Zynga Inc. has acquired privately-held mobile game developer Gram Games for $250 million in cash and a three-year earn out based on the team’s achievement of profitability goals that align with Zynga’s long-term growth plans. This acquisition brings to Zynga a talented team with a proven track record of developing highly engaging mobile games across multiple genres played by millions of people daily. Zynga expects its acquisition of Gram Games will be an additional catalyst to its growth and delivery of its long-term profitability targets.

 Founded in 2012, Gram Games is an innovative mobile game developer with studios in London and Istanbul. Its talented team of 77 employees is focused on delivering high quality, deeply engaging entertainment experiences in the hyper-Casual and Puzzle genres. Their mobile games include nine titles that have collectively been downloaded more than 170 million times by players around the world. Gram Games’ live game portfolio is anchored by their hit game Merge Dragons! – which launched less than a year ago and broke into the Top 50 Grossing Game charts in the U.S. Apple App Store. The team also has the popular puzzle game 1010!, in addition to several other hyper-Casual games. The acquisition of Gram Games grows Zynga’s audience by 3 million mobile daily active users (DAU), and also expands Zynga’s new game pipeline by adding several exciting Gram Games titles in development for 2019 and beyond.

“We’ve been impressed by the unique culture that Gram Games has created, as well as their innovative approach to game making,” said Frank Gibeau, Zynga CEO. “By acquiring Gram Games, we’re expanding our portfolio of live game franchises, while also adding a number of exciting new starts to our pipeline of future games. In particular, we’re huge fans of Merge Dragons! and believe it has the potential to be a new forever franchise for Zynga.”

“We are proud to join Zynga and combine Gram Games’ unique culture, talented team and hit games with Zynga’s world-class organization,” said Mehmet Ecevit, Gram Games CEO. “We believe deeply in Zynga’s mission to connect the world through games and are excited to work with Frank and the rest of the Zynga team on our next phase of growth.”

“Gram Games helped define the hyper-Casual genre with games like 1010! and Six!, and we continued to grow our footprint with Merge Dragons!,” said Kaan Karamanci, Co-founder of Gram Games. “We look forward to marrying our unique approach to game making with Zynga’s live services expertise to grow our games and continue to delight millions of players around the world.”

The acquisition of Gram Games aligns with Zynga’s strategic priorities to grow its live services, create new forever franchises and build out its capabilities on emerging platforms. Looking ahead, Zynga will apply its live services expertise to grow the Gram Games portfolio through innovative bold beats that deepen engagement with existing and new players. Zynga also expects to bring its Studio Operations and Publishing organization expertise to Gram Games, with a focus on achieving greater levels of success and scale through improved user acquisition, advertising, network support and platform partner relations.

Q2 Guidance Update

Following the close of this acquisition on May 25, 2018, Zynga has commenced recognition of Gram Games’ financial performance in its consolidated results. Accordingly, Zynga is upgrading its Q2 guidance to reflect this incremental contribution from Gram Games.

Some additional context on Zynga’s updated guidance is as follows:

  • Zynga remains on track to deliver results, excluding the contribution from Gram Games, in line with its original Q2 guidance as communicated during Zynga’s Q1 2018 earnings call.
  • For GAAP purposes, Zynga does not expect any significant revenue impact from Gram Games, as the expected bookings generated in Q2 of $10 million will be accounted for as an increase in deferred revenue and recognized as revenue in future quarters.
  • Zynga expects a reduction to its Adjusted EBITDA of $8 million, as a result of the $10 million increase in deferred revenue partially offset by $2 million of expected operating contribution.
  • Excluding the impact of deferred revenue, Zynga expects Gram Games to deliver margins in Q2 that meet their near-term margin goals.

A summary walk of Zynga’s updated Q2 guidance is as follows:

Original Updated
Q2’18

Gram

Q2’18
(in thousands, except per share data) Guidance

Games

Guidance

GAAP

Revenue $ 208,000 $ 0 $ 208,000

(B)

Net increase in deferred revenue $ (10,000 ) $ (10,000 ) $ (20,000 )
Net (loss) income $ 1,000 $ (16,000 ) $ (15,000 )
Diluted share count(1) 900,000 (25,000 ) 875,000
Diluted net (loss) income per share $ 0.00 $ (0.02 ) $ (0.02 )
Non-GAAP
Bookings $ 218,000 $ 10,000 $ 228,000

(A)

Adjusted EBITDA $ 27,000 $ (8,000 ) $ 19,000
Management Reporting = (A) – (B)

Footnotes:

(1)

The decrease in diluted share count is due to our net earnings shifting to a loss position. This results in certain anti-dilutive shares being excluded from the calculation of EPS.