Revenue Recognition in Zynga’s Online Games and Ads

Revenue Recognition in Zynga’s Online Games and Ads


Revenue Generation from Zynga’s Online Games

We generate revenue from the sale of virtual goods in connection with our online games and from the sale of advertising within our games.

Our games are operated as live services for players to play. For free. These games allow players to purchase virtual currency to obtain virtual goods to enhance their gaming experience. We recognize revenue when there is reasonable assurance that services will be provided to players and fees will be collected. In order to determine when the service is provided to the player, we have determined that the paying player has an implied obligation to keep the purchased virtual goods displayed in the online game for the estimated lifetime or until consumed. Did. Revenue from sales of virtual goods is initially recognized as deferred revenue. We classify Virtual Goods as expendable or permanent.

Consumable virtual goods include: B. Energy of CityVille. Represents a product that can be consumed by a specific player action. Common characteristics of consumables include virtual goods that disappear from the player’s game board after a short period of time, provide no further benefit to the player after consumption, or allow the player to immediately perform in-game actions. will be For sales of consumable virtual goods, revenue is recognized when the goods are consumed. This is about a month.

Durable virtual goods, such as farmville tractors, represent virtual goods that players can access over a period of time. longer period. We recognize revenue from the sale of durable virtual goods in proportion to the estimated average playing time of paying players for that game. It represents the best estimate of the estimated life expectancy of durable virtual goods.

Future usage patterns will vary based on past usage patterns, so estimated average game time may change in the future. We determine the estimated average playing time of paying players and the estimated average lifespan of virtual goods on a quarterly basis. Cumulative change in estimated average gameplay for paying players in 2011 would generate $53.9 million in revenue growth, offsetting 2012 revenue declines by the same amount.

We have contractual relationships with agents and distributors. Advertising Agencies Brokers and certain advertisers who place advertisements within our Games. We collect advertising revenue, such as virtual branded merchandise and sponsorships, engagement ads and offers, and mobile ads when ads are served to customers.

See excerpts from his 2011 annual report for Zynga and his Stanley report for Morgan. See exhibitions and overviews. Please answer the following questions. This task should not exceed one page.

Zynga Inc. (ZNGA) is the world’s leading provider of social gaming services with 240 million monthly users in over 175 countries. Zynga’s flagship games include CityVille, Zynga Poker, FarmVille, CastleVille, FrontierVille, Mafia Wars, Words with Friends, and Draw Something. Facebook is the primary distribution, marketing and payment platform for the company’s games, but the games are also available through other social networks and mobile applications. Zynga went public in December 2011 and is headquartered in San Francisco, California.

1) Does Zynga charge customers to play the company’s games? How does Zynga generate revenue?

2) Zynga is virtual Explain in your own words how you account for revenue from the sale of your products.

3a) Is this how Zynga accounts for revenue from the sale of virtual goods? Is the product ??appropriate? Why?

3b) What additional information would you like Zynga to provide to help us better assess whether virtual goods are being properly accounted for?

4a) Game Time generated $53.9 million in revenue growth in 2011, offsetting revenue declines in 2012 when Zynga determined changes in estimated averages. What happened to average play time (i.e. did it increase or decrease)? What does this mean for the nature of Zynga’s business?

4b) What net income would Zynga have reported in 2011 had they not made this change?

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