Nov 2, 2016
Executives
Rebecca Lau - Zynga, Inc. Frank D.
Gibeau - Zynga, Inc. Gerard Griffin - Zynga, Inc.
Analysts
Timothy O'Shea - Jefferies LLC Eric J. Sheridan - UBS Securities LLC Michael J.
Olson - Piper Jaffray & Co. Heath Terry - Goldman Sachs & Co.
Dae K. Lee - JPMorgan Securities LLC Christopher David Merwin - Barclays Capital, Inc.
Jonathan P. Lanterman - Morgan Stanley & Co.
LLC Doug Creutz - Cowen and Company, LLC Jason S. Mitchell - Merrill Lynch, Pierce, Fenner & Smith, Inc.
Michael Hickey - The Benchmark Co. LLC
Operator
Good day, ladies and gentlemen, and thank you for your patience. You joined the Zynga's Third Quarter 2016 Results Conference Call.
At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will be given at that time.
As a reminder, this conference may be recorded. I would now like to turn the call over to your host, Rebecca Lau, with Investor Relations.
Ma'am, you may begin.
Rebecca Lau - Zynga, Inc.
Thank you, and welcome to Zynga's third quarter earnings call. As you've seen, we published our press release, earnings letter and earnings slide on our Investor Relations website.
On the call with me today are Frank Gibeau, our Chief Executive Officer; and Ger Griffin, our Chief Financial Officer. Shortly, we will open it up for live questions.
During the course of today's call, we will make forward-looking statements related to our business plan and strategy, as well as expectations for our future performance, including our guidance for Q4, and our plans for our game slate and operations. Actual results may differ materially from the results predicted.
Factors that could cause or contribute to such differences are detailed in our press release, earnings letter, investor presentation and under the caption Risk Factors in our Form 10-Q and 10-K as well as elsewhere in our SEC filings. We will also discuss non-GAAP financial measures.
As we discussed in our call on October 27, beginning with Q3 earnings, we will no longer exclude GAAP revenue deferrals in our calculation of adjusted EBITDA. In addition, we'll provide adjusted EBITDA under the previously reported methodology one last time in order to provide transparency with regard to how we did against Q3 guidance.
Our press release, earnings letter, investor presentation and, when filed, our 10-Q will include reconciliations of our GAAP and non-GAAP financial measures. Please be sure to look at these reconciliations as the non-GAAP measures are not intended to be a substitute for our GAAP results.
This conference call is being webcasted and will be available for audio replay on our Investor Relations website in a few hours. Now, I'll turn the call over to Frank for his opening remarks.
Frank D. Gibeau - Zynga, Inc.
Good afternoon and thank you for joining us for Zynga's Q3 earnings call. Earlier today, we released our quarterly earnings letter which details our progress and performance over the last quarter.
Our teams executed well in Q3 and we're gaining momentum in our turnaround. We beat our guidance on bookings and adjusted EBITDA for the third consecutive quarter and our mobile audience grew by 7%.
We saw improved execution in three key areas: first, delivering new high-quality mobile games; second, growing our existing live mobile franchises; and third, unlocking more operating leverage. In terms of our new products, we are proud of the NaturalMotion studio for delivering a high-quality game to racing fans with CSR2.
The game has had a strong start achieving the number eight top grossing game in the iOS App Store during its launch period. CSR2 has received more than 1 million five-star reviews to date and is currently the number one grossing racing game in over 50 countries.
Our focus now is to drive growth in live operations through new content, features and live events to increase long-term retention and improved repeat payer monetization. As we enter Q4, we are excited to launch Dawn of Titans this holiday season.
This title will complete our committed 10-game slate for 2016. NaturalMotion is known for pushing the creative and technical boundaries of what's possible on mobile devices.
We continue to iterate the game as we conclude soft launch testing prior to the worldwide launch. Turning to our live operations, we are pleased to see the focus in our existing live mobile franchises pay off.
Words With Friends grew mobile bookings 33% year-over-year. Social Slots grew 26% year-over-year, and Zynga Poker was up 16%.
A key factor in delivering this performance has been our commitment to driving organic growth through social innovation in these live franchises. Last month, we became one of the first gaming companies to launch on Apple's iMessage App Store with Words With Friends.
While it is early days, we created a dynamic new channel for Zynga to acquire and engage players. As a team, we are focused on sharpening our operating model and driving profitability.
We've upgraded our user acquisition teams and raised the bar on our paid acquisition ROI as we shifted towards a higher quality booking strategy. This has already started to pay dividends with an improved margin performance in Q3 despite an increase in marketing spend against our new releases.
Finally, I'm excited to welcome Ger Griffin as our Chief Financial Officer of Zynga. Ger is going to drive an increased focus on profitability and unlock more operating leverage across the company.
He will also be spending time with our shareholder and analyst community. With that, I'd like to turn the call over to Ger.
Gerard Griffin - Zynga, Inc.
Thanks, Frank. Firstly, I want to take a moment to express my enthusiasm for Zynga.
Zynga has an incredible opportunity in front of it. Our social gaming vision plays very well in an increasingly mobile world.
We have talented developers and a strong portfolio of brands. We have a robust balance sheet and we have the management team in place to unlock this potential.
We are also a company in turnaround, and today we are showing progress in a number of key areas, delivering new high quality mobile games, growing our existing live services, and unlocking operating leverage and improving the company's profitability. Before I get into the results, I want to remind you that we hosted a call last week to outline changes to external non-GAAP reporting in response to the SEC status updated interpretation on non-GAAP performance measures.
I encourage you to review these materials if you haven't done so already. Now to our results.
Our Q3 GAAP revenues were above our expected range at $182.4 million. Our GAAP net loss was $41.7 million, below the low-end of our guidance.
The higher than expected net loss was due to the net write-off of acquisition-related intangible assets. The change in deferred revenue was $14.3 million, above the expected level of $10 million.
Our bookings were at the high-end of our guidance range at $196.7 million, up 12% year-on-year and 13% sequentially. Our adjusted EBITDA under the new methodology, which includes the change in deferred revenue, was $3.6 million.
Our adjusted EBITDA as previously defined, which excludes the change in deferred revenue, was $17.9 million, above the high-end of our guidance, up 44% year-on-year and 54% sequentially. As noted earlier, our bookings and adjusted EBITDA beat was driven by stronger than expected performance from CSR2 and our advertising bookings.
Finally, we generated operating cash flow of $21 million in Q3 and ended the quarter with $871 million in cash, cash equivalents, and marketable securities, up $2.4 million from the prior quarter. Turning to our guidance.
Our outlook for Q4 is as follows. GAAP revenue in the range of $180 million to $190 million, GAAP net loss in the range of $27 million to $25 million, GAAP earnings per share loss of $0.03 on 889 million shares, the net increase in deferred revenue $5 million, bookings in the range of $185 million to $195 million, adjusted EBITDA, new methodology, between $12 million and $14 million.
There are several key puts and takes to think about when looking at our Q4 guidance relative to our Q3 performance. Our bookings will benefit sequentially from a full quarter of FarmVille: Tropic Escape and we expect Dawn of Titans to be a positive contributor to Q4 but to have minimal impact due to its holiday release.
We also believe our advertising bookings will grow sequentially but expect to be slightly down year-on-year. This sequential growth is driven by seasonal strength in our mobile advertising, in particular Words With Friends.
On a year-over-year basis, growth in mobile advertising will be more than offset by declines in our web advertising. In the near-term, we expect bookings from CSR2 to be lower than launch-highs as the team strengthened the content pipeline and player engagement.
We also expect continued bookings and audience declines in our web and older games. We expect our non-GAAP operating expenses to be down from the $126.5 million we reported in Q3 driven by lower marketing spend and the continued focus on operational efficiency.
As previously stated, our long-term objective is to deliver operating margins that are more in line with our peers. As we look for opportunities to create shareholder value, we continue to assess our capital allocation strategy.
As an initial step, we are today announcing a two-year $200 million share repurchase program. The program will give us the flexibility to execute share repurchases in a measured fashion, taking into consideration equity dilution, market conditions, share price and other factors.
In closing, we're very pleased with the very strong Q3 performance and look forward to maintaining this momentum into Q4. With that, I'd like to turn it back to the operator to get started with questions.
Operator
Thank you, sir. Our first question comes from the line of Brian Fitzgerald of Jefferies.
Your question please.
Timothy O'Shea - Jefferies LLC
Yes, hi, it's Tim O'Shea on for Brian. Thank you for taking my question.
So, advertising continues to look like a bright spot for you, and by our math, you're earning around $2.68 per daily active user in ad revenue and that compares to around $7.46 in online game revenue per daily user and that gap has been narrowing over time. So, my question is how do you think about that ad business over time and is there a point where advertising could approach or even overtake online game revenue in the future?
Thanks.
Frank D. Gibeau - Zynga, Inc.
Thanks for your question, Tim. We're very comfortable with the current 75% in-app purchase, 25% advertising mix.
We think that that's the right mix for our business overall. We have a lot of brands that are in live ops right now that we think can benefit from more premium services and more premium content.
We like the 75/25 split in advertising. But over time, if IEP goes the way we think it will, it's possible that the percentage of the business against advertising with the client, as we see more growth there.
I think when you look at advertising overall, we're expected to grow, but maybe at a slower rate year-over-year, as we manage through the web declines in audience.
Timothy O'Shea - Jefferies LLC
Great. Thank you.
Operator
Thank you. Our next question comes from Eric Sheridan of UBS.
Your line is open.
Eric J. Sheridan - UBS Securities LLC
Thanks for taking the questions. Maybe focusing on the mobile part of the business, as we move through this year, the percentage of the business that's coming from mobile continues to surprise for the upside, good growth on the mobile side.
How should we think about where mobile on both the engagement side and the revenue side can go, as we move out of 2016 and into 2017? And what that means for the economics broadly of the platform, as you move out of this year and into next year?
Thanks, guys.
Frank D. Gibeau - Zynga, Inc.
I can't really give you too much color on the forward look other than what we've said on guidance. But in general, if you look at our performance over the last couple quarters, yeah, the mobile performance has been strong in terms of audience, in terms of engagement, as we get more predictable in our release cadence, that's also proving to be very beneficial to how our mobile business comes together.
MUU and MUP are both headed in the right direction. Player conversions heading in the right direction.
We like how CSR has started and how it reached its audience. We'd still honestly like to see better performance in long-term engagement across our portfolio.
And we are really looking at how we're building our studio to get into position to be able to deliver better performance over a long-term engagement standpoint, elder game features, we really like the early results on player versus player and how we see the cooperation and competition components of games coming together. So overall, we think that we have room to grow in mobile.
The challenge is we still are working through some legacy mobile games like Looney Tunes products, like Empires & Allies, as we transition to more of the new wave of products that we're looking at. There is some puts and takes in terms of how you think about it moving forward.
So there could be a little bit of fluctuation as you think about the overall business. But in general, the changes that we're making to our studios to improve quality, to drive long-term engagement, to increase predictability should all be very beneficial.
Eric J. Sheridan - UBS Securities LLC
Thank you.
Operator
Thank you. Our next question comes from Mike Olson of Piper Jaffray.
Your question, please.
Michael J. Olson - Piper Jaffray & Co.
Hey, good afternoon. Wondering for Dawn of Titans, can you talk about your plans for marketing the title and getting players engaged when the game is launched?
Is your strategy there going to be any different from what you've done with prior titles? Thanks.
Frank D. Gibeau - Zynga, Inc.
Thanks, Mike. The Dawn of Titans launch is shaping to be a pretty interesting one.
We have a game that is really pushing the envelope technically and creatively on the device. We think it's going have a lot of talk factor in terms of show off, when you look at the game on a phone or on a tablet, it just is – there's nothing else out there that looks like it.
So I think that that will drive a lot of organic interest in the game. In addition to that, we believe that it's got a lot of anticipation with our channel partners and others, so we are hopeful that we are going to get good placement with the game at holiday.
We did try some new things on CSR2 in terms of trying out some of the new user acquisition teams that we put in place, so we will balance that initial launch organic positioning with some early sharp paid acquisition behind it. And so we think that we have a really good window we like, but the fact that there's going to be a lot of new devices opened up on Christmas and that we're going to have a game that is going to show off the capabilities of those devices in amazing new ways, so we are very excited about the reception.
In the weeks that we have left before launch, we are continuing to polish and optimize the game against the user feedback that we've been getting. We've opened up a few new soft launch markets to increase our coverage and get a sense of how some of the changes to user interface, long-term engagement, PDP is going and we are very encouraged by it.
Michael J. Olson - Piper Jaffray & Co.
Great, thank you.
Operator
Thank you. Our next question comes from Heath Terry of Goldman Sachs.
Your line is open.
Heath Terry - Goldman Sachs & Co.
Great, thanks. Understand there is a difference in the target audience, but any early learnings from CSR2's last engagement after the launch window that's going to inform your launch strategy for Dawn of Titans and then with the major update that you had to Dawn of Titans in the beta back in July, curious how that impacted monetization?
Frank D. Gibeau - Zynga, Inc.
Sure, quick question on the CSR, Dawn of Titans part, I think there we learned from every new launch and Dawn of Titans and CSR, while they are not exactly in the same genre, they are midcore games and they come from the same developers. So, we are constantly refining our models and our expectations for how Dawn of Titans release versus what we learned on CSR2.
Having said that, action strategy games typically have a different curve shape in terms of how they come out relative to racing games. So, it's too early to really be definitive about it, but we expect that Dawn of Titans will probably have a different shape to the curve in terms of how it comes out relative to CSR2.
But as we look at conversion and how people move through the two of these, we are constantly using that learning to optimize Dawn of Titans. With regards to the July update on Dawn of Titans, we did see positive impacts on monetization as well as an engagement, but we also have made changes since then as well that continues to refine our view and our KPIs on some of those key metrics.
And it's a very dense game, it's got a lot of content, it's got a lot of features, it's technically advanced. So we are constantly learning from the game and we still have one or two more updates to go before release.
Heath Terry - Goldman Sachs & Co.
Great. Thanks, guys.
Operator
Thank you. Our next question comes from Douglas Anmuth of JPMorgan.
Your question, please.
Dae K. Lee - JPMorgan Securities LLC
Hi. This is Dae Lee in for Doug Anmuth.
Thank you for taking my question. The first one on AVP and player conversion, in 3Q I saw a nice jump there, and I assume CSR2 was a big driver for that, but could you give us some color on recent trends in those two metrics and your expectation going forward as you invest in CSR2 and Dawn of Titans?
And I have a follow-up.
Frank D. Gibeau - Zynga, Inc.
Sure. You are right.
The jump in player conversion was driven by the CSR2 launch. It's a game that does a very good job creating value for players that they want to engage with, so we are pleased with that.
We have seen that the player conversion has been steady with that game. What we're concentrating on right now is giving players more content, more events, more ways to compete on a PDP level for the game.
So we are just getting started with CSR2. We would like to be in this business for years and we have a long-term orientation on how we are going to conduct live ops there.
In terms of player conversion on Dawn of Titans, we see a range of percentages there depending on the soft launch territory we are in and on which build that we are on. So there's not a lot of color I can add to that particular part, other than it's something that we are constantly looking at.
Dae K. Lee - JPMorgan Securities LLC
Great. And then as a follow-up, could you tell us when during the holiday season we could expect to see Dawn of Titans?
Will it be closer to the end of the quarter or maybe closer to the mid? And then I mean, on the title itself, I like the quality of the CSR2 but also recognize that quality comes with a bigger app size and I understand that game style between Dawn of Titans and CSR2 is different, but could you give us some color on your expectation for audience overlap between the two titles?
And if there are any potential for cannibalization given that there's limited storage on mobile devices?
Frank D. Gibeau - Zynga, Inc.
We don't foresee a great deal of cannibalization between the two titles. For high-end games on devices that are kind of console-level graphics on a phone, we think that there's networking cross-promotion opportunities, but we don't see them as cannibalistic.
In terms of your question about when it's specifically going to drop, I'm not going to give you a specific date. For competitive reasons we don't want to reveal too much there.
It is a very competitively intense category. However, we will say that it is going to have a positive impact on the quarter, but we believe it's a minimal contribution.
We really want to think about Dawn of Titans on a more long-term basis beyond just the Q4 timeframe. And I'm afraid I didn't quite remember the middle question.
Dae K. Lee - JPMorgan Securities LLC
I think you covered everything that I asked.
Frank D. Gibeau - Zynga, Inc.
Okay, great.
Operator
Thank you. Our next question comes from Chris Merwin of Barclays.
Your line is open.
Christopher David Merwin - Barclays Capital, Inc.
All right. Thank you.
So, Frank, I think in your prepared remarks you talked about shifting to a higher quality booking strategy. So I was wondering if you could just talk a little bit more about what that entails.
Are you trying to target higher-quality users with better long-term engagement? And if that's the case, how do you go about doing that?
And then just a second question for Gerard, now that you've joined, what are some of the key areas that stick out to you as opportunities for cost reductions and how else do you think about driving operating leverage in the business? Thanks.
Frank D. Gibeau - Zynga, Inc.
Chris, what I mean by higher quality bookings are bookings that are more sustainable and profitable than what Zynga has traditionally gone after. There, unfortunately, was a lack of, I believe, discipline and, frankly, science and math behind how we were opening new channels, how we were looking at new customers.
We also raised the level of expectation on ROIs. They were a little lower than I was comfortable with.
And so as we pursue these early stages of the transition, we're really trying to generate a lot more profitability inside the business. And part of that means that we have to raise the level of our game in terms of not only paid acquisition but also put more emphasis on organic.
But some of the tactical things that we've done on the UA front is we've brought in a new team. We have a new head of UA.
We have a new CMO. We've changed the standards at which we will spend and invest in acquiring customers.
We've opened up some new channels. We've closed out some less productive ones.
The team has also started to build some new algorithms and new ways to look at it. So overall, we're just increasing the effectiveness of the capability, increasing the effectiveness of the leadership.
And I think that reflects a little bit in that, in the quarter we increased marketing spend because we had a new launch heavy quarter, but we also saw an improvement in margin on the bottom. So we actually saw the yield.
Now, it's very early days, but we'd like to continue to see that progress on KPIs across the board. We're very bullish on being able to get more with less in our marketing function going forward because of these increases in leadership and capability.
Gerard?
Gerard Griffin - Zynga, Inc.
Yeah. From my perspective, as I said in the prepared remarks, I'm really excited with what I see in front of me.
There is some amazing people here, some really talented people. Just building on what Frank said in terms of UA, I think for me driving a higher level of marketing effectiveness and having the data and analytics to prove that out is vitally important, and I've been really impressed with the UA teams here at Zynga.
Going more broadly to your question of how are we going to look to unlock that operating leverage and get a little bit more fine-tuned in terms of the fiscal side. My challenge has been to my team and to the rest of the management team is, nothing is sacred.
We need to take a hard look at everything we do, do more with less, sounds obvious, but it's definitely a mantra we have internally within the company. Take a look at each discretionary spend and make sure that if it's necessary, is it at the right level and if there's anything that's either redundant or duplicative and myself and the Chief Operating Officer, Matt Bromberg have been going through every line.
If it's not necessary, kill it. And as I guess my mom used to say to me, it's commonsense a lot of what we're doing, but we're really putting a fine focus on making sure that for every dollar we make on the top that we're not leaking any money to the bottom.
And it's going to take time. We're in a turnaround, but that's basically my insights after six weeks.
Christopher David Merwin - Barclays Capital, Inc.
All right. Thank you.
Operator
Thank you. Our next question comes from Brian Nowak of Morgan Stanley.
Your line is open.
Jonathan P. Lanterman - Morgan Stanley & Co. LLC
Hi, this is Jon Lanterman on for Brian. Quick question that piggybacks on Chris's question on the cost reductions.
You guys talked earlier about getting your margins closer to competitors. Just on how you get there, is this a combination of head count reductions or if you look at the OpEx line items, you guys talked about marketing, increasing the ROI.
Is there additional efficiencies you can get in R&D and products in development, or is a lot of this also coming through incremental revenues and high incremental margins? Thanks.
Frank D. Gibeau - Zynga, Inc.
Yes, I'll start and Gerard can add some color. My perspective is that we can get some distance towards our peers' margins through just a sharper operating model, an improved cost structure, and continuing to be focused on execution dates.
There's nothing that drives costs higher than missing dates on products. And so from our perspective, that focus would get us some ways towards our goal.
It will also require us to continue to put out some breakout hits like CSR2 and that's something that our management team has some experience with and we're excited in the studios to push the envelope on what's possible in our games. So the combination of those two things we believe will get us into that conversation and stay, but as you look at G&A, as you look at R&D, as you look at marketing and sales, I'd have a say we made most of our early progress in the marketing and sales line item, but as you look at R&D and as you look at G&A, we believe that there are opportunities through redeployment, remixing, not doing things that we don't need to do anymore, to really start to get us into a position where we have a much more efficient organization, much more sharp operating model, so that when we do generate the top line revenue and we're starting to grow our audiences, it's not watered down as it moves through the P&L.
And so from our perspective, I'm seven months in and Gerard is six weeks in, we think we've made good progress so far, but we've got a lot more to do.
Gerard Griffin - Zynga, Inc.
Yeah, just reinforcing what Frank said. Both of us have been through this before in previous lives, me more recently, seven weeks ago.
I think the simple point is you really need to take a look at everything you do on a day-to-day basis, and we will be looking at every line item in the P&L, and not just the P&L but just operationally how we work, getting stronger in terms of cadence, in terms of beats and looking at our revenue, our player data, and essentially looking to drive efficiency both from a process perspective and also from an investment and spend perspective. The one thing I would say is what I've seen is there's nothing unusual here.
It truly is going to be a case of focusing on rigor and building a stronger framework around how we operate and making sure that we do drive that. Once we produce these great games and we drive that player engagement and monetization that we are bringing it through to the bottom line.
Jonathan P. Lanterman - Morgan Stanley & Co. LLC
Thanks. And then if I can have a follow-up just on release slate for 2017.
I know it's early, but you guys had a goal for 10 games this year early on. Do you think that's about the right number, or kind of narrow that down and try to go for bigger games with fewer titles?
Thanks.
Frank D. Gibeau - Zynga, Inc.
Yeah, this is Frank. I'll reserve our remarks for what 2017 is going to look like for our Q4 earnings call, so we'll get more detailed with you guys at that time in terms of how many games and which ones.
But I can tell you that our bias is towards quality over quantity. When I came into the role and we looked at the 10 games this year, we felt like that was the right number for this year.
But as we go into the next year and we start to see the rewards that we're getting from investment in games that have been around for six, eight, 10 years, as you look at Words With Friends and Poker, for example. That recurring evergreen business is where we want to be.
And so making sure that you have maximum quality and you're delivering that long-term engagement and the product fits with our vision of mass market social, those are going to be our criteria that we go through as we look at which titles will we commit to on a slate basis. But we'll give you guys a lot more color and detail hopefully on our Q4 call.
Gerard Griffin - Zynga, Inc.
Yeah. To briefly add to that, again, going back to six weeks in, I think, what excites me about the leverage that we have in the company is that if we fundamentally focus on the games that we have in market right now with our players and we focus on unlocking the operating leverage we've referred to already, that story alone is really compelling to me.
And then you add to that new launches, I think, it's going to be an exciting year.
Jonathan P. Lanterman - Morgan Stanley & Co. LLC
Great. Thank you.
Operator
Thank you. Our next question comes from Doug Creutz of Cowen.
Your line is open.
Doug Creutz - Cowen and Company, LLC
Yeah. Thanks.
Frank, one of the things I've noticed about you guys for a long time is that your revenue tends to skew pretty heavily to the U.S., close to 70%. A lot of your larger peers are able to get it closer to 50-50 because obviously the gaming market is global.
When you think about sources of operating leverage, is that something you guys are focused on, in trying to broaden your revenue base outside of the U.S. more?
And to the extent that it is, what do you think the challenges are?
Frank D. Gibeau - Zynga, Inc.
Yeah. Thank you, Doug.
I absolutely looked at geographic dispersion when I came in, and we are way too concentrated in North America. As you know, most of the mobile business is in Asia.
There is a sizable business in Europe. And I'm used to businesses that are a lot more balanced 50-50 domestic and international.
And, yeah, we're way over-weighted to North America. Some of that has to do with our social casino business is more North American oriented.
Poker is nice blend of international. Words With Friends is an English language game.
So there's some reasons within the brands why you see that, that concentration. But as you start to release more products like Tropic Escape, Dawn of Titans, CSR2, that have broad appeal globally, that's definitely our orientation as we look at our future slate.
I'm really not interested in a regional-only appeal game. I'm really looking for a globally appealing game.
And in addition to that, we do not have a business of any significance in Asia, and what was encouraging about the release of CSR2 is we reached China for the first time. We actually had an audience there that was larger than expected and the content appealed to that audience, and so we're very encouraged by that result and we think that we can do more in Asia, certainly we're growing from a very low base.
So from my perspective that's a priority for us for sure.
Doug Creutz - Cowen and Company, LLC
Great, thanks.
Operator
Thank you. Our next question comes from Justin Post of Bank of America.
Your question please.
Jason S. Mitchell - Merrill Lynch, Pierce, Fenner & Smith, Inc.
Hi, this is Jason Mitchell here for Justin. I guess, there are some other big titles coming out in December for mobile like Mario Run, how are you guys thinking about competition on mobile in terms of your titles and your Dawn of Titans release and is there any kind of title you've had historically that you might liken to your expectations for Dawn of Titans?
Frank D. Gibeau - Zynga, Inc.
There's nothing really like Dawn of Titans I think that Zynga's produced before, so it's been rough finding a like title comparison internally. That's not necessarily a negative, it's just we don't have anything to really compare about.
Its position in the market is unique, when you start to stack it against some of the titles from Supercell or Machine Zone and others, it really looks different, plays different, feels different, is innovative, so we like our chances for standing out this holiday in that category. In terms of competition, we have some categories that have very high competitive intensity if you look at social casino, we compete directly with companies like Caesars and others in Slots as well as in Poker and competition I believe brings the best out in our teams and it's a point of emphasis for us to bring that more into the conversation internally.
But at the same time, we launched CSR2 essentially in the same window as Pokemon Go and that brought a lot of new customers into mobile gaming which we loved. And we also didn't see a major impact on our business, so as you start to see some of these titles like Mario or Pokemon hit the market, we actually are inspired by the innovation there.
I think the market benefits from a lot of these new users coming into mobile gaming and that overall – that helps us indirectly. So I like competition because I think its pro ball.
You've got to compete. And so from my perspective, we're not worried about it, we just make sure that we're in a good position against it.
Jason S. Mitchell - Merrill Lynch, Pierce, Fenner & Smith, Inc.
Okay. Great, thanks.
Operator
Thank you. Our next question comes from Mike Hickey of Benchmark Company.
Your line is open.
Michael Hickey - The Benchmark Co. LLC
Hey, Frank, great quarter, congratulations. I'm late to the call, so I apologize.
I don't think these have been asked, but your audience metrics for the quarter, looking at MAU and DAU, it looks like sequentially they've rebounded a bit. Just sort of curious, when we think about Q4 and 2017 maybe that's too much of a stretch, but if you expect that trend to continue.
And then I'm also sort of curious, there's a lot of ways to cut up a business, there's a lot of different metrics. So wondering what you think the feel would be, sort of, the key metrics we should pay attention to, to try to model your business forward.
And I have a quick follow-up.
Frank D. Gibeau - Zynga, Inc.
Thanks, Mike. In terms of audience, yeah, we definitely saw a rebound in Q3.
Mobile overall, on our DAU, MAU, our MUU and MUPs were all up this quarter which is positive. In general, on the last call I did say that our mobile audience will fluctuate as we move through some legacy businesses in terms of some traditionally high DAU, low monetization games.
Then we start to move into a greater focus in our core mobile franchises. So a long-term imperative for us internally and what we challenge our creative and publishing teams is, like, simply put, we need more people playing Zynga games tomorrow than they are today.
And so audience growth is absolutely vital to us and we want to get into the right configuration from a portfolio standpoint, so that we're looking at audience growth in Words With Friends or Poker or the NaturalMotion title. So, yeah, again, I'd just ask you as we turn the company around you'll still see some little bit of fluctuations on a quarter-over-quarter basis, but we are absolutely 100% focused on growing our audience over the long-term.
In terms of the audience metrics or company business metrics that we look at, Zynga is a very data rich company. It's got excellent capabilities in data science and in product management.
So we look at a lot of stuff. Some of it we communicate externally, some of it we reserve internally, but DAU, MAU, MUU, MUP, player conversion, looking at the ARPU and the advertising rates, we report a lot of data more so than a lot of other companies in this peer group.
And so there's enough data there in terms of what we're reporting that, I think, gives you a good sense of what we're looking at internally. And there's a few proprietary things that we look at that we reserve on mainly focused in on engagement metrics and conversion and churn dynamics.
Michael Hickey - The Benchmark Co. LLC
Okay, thanks. The last one for me, I realize expense control has been a big mantra for you and obviously your OIBDA growth has been welcomed.
But I'm sort of wondering if you could give us some visibility on dev expense, especially when you sort of – may be over your 2017 slate. I guess, in general the average development expense that you see moving forward because it feels like at least that piece of the puzzle is on the rise.
And I'm also beyond just sort of general game, curious about midcore because it looks like that category in particular is one of your competitors is positioned to put more monies into initial developments of those games to sort of have as much playable content call it week one to drive long-term retention. And I'm wondering if you feel the same and if the framework on midcore is, in fact, complete – you basically have to put more money than, anything there would be hopeful.
Thanks, Frank?
Frank D. Gibeau - Zynga, Inc.
Sure. Look, I think overall as we benchmark a company on development expenses or G&A and marketing and sales, we are really trying to get the company fit for purpose against that long-term growth that we are trying to achieve.
So we look at dev expenses today versus what they are going to be tomorrow, what's critical for us is to make sure that we get into a place where we have a world-class studio, where we have the talent that can deliver, hit products that deliver on our social vision for the mass-market. And then what's important to that is putting in place processes that are relatively new to the organization like a fairly tight greenlight process, a lot more check-ins on development that free the game teams up for innovation, but remove a lot of the distractions and noise, a concentration of talent on big ideas as opposed to trying to do too many games.
There's a whole laundry list of things on an efficiency and an operating model basis that we're going to bring to bear on the development expenses so that over time we get more yield from those investments than we are currently experiencing. On your question with regards to midcore, in my career I have a fair bit of experience in those type of games and I'm really excited about the opportunity at Zynga in working with NaturalMotion.
I think that they are the type of brand and studio that can compete with the best in the world and I think if you look at the performance on CSR2, I think that's indicative on a quality level of what's possible. Could we do a better job on long-term engagement with NaturalMotion?
Yes. And to your point, having that in a better position at launch is exactly one of the things that we are thinking about.
But the NaturalMotion brand, studio, talent, the actual property that they build, I think that that can build a strong position for us in midcore that will be broadly appealing, highly social, engaging from a long-term standpoint and ultimately high-quality and I'm excited to be working with those guys.
Michael Hickey - The Benchmark Co. LLC
All right. Thanks guys.
Good luck.
Operator
Go ahead. I am sorry.
Rebecca Lau - Zynga, Inc.
All right. Great.
I think that was our last question, so we just wanted to thank everyone for joining today and we look forward to speaking with you on our next earnings call.
Operator
Thank you, ma'am, and thank you, ladies and gentlemen. That does conclude your call.
You may disconnect your lines at this time. Have a wonderful day.