Zynga (Underperform, $2.70) Stock view: Live events can improve franchises, but still need new titles Zynga launched Dawn of Titans end of 4Q, and although it progressed into the top 20 grossing games in the U.S. Apple store, it has fallen out of the top 100 at some points during the quarter suggesting that its overall revenue contribution has been fairly low. While this is somewhat disappointing, we think investor expectations for the game are now at reasonable (lower) levels. Instead of big new title launches, Zynga has indicated it is focused on strengthening its current franchises with better engagement and monetization through live events and new features, and progress in this area is key for the 2017 stock outlook. Zynga Poker (up roughly 80% y/y YTD) appears to be benefiting from the focus on engagement and live events with much stronger monetization, which could offset declines in other titles. Overall, we think it could be hard to get the Street excited on the stock without a strong future title that could drive more than single digit growth. Key theme/metric(s): DAUs, and live events impact on DAU trends After launching 10 new games in 2016, Zynga is focusing more heavily on live events to drive engagement with in franchises rather than launching additional titles. This should, if successful, translate into better DAU metrics as consumer engage with a title more often. With Dawn of Titan likely coming below Street expectations, stronger engagement will be necessarily for Zynga to drive a stronger DAU base. For the quarter, we model 17.9mn online game DAUs for 1Q, down slightly q/q, and down 6% y/y. Biggest issues/risks: - Dawn of Titans revenues: Zynga spend several years developing the game and lack of title success could impact sentiment. - Expense leverage and cost-cutting benefits do not materialize: Zynga plans to further improve operational efficiency and potentially cut non-profitable franchises, but this may be hard to do without impacting long ter