Zynga's ARPU doubling? Not quite
Apparently today the pundits and analysts around have come up to reviewing Zynga's ARPU figures from their S-1 filing (Inside Social Games, Eric von Coelin). Something seemed fishy in these calculations, and since I'm home for a day, I had the opportunity to review the filing figures on a computer, rather than just a tablet. Yep, people, you're comparing apples to oranges. Zynga's monetization rate is improving, but it's nowhere as dramatic as you're making it look. Did you already forget, they defer revenue? You can't compare GAAP deferred revenue to non-deferred DAU/MAU figures! Use the bookings data instead.
This is what the S-1 filing states about the difference:
"Bookings is a non-GAAP financial measure that we define as the total amount of revenue from the sale of virtual goods in our online games and from advertising that would have been recognized in a period if we recognized all revenue immediately at the time of the sale. We record the sale of virtual goods as deferred revenue and then recognize that revenue over the estimated average life of the purchased virtual goods or as the virtual goods are consumed. Advertising revenue consisting of certain branded virtual goods and sponsorships is also deferred and recognized over the estimated average life of the branded virtual good, similar to online game revenue. Bookings is calculated as revenue recognized in a period plus the change in deferred revenue during the period. For additional discussion of the estimated average life of virtual goods, see the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Revenue Recognition.”
Zynga is of the opinion that bookings more accurately represents their current sales activities, and I fully agree. After all, this is not subscription business we're talking of! If you're as hard-core geek about these things as I tend to be, the description of when a booking turns into revenue is discussed on pages 62-63 of the filing:
"Durable virtual goods, such as tractors in FarmVille, represent virtual goods that are accessible to the player over an extended period of time. We recognize revenue from the sale of durable virtual goods ratably over the estimated average playing period of paying players for the applicable game, which represents our best estimate of the average life of our durable virtual goods"
That deferring means that during periods of rapid growth, ARPU monetization appears to decline, while on the other hand periods of flat or declining traffic would seem to improve ARPU, due to the recognition of earlier deferred revenue against current, not earlier userbase.
With these covered, what are the actual sales figures? The average daily Bookings to DAU rate is somewhat higher than the Revenue to DAU rate, at $0.051 (B) in Q1 of this year vs $0.042 (R). Both seem to have plateau'd on that level since growing from a year-ago $0.030 (B) / $0.017 (R). Respectable, but not earth-shattering -- and the growth, while impressive, isn't quite "more than doubled".