Zynga today published its Q1 earnings results, reporting both record-setting revenues and a larger-than-predicted loss for the first three months of 2020.
The two are actually intertwined, as Zynga says it ended up taking a $104 million loss (GAAP) for the quarter despite bringing in $404 million in revenues and $425 million in bookings because it had to compensate some 2018 acquisitions for ongoing outstanding performance.
“Our acquisitions of Small Giant Games and Gram Games continue to perform ahead of our expectations, resulting in a $120 million contingent consideration expense versus our guidance of $25 million,” reads an excerpt of today’s earnings report. ” This was the primary driver of the difference in our net loss of $104 million versus our guidance of a net loss of $26 million.”
Zynga acquired Small Giant Games (Empires & Puzzles) and Gram Games (Merge Dragons!) in 2018 for roughly $560 million and $250 million, respectively, and each deal included stipulations for Zynga to pay out more money over three years based on undisclosed performance metrics.
Looking ahead, Zynga predicts a loss for the current quarter, forecasting a $60 million loss on the $400 million in revenues it expects to earn.
The company has also revised its expectations for the full year in light of its big loss this quarter, noting that it now expects to lose $245 million on $1.6 billion in revenues during 2020; Zynga chalks up $200 million of that predicted $245 million loss to “contingent consideration expense” for acquisitions that are continuing to perform well, noting that ” should our recent acquisitions continue to perform ahead of expectations, we may see a further increase in the cumulative contingent consideration expense.”
The company also confirmed that all Zynga employees are now working from home in the face of the ongoing coronavirus pandemic, and that business will continue to be conducted remotely for the foreseeable future.