Mobile games publisher Zynga reported that advertising revenues in Q3 came in above expectations, as a shift to hyper-casual gaming helped the business weather turbulence caused by Apple’s privacy changes.
Overall advertising revenue was up 99 percent year-on-year. And while this growth was driven primarily by Zynga’s acquisition of hyper-casual specialist Rollic, Zynga executives said ad revenues for its hyper-casual portfolio have performed strongly despite Apple’s privacy update.
This most recent round of financial results has been a telling one for the mobile world. It’s the first full quarter since Apple rolled out App Tracking Transparency, which requires apps to ask for explicit user consent to use Apple’s Identifier for Advertisers (IDFA). Opt-in rates have been fairly low, meaning the majority of publishers can no longer track users and measure performance as effectively as they were previously able to.
The likes of Snap and Meta, the newly rebranded parent company of Facebook, have reported a significant impact from these changes.
Several mobile gaming companies, including Angry Birds maker Rovio and Zynga itself, have seen a shift to hyper-casual as a way to weather the storm. Hyper-casual games have a broad appeal and broad user base. Ad targeting is less relevant for these titles, meaning they are less affected by privacy changes. They also have lower user acquisition costs, since they don’t have to target specific audiences in their own marketing.
Zynga’s acquisition of Rollic was framed partly as preparation for the post-IDFA world. And it looks like the strategy has paid off. Chief financial officer Ger Griffin said Zynga saw “softness” in ad revenues during October, but that bookings picked up again at the end of the month, and Q4 is still expected to be strong overall.
Executives also say Zynga’s advertising performance has been strengthened by its acquisition of monetisation platform Chartboost. CEO Frank Gibeau said on the earnings call that the programmatic platform will help Zynga get the most out of its first-party content and data, helping it to monetise effectively without having to use Apple’s own tools.
Focus on rewarded video in premium titles
All the talk about hyper-casual titles however raises questions about the future of more premium titles. Zynga after all has licensing deals with major entertainment brands including Harry Potter, Star Wars, and Game of Thrones. These titles were already mostly monetised through in-app purchases prior to the IDFA changes. Is there a future for advertising on these non-hyper-casual titles in the post-ATT world?
CEO Gibeau suggested that ad revenues will be less of a priority for these titles. “We definitely see contributors to the ad business growth coming from hyper-casual,” he told analysts on an earnings call.
But that’s not to say advertising will be an afterthought on premium titles. Gibeau said rewarded video formats in particular will still be common on these titles, with rewarded video a significant feature in its newly released flagship game FarmVille 3.
And Gibeau added that as Zynga builds out its own ad tech stack, it’s ability to monetise through advertising will be strengthened across all kinds of games. Gibeau said the company is looking at mediation and supply side technologies which could be added to its stack, and also investing more in machine learning to strengthen its programmatic tech.
But Zynga is clearly still exploring new monetisation options outside of advertising. The company also announced it has hired Matt Wolf, founder and CEO of media agency D20, as its first VP of blockchain gaming. Wolf will help Zynga explore how to integrate blockchain technology and non-fungible tokens (NFTs) into Zynga’s games, thereby creating new revenue streams.
