Zynga’s Revenue Recognition Dilemma
http://accrualperspective.wordpress.com/2012/10/10/zyngas-revenue-recognition-dilemma/
Zynga’s Revenue Recognition Dilemma
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Zynga’s Revenue Recognition Dilemma
Zynga has been the focus of a highly disputed topic on bookings and revenues as of late. Unfortunately for the online gaming company, many accountants and financial analysts are not in Zynga’s favor on the way that the company has been recognizing revenues.
To put the company in perspective, there are 26 million digital farmers via the vastly rampant FarmVille application run by Zynga. In the popular game, Facebook users build farms to produce crops and create the kind of productivity that they desire. This creates the need for virtual, heavy equipment, such as tractors, seeders and harvesters, all which can be bought with FarmVille Currency. Zynga makes money by allowing users to hurry the process by converting real dollars from their credit cards into the virtual currency necessary to get the equipment they need to get the job done. Like FarmVille, Zynga has users across a variety of applications such as CityVille, Words with Friends, and Mafia Wars, all of which using the same models.
This type of unique revenue however provokes a unique question; that is, how is Zynga supposed to report revenues from these products that they’ve offered?
According to the company’s 10-k report, it’s policies on reporting states that: * “For the sale of consumable virtual goods, we recognize revenue as the goods are consumed” * “We recognize revenue from the sale of durable virtual goods ratably over the estimated average playing period of paying players for the applicable game, which represents our best estimate of the average life of our durable virtual goods”
And perhaps the most important: * “If we do not have the ability to differentiate revenue attributable to durable virtual goods from consumable virtual goods for a specific game, we recognize revenue from the sale of durable and
Zynga’s Revenue Recognition Dilemma
Leave a reply
Zynga’s Revenue Recognition Dilemma
Zynga has been the focus of a highly disputed topic on bookings and revenues as of late. Unfortunately for the online gaming company, many accountants and financial analysts are not in Zynga’s favor on the way that the company has been recognizing revenues.
To put the company in perspective, there are 26 million digital farmers via the vastly rampant FarmVille application run by Zynga. In the popular game, Facebook users build farms to produce crops and create the kind of productivity that they desire. This creates the need for virtual, heavy equipment, such as tractors, seeders and harvesters, all which can be bought with FarmVille Currency. Zynga makes money by allowing users to hurry the process by converting real dollars from their credit cards into the virtual currency necessary to get the equipment they need to get the job done. Like FarmVille, Zynga has users across a variety of applications such as CityVille, Words with Friends, and Mafia Wars, all of which using the same models.
This type of unique revenue however provokes a unique question; that is, how is Zynga supposed to report revenues from these products that they’ve offered?
According to the company’s 10-k report, it’s policies on reporting states that: * “For the sale of consumable virtual goods, we recognize revenue as the goods are consumed” * “We recognize revenue from the sale of durable virtual goods ratably over the estimated average playing period of paying players for the applicable game, which represents our best estimate of the average life of our durable virtual goods”
And perhaps the most important: * “If we do not have the ability to differentiate revenue attributable to durable virtual goods from consumable virtual goods for a specific game, we recognize revenue from the sale of durable and