-					(1,500)					-					-			(18,988)			107,650
Sales and marketing		103,733			-			(1,001)					-					-					-			(4,050)			98,682
General and administrative		48,833			(766)			-					-					(1,283)					-			(7,449)			39,335
Total operating expenses		280,782			(844)			(1,001)					(1,500)					(1,283)					-			(30,487)			245,667
Total costs and expenses	$	424,006	$	(871)	$	(10,235)		$	(1,500)		$	(1,283)		$	-	$	(31,482)	$	378,634

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Q3 AND RAISED FY 2019 FINANCIAL GUIDANCE: GAAP TO NON-GAAPRECONCILIATION

	(in thousands, except per share data)
	Reconciliation of Revenue to Bookings	Q3'19 Guidance			Q3'18 Actual			Variance
	Revenue	$	325,000		$	233,243		$	91,757
	Change in deferred revenue		55,000			15,632			39,368
	Bookings	$	380,000		$	248,875		$	131,125
	Reconciliation of Net (Loss) Income to Adjusted EBITDA
	Net (loss) income	$	250,000	$	10,200	$	239,800
	(Benefit from) provision for income taxes		5,000			5			4,995
	Other (income) expense, net		-			(4,147)			4,147
	Interest income		(6,000)			(1,421)			(4,579)
	Interest expense		7,000			133			6,867
	Restructuring expense, net		-			124			(124)
	Depreciation and amortization		19,000			12,454			6,546
	Acquisition-related transaction expenses		-			426			(426)
	Contingent consideration fair value adjustment		15,000			1,500			13,500
	Gain on sale of building, net of transfer tax		(305,000)			-			(305,000)
	Stock-based compensation expense		22,000			18,754			3,246
	Adjusted EBITDA	$	7,000	$	38,028	$	(31,028)
	GAAP diluted shares		970,000			887,228			82,772
	Diluted net income per share	$	0.26	$	0.01	$	0.25
		Raised FY'19
	Reconciliation of Revenue to Bookings		Guidance			FY'18 Actual			Variance
	Revenue	$	1,240,000	$	907,208	$	332,792
	Change in deferred revenue		260,000			62,334			197,666
29	Bookings	$	1,500,000	$	969,542	$	530,458

APPENDIX - REVENUE TO

BOOKINGS ILLUSTRATION

30

REVENUE, DEFERRED REVENUE AND BOOKINGS ILLUSTRATION

• The following example illustrates GAAP revenue recognition for online game bookings in a Zynga mobile game:
• • Example: Assume that a player purchases $100 of virtual currency in a Zynga mobile game
  • • The player uses the virtual currency to purchase a durable virtual good
    • For the purpose of this example, the estimated average playing period of payers for this mobile game is 10 months

		GAAP Revenue Recognition
Bookings		$100 Bookings / 10 months = $10 per month
$100
Month 1	Months 2-10

• Bookings recognized in month 1 = $100
• Revenue recognized in month 1 = $10
• Deferred Revenue at end of Month 1 = $90 (to be recognized as revenue in months 2-10)

Revenue ($10) + Deferred Revenue ($90) = Bookings ($100)

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