Mobile-gaming pioneer Zynga sees $1 billion opening in consoles
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By Olga Kharif
Frank Gibeau, the video-game veteran and head of Zynga, has come full circle.
At Electronic Arts Inc. a decade ago, the executive helped develop game franchises such as Star Wars and Battlefield for consoles and personal computers. He later ran the company's mobile business, figuring out how to make pocket-sized versions of its most famous titles.
Now, the 52-year-old runs Zynga and has a new-yet-familiar challenge: turning a company synonymous with mobile games into a maker of hits for consoles and PCs. After becoming Zynga's chief executive officer in 2016 -- and leading a turnaround of the once-struggling game studio -- Gibeau sees a chance to add more than a $1 billion a year in revenue by going beyond Zynga's strength in phones and mobile devices.
This so-called cross-platform push -- creating games for computers and consoles such as the Nintendo Switch -- is a major opportunity for a company that brought in $2.3 billion last year. And it offers a chance to prove Zynga can compete with Electronic Arts and other industry giants on their main turf.
"We are fervent believers in it, and we are going all in," Gibeau said in an interview.
When Gibeau joined Zynga five years ago, the company was still living in the shadow of FarmVille -- its most famous hit, and biggest bust.
Zynga had helped pioneer social-media entertainment with the agriculture-themed title in 2009, infiltrating millions of people's Facebook accounts and smartphones with an addictive new approach to gaming. Other products followed, such as Words With Friends and CityVille, but Zynga's appeal began to fade. And by 2016 -- when sales declined for the third time in the past four years -- it was clear that the company needed a makeover.
Gibeau, who has trim graying hair and often sports a sweater, set about transforming Zynga into something quite different. He spent billions on acquisitions, bringing the company a trove of mobile games and a global workforce. The business got an additional lift during pandemic lockdowns, helping send its shares up 61% last year.
The cross-platform push is a key next step. The San Francisco-based company has several dozen employees working on a handful of titles playable not just on mobile devices, but also on PCs or consoles, Gibeau said. Zynga's first such game, Star Wars: Hunters, will debut later this year for both mobile and the Switch.
The expansion is necessary if the company wants to continue growing at its breakneck pace. Zynga has increased its sales by at least 45% in each of the past two years, partly due to acquisitions. But as industry consolidation continues, takeover opportunities are becoming harder to find, said Matt Kanterman, an analyst at Bloomberg Intelligence.
"There isn't enough just-right-size stuff for them to buy anymore," he said.
Industrywide changes are forcing Zynga's hand as well. Apple Inc., for example, is making it harder for companies to track user activity, a potential challenge for advertising sales. Google is moving in the same direction.
That could deal a blow to mobile-gaming companies, which often offer their products for free and count on commercials to help fuel revenue. But already, Zynga is less reliant on ad money than some of its rivals. Less than 16% of its revenue last year came from advertising, according to Bloomberg data.
Gibeau's team recently came up with a new, multipronged approach to increasing sales. In addition to the push into different platforms, the plan includes continuing its international expansion and offering easier-to-play games for casual users. And even with the headwinds in the advertising market, Zynga looks to get more revenue from that source by running its own ad network. Each of these endeavors could bring in an extra $1 billion, Gibeau said.
"We believe we can double the value of the company in the next few years," he said.
Creating games for multiple platforms is probably the biggest single opportunity, said Doug Clinton, managing partner at Loup Ventures, a Minneapolis-based venture capital firm.
Zynga shares have climbed almost 5% this year through the end of last week, putting its market value at $11 billion. International expansion, such as last year's purchase of Turkey's Peak Games, has been a big part of Zynga's growth -- and transformed its workforce.
At the end of the first quarter, the majority of Zynga's nearly 2,400 full-time employees were based overseas. When Gibeau joined Zynga in 2016, the majority were in San Francisco.
To some degree, Zynga is countering an incursion into its own territory. Electronic Arts and Take-Two Interactive Software Inc. have been expanding into mobile games for years. Activision Blizzard Inc. acquired the maker of top app Candy Crush back in 2015.
But the push into PC and console games will be challenging. The products are typically more elaborate in their graphics and game play, and customers have higher expectations. Zynga recently bought studio Echtra Games Inc., whose founder helped create titles such as Diablo and Torchlight, to beef up its expertise there.
"Obviously Zynga is a mobile-first shop, so they need to develop some new muscles to be good at cross platform," Clinton said. "It seems like they've being thoughtful about it, but we should expect it to take time."
In Star Wars: Hunters, players will be able to become bounty hunters or imperial storm troopers and battle each other in settings inspired by iconic Star Wars locales. The game will be free to play, even on the Nintendo platform, but like most mobile offerings, fans will have the opportunity to buy things in the game while they're playing.
The delicate balancing act will involve not putting players using mobile devices at a disadvantage when up against their friends on consoles. It's not unlike Zynga's attempt to balance its thriving mobile business with a desire to expand elsewhere.
"While we'll embrace enhancements in terms of the experience," Gibeau said, "how you compete has to be fair."