Feb 7, 2018
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 Dae K.
Lee - JPMorgan Securities LLC Brian Nowak - Morgan Stanley & Co. LLC Justin Post - Bank of America Merrill Lynch Doug Creutz - Cowen & Co.
LLC Richard Greenfield - BTIG LLC Michael Olson - Piper Jaffray Christopher Merwin - Goldman Sachs & Co. LLC Mike Hickey - The Benchmark Co.
LLC Raymond L. Stochel - Consumer Edge Research LLC
Operator
Good day, ladies and gentlemen, and welcome to the Zynga Fourth Quarter and Full-Year 2017 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 follow at that time. As a reminder, this conference is being recorded.
I will now introduce your host for today's conference, Ms. Rebecca Lau.
Ma'am, you may – of Director, Investor Relations. Ma'am, you may begin.
Rebecca Lau - Zynga, Inc.
Thank you, and welcome to Zynga's fourth quarter earnings call. On the call with me today are Frank Gibeau, our Chief Executive Officer; and Gerard Griffin, our Chief Financial Officer.
Shortly, we will open up the call 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.
Actual results may differ materially from the results predicted. Please review our risk factors in our most recently filed Form 10-Q, as well as elsewhere in our SEC filings for more details.
In addition, we will also discuss non-GAAP financial measures. Our earnings letter, earnings slides, and when filed, our 10-K 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 or superior to 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 over the call to Frank for his opening remarks.
Frank D. Gibeau - Zynga, Inc.
Thank you, Rebecca. Good afternoon, and thank you for joining our call.
We had a strong holiday quarter and a great end to the year anchored by the launch of our new game Words With Friends 2, and continued mobile momentum across our business. This past quarter we generated our strongest top line performance in nearly five years.
Revenue was $233.3 million, up 22% year-over-year. Bookings were $223.8 million, up 11% year-over-year.
In Q4, we hit a new record with mobile revenue and mobile bookings reaching all-time highs for the company. We also improved our profitability in the quarter, achieving net income of $12.9 million, up $48.4 million year-over-year, as well as adjusted EBITDA of $46.5 million, up by $35.9 million year-over-year.
One of our strategic priorities has been to grow our audience and Q4 represented Zynga's highest mobile average DAU in four years. This past quarter we significantly increased our mobile audience from 16 million average DAU in Q4 of 2016 to 20 million average DAU in Q4 2017, up 24% year-over-year.
Average mobile MAUs are also up from 53 million in Q4 2016 to 76 million in Q4 2017, an increase of 45% year-over-year. Zynga's Q4 performance was driven by a significant new game introduction with Words With Friends 2 and continued strength in live services anchored by CSR2 and Zynga Poker.
Starting with Words With Friends, we delivered the franchise's strongest quarterly mobile revenue and bookings performance in its eight-year history, with mobile revenue up 19% year-over-year and mobile bookings up 28% year-over-year. Following the successful launch of Words With Friends 2 in November, the game achieved the number one free app and the number one free game rankings in the App Store.
The new game also introduced features like Solo Challenge and Lightning Round, which increased engagement and helped expand the monetization potential of the game through new boosts and the introduction of a more robust in-game economy. Turning to CSR2, we ended the year strong with Q4 revenue up 90% year-over-year and bookings up 27% year-over-year.
These results were driven by a number of new releases for players including the Fast & Furious finale event, a new Relay mode and an innovative augmented reality experience leveraging Apple's ARKit. CSR2 continues to be the number one top grossing racing game in the U.S.
App Store, and its successful performance has established the game as a new forever franchise for us. Moving to Zynga Poker, mobile revenue in Q4 was up 44% year-over-year and mobile bookings were up 38% year-over-year.
This past year was a particularly strong one for Poker, as the franchise reached its 10-year anniversary and delivered all-time highs in mobile revenue and mobile bookings. This performance was driven by improved player engagement from popular new bold beats such as Challenges and Leagues.
2017 marked a pivotal year for Zynga, as we saw continued mobile momentum and sharpened our operating model. This focus strengthened our position as a leading mobile game publisher delivering total company revenue of $861.4 million, up 16% year-over-year and bookings of $853.8 million, up 13% year-over-year.
This top line performance was our best since 2013, and was primarily driven by the mobile performance of our forever franchises which more than offset the headwinds we continue to face in our web and older mobile games. As a result of our efforts in 2017, we delivered net income of $26.6 million, up $134.8 million versus 2016 and our first profitable year since 2010.
Our mobile growth story over the past year continued with mobile revenue up 29% year-over-year and mobile bookings up 23% year-over-year. In 2017, mobile revenue represented 86% of our total revenue and mobile bookings represented 87% of our total bookings.
Mobile online game or user pay revenue was up 36% year-over-year and mobile user pay bookings were up 28% year-over-year. This year we also made two acquisitions with Harpan's Solitaire games in Q1 and Peak Games' casual card game studio in Q4.
These acquisitions align with our strategy to grow our live services and prioritize opportunities that are accretive to our near-term margin goals. They also helped to grow our audience and they strengthened our development talent by adding a high-quality team in Istanbul with a proven track record.
The combination of Zynga Poker, our Solitaire Titles and Peak's casual card franchises now gives Zynga the world's largest portfolio of casual card games. Our performance and execution over the last year gives us confidence in our ability to grow the company and achieve our near-term margin goals later this year.
As we look to the future, our strategy is to grow Zynga in four ways. First, by delivering growth in our live services; second, by building new games with the goal of creating forever franchises; third, by investing in new emerging mobile technologies; and forth, by exploring M&A opportunities that will enhance our growth potential.
First, we'll continue to focus on growing our live services through innovative bold beats. We've seen this approach pay off over the last two years, as we've enhanced and grown our forever franchises into the strongest mobile portfolio in company history.
Our bold beat strategy is designed to deepen engagement with our existing players, bring back lapsed players and attract new players to our franchises. For Zynga, bold beats include new features, new systems and new content such as global licenses and strategic partnerships that enhance the player experience.
Recently in CSR2, we proved with the Fast & Furious how compelling licenses can be used in engaging fans and delivering a more authentic experience. We're now taking a similar approach to Zynga Poker.
And today, we're pleased to announce that we've entered into a multi-year partnership with the World Poker Tour, the premiere name in international, televised gaming and entertainment to bring the WPT experience into Zynga Poker for in-game, free-to-play tournaments. We expect to introduce our WPT-themed tournaments to Zynga Poker in the second half of 2018, delivering players an all new way to enjoy a competitive and authentic tournament experience.
Second, we'll also be pursuing growth by building new games with the goal of creating new forever franchises. Our approach to new game development combines strong game teams with high potential sequels, reinvigorated Zynga brands, new intellectual properties and strategic licenses with global appeal.
We have games in development in four categories. Action Strategy, Casual, Invest Express and Social Casino.
Our goal is to engineer hits and rigorously test our new games doing soft launch to ensure they have the right long-term engagement and have the potential to be forever franchises for us. We're tuning to quality over quantity and, based on player feedback and soft launch results, we expect to launch new titles in some or all of these categories beginning in in the second half of 2018 and continuing into 2019 and beyond.
Third, mobile is the largest and fastest growing gaming platform in the world. We believe that emerging technologies like chat, augmented reality, location-based services, 5G, virtual reality and streaming among others, will drive the next phase of long-term mobile platform growth.
We're aggressively investing in the mobile platform, particularly chat this year because of its potential to drive innovation, create new social gaming experiences and grow our audience. We believe that chat platforms such as Facebook Instant Games, and Apple iMessage, will reshape the accessibility and social nature of mobile gaming.
This year, we will continue to bring our proven franchises, like Words With Friends to chat to build out our audience, but we don't expect monetization to have a meaningful impact in 2018. Finally, we intend to use the strength of our balance sheet and positive cash flow from operations to explore M&A opportunities that will enhance our growth potential.
Our goal is to bring talented teams and compelling franchises into Zynga that align with our strategic priorities to grow our live services, create new forever franchises and build out our capabilities on emerging mobile platforms. We'll continue to take a disciplined approach to M&A prioritizing opportunities that are accretive to our near-term margin goals.
With that, I'd like to turn the call over to Ger so that he can further discuss Q4 results 2018 and our Q1 guidance.
Gerard Griffin - Zynga, Inc.
Thanks, Frank. We delivered another excellent quarter in Q4 driven by a strong top line performance and effective cost management.
Our revenue and bookings both exceeded our guidance. Revenue which is comprised of the net change in deferred revenue and bookings was $233.3 million, $18.3 million ahead of our guidance and up $42.7 million or 22% year over year.
The change in deferred revenue was a net release of $9.5 million versus our guidance of a net release of $5 million. Bookings were $223.8 million, $13.8 million ahead of our guidance and up $22.3 million or 11% year over year.
Our overdelivery (00:13:19) in the quarter was driven by better than expected advertising results from our Words With Friends 2 launch and a partial month contribution from the acquisition of Peak Games' casual card game studio. Turning to our Q4 operating expenses, GAAP operating expenses were $160.2 million, down 1% year over year, representing 69% of revenue, down from 85% of revenue in the prior year.
Stock based compensation was $15.2 million, down 43% year over year, representing 7% of revenue, down from 14% of revenue in the prior year. Non-GAAP operating expenses were $129 million, up 2% year over year, representing 58% of bookings down from 63% of bookings in the prior year.
All of this contributed to net income of $12.9 million, broadly in line with our guidance and an improvement of $48.4 million year over year. Our adjusted EBITDA, which includes a $9.5 million net release in deferred revenue was $46.5 million.
This was above our guidance by $11.5 million and up $35.9 million year over year. We generated operating cash flow of $26.4 million, down $1.4 million year over year.
We ended 2017 with a much stronger foundation for the future as we continue to make progress towards our improved margin goals by the end of 2018 and achieving margins more in line with our peers over the long term. Turning to our balance sheet, we ended the year with cash and short-term investments of $681 million, down from $852 million a year ago.
This year, we generated $95 million in operating cash flow, up 58% year over year. The primary use of our cash during the year was a series of accretive acquisitions and share buybacks.
We spent approximately $140 million acquiring a talented studio and a portfolio of casual card games that are accretive to our growth and margin goals. With respect to our buyback program, we purchased $105 million worth of stock at an average price of $2.76 per share.
We have $65 million remaining in our existing authorization. We also enhanced the value of our core assets through our more effective cash management and further optimization of our San Francisco headquarters, which enabled us to execute an additional long-term lease on 43% of the total building.
Before I get to Q1 guidance, I would like to share with you some fiscal 2018 themes. Our financial performance in 2018 will be predominantly driven by our live services, as we continue to invest in bold beats aimed at enhancing player engagement.
Our investments during the year in new games and emerging mobile technologies will have more of an impact on our growth in 2019 and beyond. We expect moderate growth in our revenue and bookings driven by low-double digit growth in mobile bookings.
Within our mobile live services, we expect the full year contribution from our Peak Games' casual card games studio should offset the declines in our older mobile games. We expect web to decline at a similar level to what we've experienced in 2017, and we expect our live services to deliver more than 95% of our revenue and bookings.
Overall, our top line performance should be weighted towards the second half of the year influenced by seasonality and the cadence of our live service bold beats. We're going to continue to have a disciplined approach to managing our operating model.
We expect low single-digit growth in our operating expenses with continued investment in our live services, new game development and emerging mobile technologies largely funded by savings from our turnaround actions in 2017. Marketing should be the primary variable spend this year with the level and phasing of investments influenced by the performance of our live services, and the timing of new game launches.
We expect to grow our operating cash flow year over year. All said, our performance and execution over the last year gives us confidence in our ability to grow the company and achieve our near-term goals later this year.
Turning to our Q1 guidance, our Q1 guidance is as follows. Revenue of $200 million and net loss of $5 million and net increase in deferred revenue of $10 million, bookings of $210 million and adjusted EBITDA of $20 million.
Some additional factors you should consider in assessing our Q1 guidance include. We anticipate advertising to grow year over year despite sequential declines as yields normalize versus the higher yields we delivered in Q4 FY 2017 and due to typical advertising seasonality.
We expect Dawn of Titans bookings to be down year over year as compared to its first full quarter post worldwide launch. We expect the operating expenses to be up slightly primarily driven by higher marketing spend on our live services, offset by savings in R&D.
We anticipate that our gross margins in Q1 will be comparable to the prior year. In summary, we have significantly improved the fundamentals of our business and are starting 2018 with the strongest mobile portfolio in company history.
We continue to be excited about the opportunities that lie ahead of us. And with that, we're happy to take your questions.
Operator
Thank you. And our first question will come from the line of Tim O'Shea with Jefferies.
Your line is now open.
Timothy O'Shea - Jefferies LLC
Yes. Hi and thank you for taking my question.
So on Words with Friends, can you help us understand with the launch plan is for a game like this, specifically around user acquisition? Is it correct to think you might be more aggressive about acquiring users early after launch?
And if so, should we expect or maybe how should we expect the profit profile Words with Friends, maybe the trend heading into 2018? And then, just second, looks like a nice step-up in terms of ad revenues this quarter.
Just wondering how much of a rollover just (00:20:17) Friends had on that line item. And you mentioned the ad network deal in the letter, just hoping you could talk to that.
And just wondering if the entirety of this deal flow through the holiday results or could this contribute in 2018 as well? Thanks.
Frank D. Gibeau - Zynga, Inc.
Hi, Tim. It's Frank.
Thanks for your question. I'll take the first couple, and I think Ger will come in with his comments as well.
The Words With Friends 2 launch plan included multiple aspects of the marketing mix. So we mainly focused on bringing the product out and getting existing users in the franchise to be aware that Words with Friends 2 had a sequel, an all new sequel out and to give them the opportunity to transition to that.
So in terms of a really heavy paid acquisition campaign, that really wasn't the initial strategy, but we did look at increasing a little bit of money year over year in terms of brand marketing where we started to get the brand aware amongst existing players out to a broader, base because it is a very casual appealing game. And then we're going to start to look at how do we reactivate lapsed players.
It's an eight-year old franchise, so there's a lot of people who have played Words With Friends over the years and immediately (00:21:30) stopped and then we'll start to look at the third segment of bringing in all new players as we progress through 2018. So one of the things that we were very conscious about in designing Words With Friends 2 was to make sure that it was backwards compatible to new Words With Friends so that the community didn't get segregated or separated.
So you're able to play the games across both and letting the users transition to the new game in their own – in a time that was right for them was really the overriding philosophy. So we use a lot of organic and inside the service type of techniques to do that.
And when we look at the product and how it evolves going forward into Q4 – sorry, Q1 and beyond in fiscal 2018, where we see opportunities to spend and invest UA to acquire new players or perhaps accelerate lapsed players back in, we'll take advantage of those opportunities when they present themselves.
Gerard Griffin - Zynga, Inc.
Yeah, Tim, in terms of just looking at the launch of Words With Friends and specifically, the kind of deals we manage to achieve with our ad networks, I guess, one way you could look at it, granted I'm more a soccer fan than a football fan, it's like Super Bowl ads. We saw that we were able to lock in some very high yields with our advertising networks around the launch.
They were very excited about the latest iteration of this forever franchise and we don't expect to be able to sustain that into next year. Again, if we can – if we do another Super Bowl ad this time next year, we will, but in terms of going into 2018, we expect that the yield rates we see, it'll be more normalized.
And as Frank said, as we increase the audience against the title through transitioning existing players into the new version and bringing new players or lapsed players back in, we expect that will help in terms of our advertising performance throughout 2018. And in terms of the return on investment, in terms of the brand spend and the UA spend, obviously, that's a multi-quarter return.
So we expect to see a return on that over time.
Timothy O'Shea - Jefferies LLC
Thanks and congrats on the quarter.
Gerard Griffin - Zynga, Inc.
Thank you.
Frank D. Gibeau - Zynga, Inc.
Thank you, sir.
Operator
Thank you. And the next question will come from Eric Sheridan with UBS.
Your line is now open.
Eric J. Sheridan - UBS Securities LLC
Thanks for taking the question. Maybe one broadly on live services in two parts.
Internally on live services, how do you guys feel about the investments you still need to make or how are we positioned, the organization is, internally to capitalize on the live services positioning that you see ahead? And second, Gerard, I think you called out marketing intensity around driving live services penetration as part of the 2018 commentary, just want to understand a little bit better what those types of marketing investments are and what they're going to be sort of directed at?
Thanks guys.
Frank D. Gibeau - Zynga, Inc.
Thanks, Eric. I'll start with the state of live services inside Zynga.
If you go back to the very first moments that this new team was coming into Zynga, we really wanted to focus in on our existing forever franchises and start to build a repeatable process and system that would allow us to methodically look at where games were at and how players were interacting with the games, what were the engagement levels? Zynga has a tremendous history in data science and product management.
And so, when we came in and we saw all that capability, what we really needed to do was kind of unify a process across the company and couple it with a more robust production and development organization. So we've been investing in the development side of live services and production side of it, so that we can be much more predictable and much more focused on the long-term and understanding how far out are we planning these.
Right now, we try to look at a multi-quarter forward look to plan each quarter around what we call a bold beat and then underneath that, it's a complete full aspect look of marketing, product management, data science, in-game and we set different metrics and goals for what those will actually unfold and look at. And as we finish something up, we'll go and post mortem and see what we learned.
So we just – we put this in the first parts of this management team coming together, we've been operating it now for a few quarters and I think we're happy with the early results that we've seen. But I can tell you after every live services review meeting we have, we find more new things to do or improve than running out of ideas.
So this is going to be a process that we continuously improve over the long term at Zynga and it's going to be something that we're very confident and we believe that we can grow the company on the live services approach that we're developing. We believe we can develop it into a competitive advantage and we're starting to see the early results of that in the second half of 2016 and in 2017, but it doesn't mean that we're going to be pulling back on 2018.
In fact, per the example I used where we used Fast & Furious to drive CSR in live services, we're going to use WPT and Poker and we've got more ideas and concepts like that.
Gerard Griffin - Zynga, Inc.
Eric, in terms of our marketing approach against the live services, it's multifaceted. We have a very talented user acquisition team and marketing team and there is, what I would say, classic user acquisition, where we look for effective channels to spend money and to bring users into our games, whether it's in other gaming channels or other media outlets.
When you think about something like Words With Friends, we did index into brand in addition to user acquisition on that (00:27:06) franchise, given the history we've had with the franchise and the large lapsed audience and we'll continue to marry classic user acquisition with brand there. Another facet, if you think about what Frank outlined in terms of the partnership with World Poker Tour, that will give us the opportunity to leverage their channels and enthusiasts in the poker space into our Zynga Poker and obviously, to promote their franchise within our franchise, so it's going to be multifaceted.
Overall, as we look at it and as I look at it, we'll continue to manage the operating model. Our aim is to make sure that we're balancing our investments across our portfolio and continuing to drive operating leverage.
And over time, I'm going to look to see more operating leverage come out of marketing, but as you can see from our investor letter and from this call, over 95% of our bookings are going to come from our live franchises this year, so we'll be taking a multifaceted approach to continue to drive new users and lapsed users into those franchises and obviously, increase engagement.
Eric J. Sheridan - UBS Securities LLC
Okay. Thanks.
Operator
Thank you. The next question comes from the line of Douglas Anmuth with JPMorgan.
Your line is now open.
Dae K. Lee - JPMorgan Securities LLC
Hi this is Dae in for Doug. Thanks for taking my question.
Just on the 2018 outlook, I mean, Zynga Poker, CSR2, Words With Friends appeared to be like the three main pillars of live services that you guys have right now. Should we expect the majority of 2018 growth to come from those three franchises?
And how does FarmVille or Dawn of Titans, for example, fit into the 2018 story?
Gerard Griffin - Zynga, Inc.
Yeah. Listen, we had an old adage in our previous life (00:28:59) that you always like to get your fast horses to go faster and when you think about the larger forever franchises, they are the ones, we do expect to grow our slots business, very much our focus in slots has been on optimizing and refocusing the marketing investment and focusing on quality bookings as opposed to just bookings for whatever the price.
So I don't expect a lot of growth, but we do expect to grow the slots business overall. Dawn of Titans is still going through its transition.
We still see positive contributions coming in for Dawn. Ultimately what kind of growth we get out of Dawn will be dependent on those bold beats and that we're executing throughout the year.
And all of that together, as we say, will drive growth in our core mobile live services and that plus, obviously, the contributions we get from our Peak Games casual cards portfolio will help offset some of the headwinds we're facing in web and sort of all the mobile.
Dae K. Lee - JPMorgan Securities LLC
Okay. And then as a follow-up, you guys mentioned top line growth being back half weighted, how should we think about the cadence of bold beats in the first half of the year and then, I guess, throughout 2018 as well?
Gerard Griffin - Zynga, Inc.
Yeah, it's going to differ by franchise. We talked a little bit about Poker where there's obviously a major integration coming in the second half of the year.
There will be bold beats in the first half. So what I would say is, it's going to depend by title.
Our assessment as we look at the overall cadence is that there's going to be more of an impact in the second year than the first year. So we're sort of coming out of the gate obviously a little lighter than you'll see in the second half of the year.
Dae K. Lee - JPMorgan Securities LLC
Got it. Thank you.
Operator
Thank you. The next question comes from the line of Brian Nowak with Morgan Stanley.
Your line is now open.
Brian Nowak - Morgan Stanley & Co. LLC
Thanks for taking my questions. I have two.
The first one, Words With Friends, I think, is starting to show a little bit of in-game monetization, still small and early. But just curious about your expectations and how you think about managing and balancing the potential for in-game monetization Words With Friends throughout – in the 2018 guidance and beyond?
Then the second one, just to go to the new IP and the way to think about the potential for new IP in 2018, are you still expecting to launch four new titles in the current guidance? How should we think about the number of titles and maybe into the timing of the new IP to come?
Thanks.
Frank D. Gibeau - Zynga, Inc.
Hi, Brian, it's Frank. I want to start with the innovation in Words With Friends 2 this year and we actually spent a lot of time in soft launch with the game testing, new features, the team play, as well as the solo play and one of the things we heard a lot from players was they wanted more ways to compete and that they wanted to understand how they can start to advance their persona, understand how they could start to show off achievements more.
And so, one of the things that we built was a coin economy that would allow you to have boosts, like hindsight or word radar that would give the ability to maybe even out a little bit of the matchmaking and also give you new ways to compete in team play. So we've been very carefully adding with a lot of player feedback and a lot of player interaction, these new aspects and these new attributes to see how they like them.
And so far, we're getting a very positive response. And as we add more features and more depth to some of these new play patterns, you'll start to see more items and things that will be available to players for them to either purchase or win inside the game and be able to enhance the social kind of PvP that that they experience inside Words With Friends.
It'll always be player first, that's what we'll orient ourselves towards. We have a really great product and a great brand that people love.
And so, we'll go very carefully with how we introduce these types of things. And that's why as it relates to the next question about new titles, that's why our focus really is on having very thorough and robust and rigorous soft launches, where we can actually – it's a real advantage in mobile gaming to be able to go out and test new ideas, new features, new things with players and get responses from them in a real way.
So from our perspective, that's – it's an exciting development inside Words With Friends, but it's one of those things that we don't really put a timeline on, we just – we go from one quarter to the next thinking about the creative and the player engagement. On the new titles, as I mentioned, there is – the approach to grow Zynga over the long-term is multifaceted, grow live services, build new games, new forever franchises, invest in new platforms in mobile, like chat and as well as using M&A to look for teams and talent.
The second pillar of new game development is really one of the most rich and rewarding of the four. It takes time though to get your studio into position to be able to build those games and bring them to market.
The mobile marketplace is, it's a pretty competitive one, bringing a successful mobile game to market is pretty tough. You've got to have world-class talent, they got to be organized right, they got to be married to a great idea and then you've got to have the right go-to-market strategy and testing to make sure that you have a better than average chance than most mobile games experience.
And so, we've been embarked on that over the last year and it's been an experience that we've seen a lot of positives. And so, on our last call, we started to give a little bit more color on the new games.
We're going to continue to do that as the year unfolds. This time we talked about the four categories that we're going to be in, Action Strategy, Social Casino, Invest Express and Casual, there's active development in all of those categories.
And from our perspective, we're really focusing on getting those games into successful soft launches and then, it'll largely give you an idea of when it's going to release. And so, as we look at the product schedules and the soft launch windows, we're anticipating to launch some games in the second half of 2018 and we're anticipating that we're not stopping there, we're going to continue to launch games into the early part of 2019 and beyond into 2020, we're already working on that title slate.
So, I want to just give you a little bit more color and texture that this is a multi-year slate, it's a slate that's based on big brands that could be strategic licenses, it could be Zynga brands that we bring back, it could be sequels like CSR2 was a sequel, so was Words with Friends, we did it right (00:35:36) bringing those to market and then it could be original ideas, such (00:35:39) stuff that you've never heard or have seen before. So I hope that helps to give you a little bit more detail.
Ger wants to jump in with a little bit more.
Gerard Griffin - Zynga, Inc.
Yeah. The only other thing I would say is, you are going to see more color on some of – or all of these games in the second half of the year, as Frank said, through soft launch.
But to be clear, we're in a free to play model and we're going to bring these titles to market when we feel good based on the metrics, the soft launch metrics and our player engagement metrics. What I would say is, this is not a console business, where you launch a title and you see 80% of the bookings turn up in the first few months.
We gave you some guidance as it relates to themes for 2018 and when you think about our bookings for this year, you should be thinking about the majority, 90%, 95% plus is going to come from live. That's not a bad thing, what we're essentially indicating is that these new games that turn up will have more of an influence in how we grow in 2019 and beyond.
It's important for us to get them into the market and into player hands initially in soft launch and then, ultimately, in worldwide launch. But we're going to do that in a way that we feel good about, giving those games the best chance of success.
So it's not about pushing them out the door to tick (00:36:53) a box, it's to make sure we get the right game in players' hands and grow it from there.
Brian Nowak - Morgan Stanley & Co. LLC
Great, thanks.
Operator
Thank you. And the next question comes from the line of Justin Post with Bank of America Merrill Lynch.
Your line is now open.
Justin Post - Bank of America Merrill Lynch
Thank you. Could you talk a little bit about how the Peak ad games (00:37:12) acquisition is going, maybe the revenue contribution in the first quarter or how you are thinking about the whole year?
And then, will there be any metrics, like audience or payers or payers or anything that will have a big impact from the acquisition? Thanks.
Gerard Griffin - Zynga, Inc.
Yeah. We closed the acquisition sort of midway through December, we're in in the process of integrating the team, everything is going well.
It's been – this is a team that have been together for over seven years as a unit, so they're fairly well integrated in terms of themselves, and comfortable in their strengths (00:37:51). They've integrated well with the rest of our casual card division.
There's been a lot obviously interaction between the poker team and that team. Thinking in terms of their contribution to 2018, when we announced this deal, I indicated that when you look at these kind of acquisitions, they are somewhere between the 2 times and 3 times revenue.
So I said this one was somewhere in the middle. So if you're thinking about contribution to next year, that's probably a good guidance I can give you in terms of the bookings contribution we'll see.
They're obviously highly accretive. They're above our short-term margin goals.
So right now, it's – we see it as a nice contributor into our (00:38:35) year. It actually – it's helping us as we look at our live services in 2018, to mitigate, what I would call, the drag that we're feeling from older mobile games.
So from that perspective, I see – Peak was essentially a new launch at the end of Q4 and is well integrated as we speak right now into our mobile live services.
Justin Post - Bank of America Merrill Lynch
Okay. Thank you.
Operator
Thank you. And the next question comes from the line of Doug Creutz with Cowen.
Your line is now open.
Doug Creutz - Cowen & Co. LLC
Thanks. Just so that (00:39:14) I make sure I understand this, when you say 95% of your bookings are coming from live services, is that equivalent to saying 95% of your bookings are coming from games that are already in operation?
Gerard Griffin - Zynga, Inc.
95% plus.
Doug Creutz - Cowen & Co. LLC
Okay. So another way to say it is, less than 5% of our bookings will be from new releases in 2018?
Gerard Griffin - Zynga, Inc.
Yeah. And even less of a contribution, given – they will be very small on the booking side and we'll obviously have some marketing and overhead against it.
So, the year is fundamentally driven – the financial performance of the year is driven by live.
Doug Creutz - Cowen & Co. LLC
Okay. Great.
Thank you.
Operator
Thank you. And the next question comes from the line of Rich Greenfield with BTIG.
Your line is now open.
Richard Greenfield - BTIG LLC
Hi, Frank. Just a philosophical question.
You mentioned kind of your three strategies being – one of them being acquisitions. And wondering – well, I don't expect you to tell us the names of the companies you want to acquire over the next year or even how many.
I was wondering how we should be thinking about categories? Are there kind of key verticals that as you look at Zynga today that you go, God!
I wish we were in this category or this is the type of business that – especially as you think about growing live services and building out there, are there things that Zynga doesn't do that or it should do that would actually strengthen the overall company and actually make it a – not just an easy acquisition to kind of fold-in, but also strengthen the overall core.
Frank D. Gibeau - Zynga, Inc.
Yeah, Rich. Let me start by talking a little bit about things that we look at.
We always start with the quality of the team and leadership and the cultural affinity that they have with joining Zynga. You always want to have any acquisition, have perfect alignment with where we're trying to take the company to maximize shareholder value.
So we start by looking at leadership, talent. We look at team, we look at culture.
We also like to look to see if we have intellectual property or brands that are existing. Are they pre-scale or are they at-scale, that obviously changes the price a little bit.
And so, we look at those. Do they plug into genres where we have audience that lends itself to that type of intellectual property?
Can we bring them in? Would they find it appealing?
Is it adjacent? We are also starting to look a little bit more aggressively at how do we grow our presence internationally and on Android?
If you look at our company, we are overweighed to Western Europe and North America and it's something that we're consciously trying to shift. So, I'm very excited about the popularity of mobile gaming in the emerging world as well as in Asia.
And so, we're interested in finding companies and brands and ideas that will give us a much broader base of audience than what we're currently experiencing. In addition, Android is the fastest-growing mobile platform in many ways.
And so, we are still a little heavyweight on iOS in terms of our monetization relative to audience. And so, we'd like to see companies that might have an insight or a capability on Android that would be additive to Zynga, and potentially help the overall studios in addition to that.
We're also looking for some of the mobile technologies that I talked about earlier, whether it's AR or VR or mainly chat, HTML5, 5G. There's going to be a lot of growth coming from those emerging technologies inside the mobile platform, and they're not yet a critical mass (00:42:39) or grown.
So if we can get into position for some of those, it will complement a lot of the traditional things that we're doing in the native side of the business where we currently reside. So we look at capabilities as it relates to distribution in terms of new ways to build games.
Overall, we tend to look for lower cost on development organizations. We have a great organization here in San Francisco, but we do like to look at expanding our studio system geographically and into areas where there's great talent that are lower cost.
And I think that the Peak acquisition checks a lot of the boxes that I just called out. And then finally, Ger, myself, the board of directors, we look very carefully at the impact of the acquisition on our financials.
We typically try and aim for something that's accretive to our near-term margin goals. That's a very important commitment that we've made to our shareholders.
We will stay committed to that and we want to make sure that, M&A that's done at this stage of our company's development has that in mind. And as we evolve over the long term, there is going to be a lot of opportunities in mobile.
So, it's a global marketplace. There's a lot of talent in all kinds of different places in the world.
There's been a lot of industry consolidation so far, but it's far from over and I think that there's always new ideas popping up. So, it's a really rich and exciting area to be.
Richard Greenfield - BTIG LLC
And maybe just to push a little bit further like, the Peak acquisition obviously was a card based game or a card based studio. Are there categories, if you think about just verticals where Zynga is not strong and it doesn't play in today that – would just strategically make sense to be looking in that would help round out what you're building?
Frank D. Gibeau - Zynga, Inc.
We look at each of the categories. And I think there's still a tremendous amount of growth for us in Social Casino.
I think there is a lot of growth for us in all of them actually; Casual, Invest Express. I think we're the fifth ranked company in the Invest Express category; we should be in top one or two.
And then Action Strategy is a really good category, especially as you start to see the popularity in PvP games really worked on a global basis. So, we don't really want to stray too much, too far away from where our centers of expertise are, considering how much growth is still in the categories that we're in, because it does take a whole new skill set and capability to get there.
But we're very open-minded about looking at growth in M&A, and I think that we take a lot of meetings.
Richard Greenfield - BTIG LLC
Thank you very much for answering it.
Operator
Thank you. And the next question will come from the line of Michael Olson with Piper Jaffray.
Your line is now open.
Michael Olson - Piper Jaffray
Hey, good afternoon. I'm sorry, this is in the letter.
But on the overall margin profile of the business, has anything changed in how you're thinking about what kinds of levels you could achieve in 2018, hitting 20% at some point? And then also longer term, you still see margins rising to where other console publishers are and where some of the other mobile companies have seen in the past?
Thanks.
Gerard Griffin - Zynga, Inc.
We did stated in the letter and in our opening remarks, we're continuing to focus on delivering our near-term margin goals which is 20% EBITDA of our bookings; EBITDA obviously excluding the impact of deferred revenue. As we look beyond that, our aim is to break into the 20% sometime in 2018, sustain and then grow from there.
The other thing I'll remind you, when we talk about 20% we're talking about it of a gross mobile number as opposed to a net mobile number. So it's closer to 25% if you're comparing this to some of our peers.
As you think of getting from 20% to 25% to 30%, there is a number of ways to get there. Obviously, scale is important.
And so, growing our existing forever franchises broaden them out to a larger audience base and a deeper audience base, whether it's in our current markets or emerging markets, leveraging into new technologies and to new distribution platforms like chat is an interesting opportunity. In addition to bringing additional IP through our own game development or through M&A, will help.
It really helps if you can get a breakout hit. One title reaching a new level of daily bookings can really change the dynamic.
We're not banking our future on a breakout hit. But as I've said in previous earnings calls, if we get one, we'll say thank you very much.
But all of that will help. The final thing I would say is, maintaining a focus on the right level of investment against live, new and emerging technologies is important.
But we're very careful in making sure that we're picking the right bets to give ourselves the right level of operating leverage, as we go through not just this turnaround phase, but even into the growth phases that we're going to see ahead of us.
Michael Olson - Piper Jaffray
Thank you.
Operator
Thank you. And the next question comes from the line of Chris Merwin with Goldman Sachs.
Your line is now open.
Christopher Merwin - Goldman Sachs & Co. LLC
Okay. Thank you.
So just I want (00:47:50) the guidance. So if I do the math on the Peak Games acquisition, I think it works out to about $10 million a quarter.
And if I back that out of the guidance, it implies core bookings are down a little bit, I guess something like $7 million. If I do the same thing for 2018, I get to more like mid-single digit growth for the core ex-Peak (00:48:08).
And you mentioned that 95% of the bookings in 2018 are coming from existing IP. So, I know you mentioned in the 1Q that there's going to be some headwinds I think from advertising and Dawn of Titans, but just curious how you (00:48:19) sort of square the organic growth in the 1Q versus full year 2018?
Thank you.
Gerard Griffin - Zynga, Inc.
Yeah. As I outlined in some of the themes, if you think about Peak, the Peak acquisition essentially helped us mitigate the headwinds we're seeing from older mobile.
In addition to that, we're obviously addressing our web declines which we expect will be of a similar level to what we saw in 2017. And you can do the math on that, but it's approximately $40 million.
So outside of that, when we look at our core – our core mobile, we still expect that to grow in the low double-digit range. When you're looking at Q1, there is a few factors.
If you look at year-over-year, you also have a scenario where this time last year I added a new word to my dictionary phenomenal; we don't really use that in Ireland that much. But we had a very strong performance from poker and we also were coming off a launch quarter for Dawn of Titans.
When you think about this year, yes, we have Words With Friends, but we don't have that same sort of level of momentum. Outside of that though, our core mobile portfolio – live service portfolio is healthy.
But as you go through the year, it really is you're dealing with a portfolio that all those games are well over a year into their lives, some of them a lot longer. They're healthy.
So we don't expect to see the same level of growth we saw in going from 2016 to 2017, 2017 to 2018.
Christopher Merwin - Goldman Sachs & Co. LLC
Okay. Thanks, Ger.
Operator
Thank you. The next question will come from the line of Mike Hickey with Benchmark.
Your line is now open.
Mike Hickey - The Benchmark Co. LLC
Hey, guys. Congrats on a great quarter.
Thanks for taking my questions. One, I didn't see it or hear it, maybe you said it.
But the key contribution in Q4, I think you said to close in mid-December. Was it in your guidance?
Can you break that out for us?
Frank D. Gibeau - Zynga, Inc.
We didn't give a breakout on that, but it was fairly minor to the overall scheme of the quarter. The bigger peak in the quarter was obviously coming from the better-than-expected performance we had from the advertising deals around Words With Friends 2.
Mike Hickey - The Benchmark Co. LLC
Okay. So your core business (00:50:47) correct?
Frank D. Gibeau - Zynga, Inc.
Yes.
Mike Hickey - The Benchmark Co. LLC
Okay. Thank you.
Gerard Griffin - Zynga, Inc.
If you're thinking about – if you listen to the last caller, you got a good steer on how to think about peak next year by (00:51:00) quarter.
Mike Hickey - The Benchmark Co. LLC
Yeah. Fair enough.
Thank you. I just wanted to clarify.
The second question for me is sort of a philosophical feel question, but I think it's sort of important. Obviously, you guys have sort of worked your way through a pretty solid turnaround here, no question.
But that's sort of been focused on live services or existing games, OpEx optimization, and now you guys are eventually looking to sort of bridge your growth into the success of new games. And I guess, when you think about the Zynga of old, when it came to game development, a passionate culture seemed lost to a focus on science or data science.
Obviously, that's an important ingredient in mobile, but clearly not the only ingredient. And so, now that you've been sort of creating a culture yourselves for a while now, I'd like to hear how you think the culture has changed internally?
And important to that, I guess in terms of maybe finding that breakout hit or just getting success in new game launches, important so that in terms of attracting and retaining talent in Zynga for many years, this has been a while, but was not a place people wanted to work and getting those changed, and also (00:52:19) to M&A in talent retention which is clearly very important. Thank you.
Frank D. Gibeau - Zynga, Inc.
Thanks for the question, Mike. The philosophical discussion about company culture, development culture, it's what consumes us honestly most of the days.
It's building out – we want to be known as one of the great game companies of all time, and it starts with the quality of the products and services, and it's directly related to the talent and the culture that creates them. So, understanding that simple mix is simple, but actually making it happen and putting it all together in a way that grows over time is complicated, and it takes a little bit of time and that's what we've been really focused on from day one.
We've been attacking concurrently, building out the live services model, getting the company in a position where we can grow profitably just on live services and we're not betting the company on new titles. And then if a new title comes in, you get the option value of the growth off of it and you keep the OpEx in line, and you got a really nice story there.
So what we finally got here was that Zynga had a phenomenal capability in data science and product management, the science of game development. And there were pockets of excellence on the art side of it, but it needed to be flushed out, it needed to be made much more predictable, it needed to be more focused.
A lot of the talent was diluted across too many ideas. We had way too many games in development beyond the talent that was available to us as a company.
So that first part of our journey has been get live ops in an organized manner, start paying the bills while you start to play and invest for the long term around the new games, but also just as importantly invest in the new platforms like chat and some of the other things, because you want to have an innovative studio, that's how you attract great, great talent. Having really interesting problems to solve gets you great engineers.
So we started to put that together and we started to think about how we wanted to think about this across multiple stages. And I feel much better about the balance of art and science inside Zynga now.
We've been recruiting a lot of people into our organization. We've been leveling up a lot of the people, we've been giving leaders inside Zynga new opportunities.
And so, we've really been mixing the talent inside Zynga in new ways and it's based on a lot of the experiences we've had in other parts of the industry, but also embracing and relishing the advantages that Zynga has. So, we've seen the culture change quite a bit.
We're winning more, recruiting battles than ever before. And when we first started going out on the road and talking about acquisitions, we didn't get a lot of call backs, now we're getting a lot more interest.
So it does little anecdotal things, as little responses start to show you that you build momentum. Momentum is absolutely critical in a turnaround, especially in a creative organization.
So from our perspective, generating that momentum and keeping it going and building on it has also been a core focus. So, we're very excited to start to ship new games starting in the second half of this year.
But again, it's not one of the things we look at it on a – we got to ship this many games in this quarter. It really is, how good is the game?
And we've been tuning the quality over quantity, and innovation over some of the other aspects that you see in it. So, it's very exciting.
I'd love to talk more about it as we can start to reveal more as the year goes on. But it's not only in the main kind of studio that's building applications for the traditional mobile games category, it's also a lot of the stuff that our chat teams are doing, the innovation you've seen us do around AR.
We really want to push on all that stuff. But one of the critical things that we brought to bear and Ger and others on the team have done a great job is, you have to have a discipline about funding your new stuff and your investments of the stuff that doesn't work.
It's entertainment and technology, stuff misses. And what you have to do is, you have to know when to call it and you need to be really sharp about when to move resources and teams to higher value ideas.
And so, that was a little bit of the rigor that I think we brought over these last 20 months or so in terms of how we innovate, how we build new, but at the same time, we can't just add to the R&D line. And if you look at our performance over the last couple years, we've held OpEx relatively in line.
We kept R&D in a place where we really like it. And then it gives us a chance to be able to invest in a way where when we do get ahead or we do start to see that growth, it flows through as opposed to gets clogged up somewhere up the line in terms of the expense line.
Does that make sense?
Mike Hickey - The Benchmark Co. LLC
Thanks, Frank. I appreciate the color.
Good luck, guys.
Operator
Thank you. And our final question will come from the line of Ray Stochel with Consumer Edge Research.
Your line is now open.
Raymond L. Stochel - Consumer Edge Research LLC
Good afternoon. Thanks so much for taking my call.
Can you discuss any retention or engagement metrics on your chat games relative to your traditional mobile games? It does sound like you're investing in more here.
If you could give any details on that, and if there's a major variance on a game-by-game basis or really overall just kind of what you're learning about chat from a data perspective? Thanks.
Gerard Griffin - Zynga, Inc.
It's very early days and it's one of those things we're really experimenting with a lot of different ideas to see what works. Right now, I would point out that you see a lot more impact on MAUs and DAU right now from the chat investments we're making.
You're starting to see a younger player, a little bit more male and you do have to focus much more carefully on the front part of the funnel like the D0 or the D1 piece is super vital in a chat game versus some of the longer more sustained retention and engagement metrics because it's so early. We don't know yet how long games actually stay.
So, speed and velocity of updates is really important and we're starting to try incorporate some of these key learnings into our development organization.
Raymond L. Stochel - Consumer Edge Research LLC
That's great. Thanks so much.
Operator
Thank you. I would now like to turn the conference back over to Ms.
Rebecca Lau, for closing remarks.
Rebecca Lau - Zynga, Inc.
All right. Thank you, Sabrino.
We want to thank everyone for joining our earnings call today, and we look forward to connecting with everyone over the coming weeks.
Operator
Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program.
You may all disconnect. Everyone have a wonderful day.