King vs Zynga

hello and welcome to pocketgame.busy's weekly news digest this is for the week ending the 15th of may 2015. hi i'm john jordan so we're still in the kind of financial period where companies are announcing their figures so we're um in the period where companies announcing the figures for the period um first of january to 31st of march 2015. um so uh and i guess a lot of people find those kind of figures and uh and rightly so boring kind of thing um and the other thing about this because is because companies release them every every three months they're quite hard to kind of build trends from so trends can be often quite slow to develop and often when you're talking companies that have you know hundreds of millions of pounds of dollars of revenue or billions of dollars revenue and kind of profit losses can go up and and and it's sometimes very difficult to kind of see

the wood for the trees in in those things but they are important to i i think anyway spend a bit of time kind of looking in to what's going on and sometimes companies make a loss for for reasons that are no fault with their own and sometimes they make a profit or a very big profit for reasons that are not really um anything to do with them doing well anyway so it does take time to kind of go beneath the figures a little bit so we're gonna spend a bit of time um today looking at some of those companies and sometimes it's nice to have companies that are kind of you can compare in in some way without it being kind of a fraudulent journalistic comparison um and hopefully we won't be doing that today but um two companies that have announced their figures um recently and two companies that kind of in some ways are broadly comparable um king and zynga so obviously um we know zynga has been around longer that was the first kind of company to to make a lot of money from social games on facebook so it's known for farmville in particular that's a long time ago now it's kind of moved on and like pretty much all companies who are doing social free to play gaming it

is now a majority mobile company um it's not as majority as some other companies so it's about two-thirds of its revenue now comes from mobile games um king um kind of similar in a way that king's kind of big first big hits like candy crush saga um first happened actually on king's own website but then happened on facebook um but king was maybe like kind of two years um later to the market than zinger so they kind of learned a bit from zinger's um kind of problems and mistakes um and now uh king is about kind of 80 mobile revenue at the moment so it's kind of a bit further advanced um the other kind of big comparison between the two companies is one is massively successful one is massively still unsuccessful so let's get into some figures first before we start kind of drilling down into into kind of journalistic kind of a parlance so i just checked my cheat sheet here so so king announced its figures it had sales of um uh 570 million dollars um during that three month period obviously that's

big you know 600 million dollars worth of people of sales people that's people spending money in in games kind of like candy cru or like candy crush saga that's still it's still its biggest game it's got a bit um kind of nervous about candy crush being such a big kind of a part of its revenue so now it kind of actually breaks up what it calls non-candy crush saga revenue to prove it's not just all that can crush saga and actually it has done fairly well with with other games that aren't candy crush saga um so there's a good kind of split within the company um so you could you could argue that it's kind of well balanced um the most important thing actually about kind of companies is not so much the sales i mean to degree sales are kind of easy to generate or or less non-trivial to generate than profit profit is the really important thing for companies so you want to see if a company is is is healthy you look at the profit so um king is is certainly very healthy from that point of view so it made profit of 164 million dollars during the quarter so that's basically

just free money that it generated that it can do something with and this is um from with my genesis hat on that's kind of where it's interesting to look at king um and it's always been very profitable you could argue ipo'd so you can buy shares on the new york stock exchange you could argue ipo a bit late so um it kind of it had its very strong growth period and then it ipo but often you want to really try and kind of combine ipoint making your shares available to the public with your very strong growth period because that's investors buy your shares the company continues to grow very fast the share price goes up investors are super happy um king kind of went it a bit of the wrong way around so it it saw a lot of growth it ipo'd um ipods if you bought a one single sharing king when it became available that that share was um worth 22.50 um and on the for a couple of days after that it went a bit higher but basically king shares since then have uh lower than the

price that they floated outside in kind of market terms that's called being underwater so obviously the people who bought kingshares at the time ipo'd are kind of a bit annoyed because they spent if they bought one share they bought at 22.50 cents and now that share is worth 15 or something so they've made a loss on it so for king that's kind of a problem that is shared everyone says she has to be going up obviously for the kind of executives in the company often they have share options um so they want to see the shares going up and generally it seems like a positive thing that the market whatever that means it has a positive view on your company if your shares are going up so what king's been doing because it just it generates a lot of profit and profit in some ways it's good for a company obviously every company must make profit but for companies that you can buy the shares in profit can become a problem as well if you have a lot of money sitting in your balance sheet um kind of kind of people who are buying your shares go what are you doing with that are you going to invest in new products are you going to buy other companies um yeah they don't like to see kind of a lot of money sitting there not doing anything because then they go well we'll have some of that back and actually king

to be fair to it um has has actually is now spending quite a lot of the money that's coming in um trying to kind of um make its uh investors happy so in fact um i mean this is a little bit kind of gloss our full half empty kind of scenario but over the last quarter um king has spent 303 million dollars of its cash pile its cash ball was about a billion dollars it's now kind of down to about kind of i think about 650 million dollars obviously vast amounts of money but it's basically spent a third of its cash pile in the last quarter and part of that is given a dividend to shareholders so anyone who owned a share has now been given cash by king dividends are normally not given by tech companies normally they're given by companies that are kind of in a solid kind of mature kind of part of growth so they don't really need a lot of money to invest in in their operations and they have this free money and they give it back to investors um and that keeps a share price high so that's kind of a good thing for glue shared maybe in the long term the other thing that companies tend to do and there's a bit more argument about this is that glue is buying back

shares so normally if i have a share in glue and i want to sell it i will sell it on the stock market and someone else and maybe a private investor like me or a corporate investor will buy it glue is actually spent over 100 million dollars in the last course of buying back shares from its investors the point of this is that then it destroys those shares so there's less shares available in king and that will make the share price rise um so that's the theory anyway for the king it hasn't happened so far um so it's been it's spent a lot quite a lot of money 300 million dollars is quite a lot of money um so it's twice its profit my profits they made in last quarter is spent kind of destroying shares and giving that money to sheldon's it wants to see its share share price go up to be higher than 22.5 dollars hasn't happened yet but in a sense it doesn't matter glue is sorry glue that's freudian probably um the king is is very profitable it will continue to be profitable you know um it's continuing to launch um not games as successful as candy crush but candy crush soda saga it's latest games gone out in in china korea and japan it's doing pretty well out there you know it will continue to be a pretty profitable company and a pretty healthy

company so the comparator for that we've mentioned already for king is zynga hazinger went early again like like king it kind of ipo maybe at the wrong time so again it's share price um uh i think it was about 11 when it when it launched and its share prices continually been under that value so if you bought zinger shares when it launched you'll be annoyed as you would have been with king and the difference with zynga is zynga hasn't brought back shares zinger hasn't paid a dividend the reason for that is zynga is still loss-making and obviously as soon as you have a company that's lost making that's that's a worry for investors that's a worry for people working in that company you know no company can continue forever if it's making a loss so this gets to some numbers um so zinger's uh sales in the last quarter were 183 million dollars so you can start to get a sense of scaling so king almost made as much profit free money as zinger made in sales in terms of profits england make a profit zinger made a loss of 47 million so basically zynga spent more money than

it brought in from his customers that's a difficult thing um normally companies are quite aggressive to stop that happening um i think i was trying to be aggressive to do that but it's pretty much been making a loss um since it ipo'd the reasons for that structural it was very facebook heavy it's trying to become a mobile kind of centric company it basically grew very quickly in an early stage and had lots of very expensive people in its company when it was making profit now it's not making a profit it's kind of hard to get rid of people but actually one big thing it's done and it has done this before but it's announced it's it's shedding 18 of its staff which is a fairly large percentage of this stuff i think there's a fairly large company so that's that's 364 million 364 people it's it's it's it's having to sack um no companies like to attack people that's just nasty like that's not what you get into business to do but sometimes you have to do it um but zynga still is it is a work in progress i mean it's not going to go bust anytime soon because it has a billion dollars in cash so this is the other thing when it ipoded got that cash

so it can lose 50 million dollars in a quarter for a a a long time um but obviously the markets don't like in it and i think if you're going to buy shares in any of those two companies you probably happy buying shares in king a profitable company that's giving back money to investors than zynga um some very very quick um other other kind of figures so um another company that's actually the biggest games company in the world no one really knows it very well it's it's called tencent it's actually kind of like um i'm not quite a google of china but kind of getting onto that level it's a very big internet company in china um games are a reasonable kind of large percentage of its business but not by any means the majority there's a lot of money um in pc games that's really where it came from and but now um very quickly it's pretty much owned the chinese mobile games space probably has about 50 over 50 percent of the chinese mobile games um the revenue of the chinese mobile games only goes through it that's partly because it has um a two very big social social mobile platforms one called qq and one called um in the west at least called um wechat

so those are kind of a bit like kind of the facebook um or the kind of twitter or whatever you want to call it of of kind of social media in china and it can just push kind of mobile game through that and it's been investing very heavily it's it's invested um probably about two billion dollars in the last year just in mobile games and it just announced um a couple days ago that it's spent 60 million investing in um pocket gems pocket gems is one of the kind of first wave of american social mobile companies so we're kind of seeing with 10 cents invested in glue as well that was about two weeks ago um so we're kind of seeing a company that's not very well known but it's very profitable and you go back to this profits thing as soon as you're generating profits you can do interesting things with them so in the case of zynga that's um you're not making profit so that's dangerous thing in case in terms of kind of king generating profits giving back to its shareholders it's showing we want our share price to go up in terms of 10 it's generating all this profit and it's investing for the future um so kind of three companies all worth watching um and all interesting in their own ways come back next week and

we probably won't be talking about money we'll probably be talking about something else maybe something a bit more interesting for the general audience see you then