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Comment by danmaz74 | Hacker News Reader

According to the article, Zynga made quarterly (or yearly?) profits of $1.3M out of revenues of $279M. If I'm not missing anything important, this means that the company had to sustain expenses of over 277 million dollars during the quarter.

The company says that it "spent more than it traditionally had on hiring, acquisitions, and its international growth." But does anybody have an idea about where did all that money actually go? I would have expected a company like Zynga to be much more profitable.

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You can find everything that Zynga has reported here (particularly p. 59): http://www.sec.gov/Archives/edgar/data/1439404/0001193125112...

When they (Gamautra) say "year-on-year", they actually compare Q2 2011 to Q3 2010, which is not standard; in general, you would want to compare Q2 to Q2 to account for seasonality of demand etc.

You can see that their sales and marketing expenses stayed roughly the same over the last 3 quarters, but there is a huge rise in R&D (almost 2x from Q4 10 to Q2 11), G&A and some small increase in cost of revenue (Facebook credits?).

All numbers are in mn USD

Revenue Q3 2010 .. Q2 2011: $170.7 $195.8 $242.9 $279.1

Total cost and expenses: 136.4 124.3 206.7 266.1

- Cost of revenue: 49.9 51.6 67.6 78.1

- R&D: 39.8 51.5 71.8 95.7

- Sales and marketing: 28.9 38.3 40.2 38.1

- General and administrative: 17.8 (17.1) 27.1 54.2

Income (loss) from operations: 34.3 71.5 36.2 13.0

Net income: 27.2 43.0 16.8 1.4

Spending lots on R&D, and sales spend being flat while revenues increasing like that. Looking pretty healthy to me.

On the other hand they appear to be overspending in R&D, given that their primary products are derivative copycats of everything that's popular. (or are bandwidth and servers considered R&D?)

Maybe they are trying to create something big that is not a copycat.

Thank you for the answer. So, the biggest costs are in R&D, so actually they should more an investment than expenses (but I wonder if sw maintenance is included there too).

By the way, does "General and administrative" include the infrastructure costs?

The only way they have to sustain $277 million in expenses is if those are fixed costs. I suspect that a lot of them are variable costs that are dependent upon a few scaleable independent variables. That being said, their profit margin does seem unnervingly low.

They're expanding like crazy, you'd expect them to be plowing what ever they're making back into hiring and new projects.

More than likely it goes right back into user acquisition (ads) to drive more traffic to their games.

That statement is not supported by data - see my comment above.

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