Market Overview

Zynga Enters Into Agreement to Acquire Small Giant Games, Creator of Hit Mobile Game Franchise Empires & Puzzles

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  • Adds a Proven Studio, Another Forever Franchise and Expands New Game
    Pipeline
  • Acquisition Expected to Close Effective as of January 1, 2019
  • Zynga Raises Q4 2018 Financial Guidance Driven by Strength of its
    Existing Live Services
  • Management will Host a Live Q&A Session Today at 2:00 p.m. Pacific Time

Zynga Inc. (NASDAQ:ZNGA), a leading social game developer, today
announced it has entered into an agreement to acquire Helsinki-based
mobile game studio, Small Giant Games ("Small Giant"), creator of the
hit franchise Empires & Puzzles. Small Giant adds an
experienced team and another innovative Forever Franchise to Zynga's
live service portfolio while also expanding its new game pipeline. Small
Giant is expected to be accretive to Zynga's profitability and be a
meaningful growth driver in 2019 and beyond.

This press release features multimedia. View the full release here:
https://www.businesswire.com/news/home/20181220005883/en/

Zynga Acquires Small Giant Games (Graphic: Business Wire)

Zynga Acquires Small Giant Games (Graphic: Business Wire)

Founded in 2013, Small Giant is a mobile gaming studio based in
Helsinki, Finland that developed the hit franchise Empires & Puzzles. The
game successfully blends approachable Match-3 battles with deeper
gameplay elements including Hero Collection, Base Building and Social
Alliances. Since its launch 18 months ago, Empires & Puzzles
has repeatedly broken into the Top 10 Grossing Games on the Google Play
Store and Apple App Store. The game has been downloaded over 26 million
times and expands Zynga's international and Android audiences.

"We've been impressed by the quality and momentum of Empires &
Puzzles
as we add another Forever Franchise into Zynga's portfolio,"
said Frank Gibeau, Zynga CEO. "Small Giant has created an innovative
game that delivers a unique player experience that engages over the long
term. We are excited that Small Giant is joining Zynga as they enhance
our next phase of growth."

"Our studio was founded on the idea that small, skillful teams can
accomplish giant things, and I am confident that partnering with Zynga
is the right next step in our evolution," stated Timo Soininen, Small
Giant Games CEO. "We will now operate as a separate studio within Zynga,
maintaining our identity, culture and creative independence. By
leveraging the expertise and support from the wider Zynga team, we will
amplify the reach of Empires & Puzzles and the new games in
our development pipeline."

Zynga will acquire 80% of Small Giant for $560 million, comprised of
approximately $330 million in cash and $230 million of unregistered
Zynga common stock (issued at the average closing price per share over
the thirty-day trading period ended December 19, 2018). The final
upfront transaction consideration will also include customary closing
adjustments and will be partially funded by a newly established $200
million revolving credit facility. The transaction is expected to close
effective as of January 1, 2019 and Zynga will purchase the remaining
20% of Small Giant over the next three years at valuations based on
specified profitability goals.

Q4 2018 Guidance Update

Zynga is raising its fourth quarter 2018 guidance based on the strong
performance of holiday bold beats across its live service portfolio – in
particular, Words With Friends, Merge Dragons! and CSR2.
In addition, Wonka's World of Candy is off to a
promising start since its launch in early November.

As a reminder, this performance does not include any contributions from
Small Giant as the transaction is expected to close effective as of
January 1, 2019.

Updated Q4 2018 guidance is as follows:

               
Original Raised
Q4'18 Zynga Q4'18
(in thousands, except per share data)       Guidance     Update     Guidance
 
GAAP
Revenue $ 235,000 $ 8,000 $ 243,000

(B)

Net increase in deferred revenue(1) $ (15,000 ) $ (2,000 ) $ (17,000 )
Net (loss) income $ (2,000 ) 500 $ (1,500 )
Basic share count 867,000 - 867,000
Diluted net (loss) income per share $ (0.00 ) - $ (0.00 )
 
Non-GAAP
Bookings $ 250,000 $ 10,000 $ 260,000

(A)

Adjusted EBITDA $ 32,000 $ 1,000 $ 33,000
 
Management Reporting = (A) - (B)
 

Footnote:

(1) For clarity, a net release of deferred revenue results in
revenue being higher than bookings and is a positive impact to
Adjusted EBITDA as reported; a net increase in deferred revenue
results in revenue being lower than bookings and is a negative
impact to Adjusted EBITDA as reported.
 

Live Q&A Session

Zynga management will host a live Q&A session at 2:00 p.m. Pacific Time
(5:00 p.m. Eastern Time) today, Thursday, December 20, to discuss it has
entered into an agreement to acquire Small Giant Games.

The live Q&A session can be accessed at http://investor.zynga.com
– a replay of which will be available through the website after the call
– or via the below conference dial-in number:

  • Toll-Free Dial-In Number: (800) 537-0745
  • International Dial-In Number: (253) 237-1142
  • Conference ID: 2365758
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