Zynga NOT Losing $150 on New Customers, Making $30, $50 or $100+ Instead?

NaturalMotion's chief exec takes issue with Sterne Agee's loss estimates and releases a figure of his own: $30 profit per new customer. Last week, Sterne Agee analyst Arvind Bhatia explained to Benzinga why Zynga ZNGA is losing $150 on every new paying customer. Some took issue with this figure, particularly Torsten Reil (CEO of NaturalMotion, a game technology and development company), who tweeted a couple times on the matter. “I can't believe some media outlets are repeating the ‘Zynga-loses-$150-per-user' nonsense,” he said. “It's wrong.” Reil then spoke to Founderware on the matter, saying, “Over a period of nine months, Zynga (like all social games companies) will lose a proportion of paying users through normal attrition. Let's say that this attrition rate is approximately 20% (may actually be higher or lower). With a base rate of 3M users, that's a loss of about 600,000 during the period.” Zynga, of course, finished the period with 3.4 million users. “Taking this attrition rate into account, this means they actually acquired 1M new paying users (or 2.5x what the original article suggested),” Reil continued. “With a $120MM marketing spend, this obviously equates to an acquisition cost of $120/new paying user. And with an average revenue per paying user of $150, it means Zynga are actually generating $30 of net revenue per user.” “Obviously, all of these calculations are back-of-the envelope,” Reil concluded. “Not all of the $120MM marketing spend will be for user acquisition. And not all of the new users are acquired through marketing (Words With Friends being one example of a successful non-marketing acquisition channel).” Benzinga reached out to Torsten Reil and Arvind Bhatia for comment. At press time, Reil had not responded. Bhatia, however, told Benzinga why Zynga could still be in the red. “The 20% [figure offered by Torsten Reil] – if you said that it's 40% attrition, you could actually make that number look higher. Then you could say they lost 1.2 million people. Then the customer acquisition costs would be only $100.” In that case, Zynga would be making a $50 profit per new customer acquired, Bhatia argued. ($150 revenue - $100 expenses = $50 profit.) “By making the churn worse, you're actually making the numbers look better,” said Bhatia, adding that while everyone is entitled to their own opinion, Sterne Agee is ultimately looking at how many customers are added on a net basis. “In the extreme scenario, you could say there is a 100% churn. All of these [customers] are new. And if that's the case, you could say, ‘Well, they spent $120 million acquiring 3.4 million customers, and the acquisition cost is [less than] $40 a customer.' You could go on and on.” Benzinga has reached out to several developers within the social games community to get their take on the matter. Stay tuned for further updates. Follow me @LouisBedigian