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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September~~March 3031, ~~2021~~2022

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-35375

Zynga Inc.

(Exact name of registrant as specified in its charter)

Delaware	42-1733483
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

699 Eighth Street
San Francisco, CA	94103
(Address of principal executive offices)	(Zip Code)

(855) 449-9642

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A common stock	ZNGA	Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2). Yes ☐ No ☒

As of ~~October~~April 15, ~~2021~~2022, there were 1,~~120~~137,~~181~~273,~~490~~677 shares of the Registrant’s Class A common stock outstanding.

Zynga Inc.

Form 10-Q Quarterly Report

TABLE OF CONTENTS

			Page
Cautionary Note Regarding Forward-Looking Statements			1
	PART I. FINANCIAL INFORMATION
	Item 1.	Financial Statements (Unaudited)	2
		Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020	2
		Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021	2
		Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2021 and 2020	3
		Consolidated Statements of Operations for the Three Months Ended March 31, 2022 and 2021	3
		Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2021 and 2020	4
		Consolidated Statements of Comprehensive Income (Loss) for the Three Months Ended March 31, 2022 and 2021	4
		Consolidated Statements of Stockholders’ Equity for the Three and Nine Months Ended September 30, 2021 and 2020	5
		Consolidated Statements of Stockholders’ Equity for the Three Months Ended March 31, 2022 and 2021	5
		Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2021 and 2020	7
		Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2022 and 2021	6
		Notes to Consolidated Financial Statements	87
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2927
	Item 3.	Quantitative and Qualitative Disclosure About Market Risk	4640
	Item 4.	Controls and Procedures	4640
	PART II. OTHER INFORMATION
	Item 1.	Legal Proceedings	4741
	Item 1A.	Risk Factors	4741
	Item 2.	Unregistered Sales of Equity Securities and Issuer Purchases of Equity Purchases	7068
	Item 6.	Exhibits	7169
		Signatures	7270

Zynga, the Zynga logo and other trademarks or service marks of Zynga appearing in this report are the property of Zynga Inc. Trade names, trademarks and service marks of other companies appearing in this report are the property of their respective holders.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward looking statements reflecting our current expectations that involve risks and uncertainties. These forward-looking statements include, but are not limited to, statements related to industry prospects, our future economic performance including anticipated revenues and expenditures, results of operations or financial position, and other financial items, our business plans and objectives, including our growth strategies and intended product releases, the impact of the ongoing coronavirus (COVID-19) pandemic and our response to it, our ability to integrate and achieve the intended benefits of our recent acquisitions, and may include certain assumptions that underlie the forward-looking statements. Forward-looking statements often include words such as “outlook,” “projected,” “intends,” “will,” “anticipate,” “believe,” “target,” “expect,” and statements in the future tense are generally forward-looking.

We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives, and financial needs. The achievement or success of the matters covered by such forward-looking statements involves significant risks, uncertainties and assumptions, including those described in “Part II. Item 1A. Risk Factors” of this Quarterly Report on Form 10-Q. Moreover, we operate in a very competitive and rapidly changing environment and industry. New risks may also emerge from time to time. It is not possible for our management to predict all of the risks related to our business and operations, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this Quarterly Report on Form 10-Q may not occur and actual results could differ materially and adversely from those anticipated, predicted or implied in the forward-looking statements.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur, and reported results should not be considered as an indication of future performance. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.

Except as required by law, we undertake no obligation to update any forward-looking statements for any reason to conform these statements to actual results or to changes in our expectations.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

Zynga Inc.

Consolidated Balance Sheets

(In millions, except par value)

(Unaudited)

	September 30,			December 31,
	March 31,			December 31,
	2021			2020
	2022			2021
Assets
Current assets:
Cash and cash equivalents	$	~~1,087~~826.20		$	~~1,364~~984.40
Short-term investments		~~252~~10.65			~~208~~169.40
Accounts receivable, net of allowance of $0.9 at September 30, 2021 and $0.5 at December 31, 2020		210.0			217.5
Accounts receivable, net of allowance of $0.9 at March 31, 2022 and December 31, 2021		233.4			242.5
Restricted cash		~~136~~81.0			—161.0
Prepaid expenses		5868.24			4056.07
Other current assets		3247.54			2935.54
Total current assets		1,~~776~~266.57			1,~~859~~648.86
Long-term investments		—			2.0
Goodwill		3,586.8			3,601.1
Goodwill		3,296.6			3,160.8
Intangible assets, net		834.8			900.5
Intangible assets, net		806.3			838.1
Property and equipment, net		36.6			30.3
Property and equipment, net		26.3			39.3
Right-of-use assets		84.1			86.4
Right-of-use assets		90.3			131.9
Restricted cash		0.2			40.2
Restricted cash		25.2			136.0
Prepaid expenses		18.9			25.0
Prepaid expenses		23.4			21.6
Other non-current assets		31.9			26.8
Other non-current assets		23.1			17.0
Total assets	$	5,860.0		$	6,358.9
Total assets	$	6,067.7		$	6,206.5
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	5048.04		$	5795.26
Income tax payable		6330.49			3952.62
Deferred revenue		~~733~~746.64			~~747~~748.71
Operating lease liabilities		17.69			1817.51
Other current liabilities		~~552~~284.20			~~462~~650.4
Total current liabilities		1,~~416~~127.86			1,~~325~~563.4
Convertible senior notes, net		1,~~330~~542.21			1,~~289~~343.98
Deferred revenue		0.13			0.3
Deferred tax liabilities, net		9784.96			~~126~~93.38
Non-current operating lease liabilities		~~137~~131.46			~~122~~133.04
Other non-current liabilities		7867.37			~~401~~112.13
Total liabilities		32,~~060~~953.79			3,~~265~~247.0
Stockholders’ equity:
Common stock, $0.00000625 par value and additional paid in capital - authorized shares: 2,020.5; shares outstanding: 1,100.2 shares as of September 30, 2021 and 1,081.6 as of December 31, 2020		5,418.8			5,276.5
Common stock, $0.00000625 par value and additional paid in capital - authorized shares: 2,020.5; shares outstanding: 1,137.3 shares as of March 31, 2022 and 1,130.5 as of December 31, 2021		5,398.6			5,625.0
Accumulated other comprehensive income (loss)		(75138.43	)		(50107.71	)
Accumulated deficit		(2,~~336~~354.42	)		(2,~~284~~406.30	)
Total stockholders’ equity		32,~~007~~906.01			23,~~941~~111.59
Total liabilities and stockholders’ equity	$	65,~~067~~860.70		$	6,~~206~~358.59

See accompanying notes to consolidated financial statements.

Zynga Inc.

Consolidated Statements of Operations

(In millions, except per share data)

(Unaudited)

	Three Months Ended						~~Nine Months Ended~~
	September 30,						September 30,
	March 31,
	2021			2020			2021			2020
	2022			2021
Revenue:
Online game	$	~~571~~537.17		$	~~436~~557.0		$	~~1,715.1~~		$	~~1,168.6~~
Advertising and other		~~133~~153.65			67123.3			~~389.9~~			~~190.2~~
Total revenue		~~704~~691.72			~~503~~680.3			~~2,105.0~~			~~1,358.8~~
Costs and expenses:
Cost of revenue		~~240~~252.82			~~235~~260.97			~~754.8~~			~~561.4~~
Research and development		~~143~~112.54			~~165~~140.97			~~394.0~~			~~591.7~~
Sales and marketing		~~216~~251.71			~~187~~248.07			~~709.6~~			~~444.8~~
General and administrative		4960.25			3635.17			~~122.8~~			~~103.5~~
Impairment related to real estate assets		66.8			—			66.8			—
Total costs and expenses		676.2			685.8
Total costs and expenses		717.0			624.9			2,048.0			1,701.4
Income (loss) from operations		15.0			(5.5	)
Income (loss) from operations		(12.3	)		(121.6	)		57.0			(342.6	)
Interest income		0.9			1.7
Interest income		1.6			1.0			5.0			10.2
Interest expense		(3.1	)		(14.7	)
Interest expense		(14.8	)		(7.3	)		(44.2	)		(21.2	)
Other income (expense), net		(15.7	)		8.9
Other income (expense), net		(0.6	)		(3.1	)		(0.8	)		(4.9	)
Income (loss) before income taxes		(2.9	)		(9.6	)
Income (loss) before income taxes		(26.1	)		(131.0	)		17.0			(358.5	)
Provision for (benefit from) income taxes		21.6			13.4
Provision for (benefit from) income taxes		15.6			(8.8	)		53.9			17.9
Net income (loss)	$	(24.5	)	$	(23.0	)
Net income (loss)	$	(41.7	)	$	(122.2	)		(36.9	)	$	(376.4	)
Net income (loss) per share attributable to common stockholders:
Net income (loss) per share attributable to common stockholders:
Basic	$	(0.02	)	$	(0.02	)
Basic	$	(0.04	)	$	(0.11	)	$	(0.03	)	$	(0.38	)
Diluted	$	(0.02	)	$	(0.02	)
Diluted	$	(0.04	)	$	(0.11	)	$	(0.03	)	$	(0.38	)
Weighted-average common shares used to compute net income (loss) per share attributable to common stockholders:
Weighted-average common shares used to compute net income (loss) per share attributable to common stockholders:
Basic		1,133.2			1,084.4
Basic		1,097.1			1,076.7			1,090.4			995.6
Diluted		1,133.2			1,084.4
Diluted		1,097.1			1,076.7			1,090.4			995.6

See accompanying notes to consolidated financial statements.

Zynga Inc.

Consolidated Statements of Comprehensive Income (Loss)

(In millions)

(Unaudited)

	Three Months Ended						~~Nine Months Ended~~
	September 30,						September 30,
	March 31,
	2021			2020			2021			2020
	2022			2021
Net income (loss)	$	(4124.75	)	$	(~~122~~23.20	)	$	~~(36.9~~	)	$	~~(376.4~~	)
Other comprehensive income (loss), net of tax:
Change in foreign currency translation adjustment		(2031.12	)		31(15.75	)		~~(24.6~~	)		~~19.0~~
Net change in unrealized gains (losses) on available-for-sale marketable debt securities		—			(0.41	)		~~(0.1~~	)		—
Other comprehensive income (loss), net of tax		(2031.12	)		31(15.36	)		~~(24.7~~	)		~~19.0~~
Comprehensive income (loss)	$	(6155.87	)	$	(9038.96	)	$	~~(61.6~~	)	$	~~(357.4~~	)

See accompanying notes to consolidated financial statements.

Zynga Inc.

Consolidated Statements of Stockholders’ Equity

(In millions)

(Unaudited)

											Accumulated
	Class A Common Stock				Additional Paid-In			Treasury			Other Comprehensive			Accumulated			Total Stockholders'
	Shares		Amount		Capital			Stock			Income (Loss)			Deficit			Equity
Balances at December 31, 2020		1,081.6	$	—	$	5,276.5		$	—		$	(50.7	)	$	(2,284.3	)	$	2,941.5
Balances at December 31, 2021		1,130.5	$	—	$	5,625.0		$	—		$	(107.1	)	$	(2,406.0	)	$	3,111.9
Exercise of stock options and ESPP		21.72		—		107.53			—			—			—			107.53
Vesting of RSUs, net of tax withholdings		4.5.6		—		—			(85.27	)		—			—			(85.27	)
Stock-based compensation expense		—		—		3745.20			—			—			—			3745.20
Retirements of treasury stock		—		—		—			85.27			—			(85.27	)		—
Net income (loss)		—		—		—			—			—			(23.0	)		(23.0	)
Adoption of ASU 2020-06		—		—		(278.7	)		—			—			82.0			(196.7	)
Other comprehensive income (loss)		—		—		—			—			(15.6	)		—			(15.6	)
Net income (loss)		—		—		—			—			—			(24.5	)		(24.5	)
Balances at March 31, 2021		1,088.8	$	—	$	5,324.2		$	—		$	(66.3	)	$	(2,315.5	)	$	2,942.4
Other comprehensive income (loss)		—		—		—			—			(31.2	)		—			(31.2	)
Exercise of stock options and ESPP		0.1		—		0.2			—			—			—			0.2
Balances at March 31, 2022		1,137.3	$	—	$	5,398.6		$	—		$	(138.3	)	$	(2,354.2	)	$	2,906.1
Vesting of RSUs, net of tax withholdings		3.1		—		—			(4.0	)		—			—			(4.0	)
Stock-based compensation expense		—		—		43.2			—			—			—			43.2
Retirements of treasury stock		—		—		—			4.0			—			(4.0	)		—
Net income (loss)		—		—		—			—			—			27.8			27.8
Other comprehensive income (loss)		—		—		—			—			11.0			—			11.0
Balances at June 30, 2021		1,092.0	$	—	$	5,367.6		$	—		$	(55.3	)	$	(2,291.7	)	$	3,020.6
Exercise of stock options and ESPP		0.6		—		4.4			—			—			—			4.4
Vesting of RSUs, net of tax withholdings		7.6		—		—			(3.0	)		—			—			(3.0	)
Acquisition-related stock option issuance		—		—		2.2			—			—			—			2.2
Stock-based compensation expense		—		—		44.6			—			—			—			44.6
Retirements of treasury stock		—		—		—			3.0			—			(3.0	)		—
Net income (loss)		—		—		—			—			—			(41.7	)		(41.7	)
Other comprehensive income (loss)		—		—		—			—			(20.1	)		—			(20.1	)
Balances at September 30, 2021		1,100.2	$	—	$	5,418.8		$	—		$	(75.4	)	$	(2,336.4	)	$	3,007.0

										Accumulated
	Class A Common Stock				Additional Paid-In		Treasury			Other Comprehensive			Accumulated			Total Stockholders'
	Shares		Amount		Capital		Stock			Income (Loss)			Deficit			Equity
Balances at December 31, 2020		1,081.6	$	—	$	5,276.5	$	—		$	(50.7	)	$	(2,284.3	)	$	2,941.5
Exercise of stock options and ESPP		2.7		—		10.5		—			—			—			10.5
Vesting of RSUs, net of tax withholdings		4.5		—		—		(8.2	)		—			—			(8.2	)
Stock-based compensation expense		—		—		37.2		—			—			—			37.2
Retirements of treasury stock		—		—		—		8.2			—			(8.2	)		—
Net income (loss)		—		—		—		—			—			(23.0	)		(23.0	)
Other comprehensive income (loss)		—		—		—		—			(15.6	)		—			(15.6	)
Balances at March 31, 2021		1,088.8	$	—	$	5,324.2	$	—		$	(66.3	)	$	(2,315.5	)	$	2,942.4

See accompanying notes to consolidated financial statements.

Zynga Inc.

Consolidated Statements of ~~Stockholders’~~Cash ~~Equity~~Flows

(In millions)

(Unaudited)

														Accumulated
	Three Months Ended
	Class A Common Stock						Additional Paid-In			Treasury				Other Comprehensive						Accumulated						Total Stockholders'
	March 31,
	Shares			Amount			Capital			Stock				Income (Loss)						Deficit						Equity
	2022			2021
Balances at December 31, 2019		950.0		$	—		$	3,898.7		$	—			$	(125.9			)		$		(1,797.4		)		$		1,975.4
Cash flows from operating activities:
Exercise of stock options and ESPP		2.5			—			8.8			—				—							—						8.8
Net income (loss)	$	(24.5	)	$	(23.0	)
Vesting of RSUs, net of tax withholdings		3.3			—			—			(14.8		)		—							—						(14.8		)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Stock-based compensation expense		—			—			20.5			—				—							—						20.5
Depreciation and amortization		69.2			56.5
Retirements of treasury stock		—			—			—			14.8				—							(14.8		)				—
Stock-based compensation expense		45.0			37.2
Adoption of ASU 2016-13		—			—			—			—				—							(0.4		)				(0.4		)
(Gain) loss from derivatives, sale of investments and other assets and foreign currency, net		26.6			(9.0	)
Net income (loss)		—			—			—			—				—							(103.9		)				(103.9		)
Noncash lease expense		3.9			4.2
Other comprehensive income (loss)		—			—			—			—				(30.0			)				—						(30.0		)
Noncash interest expense		1.6			13.2
Balances at March 31, 2020		955.8		$	—		$	3,928.0		$	—			$	(155.9			)		$		(1,916.5		)		$		1,855.6
Change in deferred income taxes and other		(9.3	)		(15.2	)
Exercise of stock options and ESPP		0.6			—			1.9			—				—							—						1.9
Changes in operating assets and liabilities:
Vesting of RSUs, net of tax withholdings		2.4			—			—			(14.3		)		—							—						(14.3		)
Accounts receivable, net		8.2			(59.5	)
Stock-based compensation expense		—			—			25.6			—				—							—						25.6
Prepaid expenses and other assets		(19.2	)		(2.0	)
Retirements of treasury stock		—			—			—			14.3				—							(14.3		)				—
Accounts payable		(46.3	)		(18.8	)
Net income (loss)		—			—			—			—				—							(150.3		)				(150.3		)
Deferred revenue		4.3			40.4
Other comprehensive income (loss)		—			—			—			—				17.7							—						17.7
Income tax payable		(30.0	)		5.9
Balances at June 30, 2020		958.8		$	—		$	3,955.5		$	—			$	(138.2			)		$		(2,081.1		)		$		1,736.2
Operating lease and other liabilities		(232.2	)		(193.6	)
Exercise of stock options and ESPP		1.1			—			5.4			—				—							—						5.4
Net cash provided by (used in) operating activities		(202.7	)		(163.7	)
Vesting of RSUs, net of tax withholdings		2.5			—				—			(13.8		)			—						—						(13.8	)
Cash flows from investing activities:
Acquisition-related common stock issuance		116.6			—				1,137.7			—					—						—						1,137.7
Purchases of investments		(2.2	)		(537.2	)
Stock-based compensation expense		—			—				38.8			—					—						—						38.8
Maturities of investments		84.8			83.9
Retirements of treasury stock		—			—				—			13.8					—						(13.8		)				—
Sales of investments		74.0			—
Net income (loss)		—			—				—			—					—						(122.2		)				(122.2	)
Acquisition of property and equipment		(10.3	)		(1.7	)
Other comprehensive income (loss)		—			—				—			—					31.3						—						31.3
Business combinations, net of cash acquired		(12.6	)		(19.6	)
Balances at September 30, 2020		1,079.0		$	—			$	5,137.4		$	—				$	(106.9		)		$		(2,217.1		)		$		2,813.4
Release of restricted cash escrow from business combinations		(120.0	)		—
Asset acquisitions of intangible assets		(1.0	)		(0.9	)
Other investing activities, net		(20.4	)		(0.3	)
Net cash provided by (used in) investing activities		(7.7	)		(475.8	)
Cash flows from financing activities:
Debt issuance costs paid		—			(0.9	)
Taxes paid related to net share settlement of stockholders' equity awards		(5.7	)		(8.2	)
Proceeds from issuance of common stock		7.3			10.5
Acquisition-related contingent consideration payments		(56.6	)		(25.1	)
Net cash provided by (used in) financing activities		(55.0	)		(23.7	)
Effect of exchange rate changes on cash, cash equivalents and restricted cash		(12.6	)		(1.7	)
Net change in cash, cash equivalents and restricted cash		(278.0	)		(664.9	)
Cash, cash equivalents and restricted cash, beginning of period		1,185.2			1,500.4
Cash, cash equivalents and restricted cash, end of period	$	907.2		$	835.5
Noncash investing activities:
Acquisition-related deferred purchase consideration	$	—		$	1.5

See accompanying notes to consolidated financial statements.

Zynga Inc.

Consolidated Statements of Cash Flows

(In millions)

(Unaudited)

	Nine Months Ended
	September 30,
	2021			2020
Cash flows from operating activities:
Net income (loss)	$	(36.9	)	$	(376.4	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization		170.7			87.1
Stock-based compensation expense		125.0			84.9
(Gain) loss from derivatives, sale of investments and other assets and foreign currency, net		(4.9	)		2.5
(Accretion) amortization on marketable debt securities, net		—			(2.2	)
Noncash lease expense		12.9			11.8
Noncash interest expense		40.2			18.8
Change in deferred income taxes and other		(43.0	)		(11.1	)
Impairment related to real estate assets		66.8			—
Changes in operating assets and liabilities:
Accounts receivable, net		24.3			(28.5	)
Prepaid expenses and other assets		(21.9	)		6.5
Accounts payable		(7.4	)		(4.7	)
Deferred revenue		(4.2	)		210.2
Income tax payable		25.1			19.3
Operating lease and other liabilities		(250.8	)		205.1
Net cash provided by (used in) operating activities		95.9			223.3
Cash flows from investing activities:
Purchases of investments		(612.7	)		(560.0	)
Maturities of investments		568.8			1,024.6
Sales of investments		—			549.9
Acquisition of property and equipment		(6.8	)		(16.1	)
Business combinations, net of cash acquired and restricted cash held in escrow		(222.2	)		(791.1	)
Release of restricted cash escrow from business combinations		—			(30.0	)
Asset acquisitions of intangible assets		(4.3	)		—
Other investing activities, net		(5.9	)		(1.4	)
Net cash provided by (used in) investing activities		(283.1	)		175.9
Cash flows from financing activities:
Debt issuance costs paid		(1.2	)		—
Taxes paid related to net share settlement of stockholders' equity awards		(15.2	)		(42.9	)
Proceeds from issuance of common stock		15.1			16.1
Acquisition-related contingent consideration payments		(56.1	)		(63.6	)
Net cash provided by (used in) financing activities		(57.4	)		(90.4	)
Effect of exchange rate changes on cash, cash equivalents and restricted cash		(7.4	)		11.4
Net change in cash, cash equivalents and restricted cash		(252.0	)		320.2
Cash, cash equivalents and restricted cash, beginning of period		1,500.4			453.3
Cash, cash equivalents and restricted cash, end of period	$	1,248.4		$	773.5
Noncash investing activities:
Acquisition-related deferred purchase consideration	$	2.3		$	23.8
Acquisition-related stock option issuance		2.2			—
Acquisition-related common stock issuance		—			1,137.7

See accompanying notes to consolidated financial statements.

Zynga Inc.

Notes to Consolidated Financial Statements

(Unaudited)

1. Overview and Summary of Significant Accounting Policies

Organization and Description of Business

Zynga Inc. (“Zynga,” “we” or the “Company”) is a ~~leading~~global ~~provider~~leader ofin ~~social~~interactive ~~game services~~entertainment. We develop, market and operate social games as live services played on mobile platforms (such as Apple’s iOS and Google’s Android), social networking platforms (such as Facebook and Snapchat), Personal Computers (PCs), consoles (such as Nintendo’s Switch) and other platforms. ~~We also operate a mobile programmatic advertising and monetization platform.~~ Generally, all of our games are free to play, and we generate substantially all of our revenue through the sale of in-game virtual items and advertising services. We also operate a mobile programmatic advertising and monetization platform. Our operations are headquartered in San Francisco, California, and we have several operating locations in the U.S. as well as various international office locations in North America, Asia and Europe.

We completed our initial public offering in December 2011 and our Class A common stock is listed on the Nasdaq Global Select Market under the symbol “ZNGA.”

Proposed Merger with Take-Two

On January 9, 2022, the Company entered into an Agreement and Plan of Merger with Take-Two Interactive Software, Inc. (“Take-Two”). Refer to Note 16 – “Proposed Merger with Take-Two” for further background on the combination.

Basis of Presentation and Consolidation

The accompanying interim consolidated financial statements are prepared and presented in accordance with United States generally accepted accounting principles (“U.S. GAAP”). The interim consolidated financial statements include the operations of the Company and its owned subsidiaries. All intercompany balances and transactions have been eliminated in the consolidation.

The accompanying interim consolidated financial statements and these related notes should be read in conjunction with the consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, ~~2020~~2021.

Unaudited Interim Financial Information

The accompanying interim consolidated balance sheet as of ~~September~~March 3031, ~~2021~~2022, the interim consolidated statements of operations, statements of comprehensive income (loss), ~~and~~ statements of stockholders’ equity ~~for the three~~ and ~~nine months ended September 30, 2021 and 2020,~~ statements of cash flows for the ~~nine~~three months ended ~~September~~March 3031, ~~2021~~2022 and ~~2020~~2021 and the notes to the interim consolidated financial statements are unaudited. In management’s opinion, the unaudited interim consolidated financial statements include all adjustments of a normal recurring nature necessary for the fair presentation of the Company’s statement of financial position and operating results for the periods presented. The results for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2021~~2022 are not necessarily indicative of the results expected for the full fiscal year or any other future period.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts in the interim consolidated financial statements and notes thereto. Significant estimates and assumptions reflected in the financial statements include, but are not limited to, the estimated average playing period of payers that we use for revenue recognition, useful lives of property and equipment and intangible assets, accrued liabilities, income taxes, the fair value of assets and liabilities acquired through business combinations, contingent consideration obligations, the discount rate used in measuring our operating lease liabilities, the interest rate used in calculating the present value of the initial liability component of our convertible senior notes, stock-based compensation expense and evaluation of recoverability of goodwill, intangible assets and long-lived assets and as necessary, estimates of fair value to measure impairment losses. Actual results could differ materially from those estimates.

Recent Accounting Pronouncements

Issued But Not Yet Adopted

In ~~August~~October ~~2020~~2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) ~~2020~~2021-0608, “~~Debt~~Business –Combinations ~~Debt~~(Topic ~~with~~805) ~~Conversion~~– ~~and~~Accounting ~~Other~~for ~~Options~~Contract ~~(Subtopic~~Assets ~~470-20)~~ and ~~Derivatives~~Contract ~~and~~Liabilities ~~Hedging~~from – Contracts inwith ~~Entity’s Own Equity (Subtopic 815-40)~~Customers”, which ~~simplifies~~requires ~~the~~that ~~accounting~~an ~~for~~acquirer ~~convertible~~recognize ~~instruments~~and bymeasure ~~reducing~~contract ~~the~~assets ~~number of accounting models~~ and ~~requiring~~contract ~~that~~liabilities aacquired ~~convertible~~in ~~instrument be accounted for as~~ a ~~single~~business ~~liability~~combination ~~measured~~in ataccordance ~~amortized~~with ~~cost.~~Topic ~~Further~~606, ~~the~~as ~~ASU amends the earnings per share guidance by requiring the diluted earnings per share calculation for convertible instruments to follow the~~ if~~-converted~~ ~~method,~~it ~~with~~had ~~use~~originated of the ~~treasury stock method no longer permitted~~contracts. ~~The~~Prior ~~ASU~~to isthis ~~effective for fiscal years beginning after December 15, 2021, with early adoption permitted, but no earlier than fiscal years beginning after December 15, 2020. The~~ ASU ~~allows either a modified retrospective method of transition or a fully retrospective method of transition~~, ~~with any adjustments recognized as~~ an ~~adjustment~~acquirer togenerally ~~the~~recognizes ~~opening~~contract ~~balance~~assets ~~of retained earnings. The Company is currently assessing this standard’s impact on~~

~~its~~acquired ~~consolidated~~and ~~financial~~contract ~~statements~~liabilities assumed that arose from contracts with customers at fair value on the acquisition date. The ASU is effective for fiscal years beginning after December 15, ~~but~~2022, ~~does~~with ~~anticipate~~early aadoption ~~material~~permitted. ~~adjustment~~The ASU is to be applied prospectively to business combinations occurring on or after the ~~carrying~~effective ~~amount~~date of the ~~liability~~amendment ~~and~~(or ~~equity~~if ~~components~~adopted early as of ~~our~~an ~~convertible~~interim ~~senior~~period, ~~notes~~as ~~upon~~of ~~adoption~~the ~~and~~beginning of the fiscal year that includes the interim period of early application). The Company ~~will~~is ~~adopt~~currently assessing this standard’s impact on ~~January~~its 1,consolidated ~~2022~~financial statements.

InIssued ~~October~~And 2021, the FASB issued ASU 2021-08, “Business Combinations (Topic 805) – Accounting for Contract Assets and Contract Liabilities from Contracts with Customers”, which requires that an acquirer recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606, as if it had originated the contracts. Prior to this ASU, an acquirer generally recognizes contract assets acquired and contract liabilities assumed that arose from contracts with customers at fair value on the acquisition date. The ASU is effective for fiscal years beginning after December 15, 2022, with early adoption permitted. The ASU is to be applied prospectively to business combinations occurring on or after the effective date of the amendment (or if adopted early as of an interim period, as of the beginning of the fiscal year that includes the interim period of early application). The Company is currently assessing this standard’s impact on its consolidated financial statements.Adopted

In August 2020, the FASB issued ASU 2020-06, “Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40)”, which simplifies the accounting for convertible instruments by reducing the number of accounting models and generally requiring that a convertible instrument be accounted for as a single liability measured at amortized cost, with no conversion feature separately recorded in equity. Similarly, no portion of issuance costs will be allocated to equity under the ASU. Further, the ASU amends the earnings per share guidance by requiring the diluted earnings per share calculation for convertible instruments to follow the if-converted method, with use of the treasury stock method no longer permitted. The ASU is effective for fiscal years beginning after December 15, 2021. The ASU allows either a modified retrospective method of transition or a fully retrospective method of transition, with any adjustments recognized as an adjustment to the opening balance of retained earnings.

The Company adopted the ASU on January 1, 2022 using the modified retrospective method. As a result of the adoption, the Company recognized a net increase to convertible senior notes, net of $196.7 million, primarily from the derecognition of the debt discount associated with the bifurcated equity component. The Company also recognized a decrease to additional paid-in capital of $278.7 million from the derecognition of the bifurcated equity components and a net decrease to accumulated deficit of $82.0 million, primarily representing the cumulative interest expense previously recognized related to the accretion of the bifurcated conversion options. In future periods of net income, the Company expects a dilutive impact to its reported diluted net income per share as a result adopting ASU 2020-06, as the if-converted method requires the assumption that the debt converts into Zynga Class A common stock at the beginning of the reporting period. There was no impact to net income per share during the three months ended March 31, 2022 as a result of the adoption.

2. Revenue from Contracts with Customers

Disaggregation of Revenue

The following table presents our revenue disaggregated by platform (in millions):

	Three Months Ended September 30,				Nine Months Ended September 30,
	Three Months Ended March 31,
	2021		2020		2021		2020
	2022		2021
Online game:
Mobile	$	~~552~~519.8	$	~~418~~538.07	$	~~1,659.1~~	$	~~1,117.0~~
Other(1)		1817.39		18.03		~~56.0~~		~~51.6~~
Online game total	$	~~571~~537.17	$	~~436~~557.0	$	~~1,715.1~~	$	~~1,168.6~~
Advertising and other:
Mobile	$	~~132~~152.34	$	66122.1	$	~~385.9~~	$	~~186.8~~
Other(1)		1.31		1.2		~~4.0~~		~~3.4~~
Advertising and other total	$	~~133~~153.65	$	67123.3	$	~~389.9~~	$	~~190.2~~
Total revenue	$	~~704~~691.72	$	~~503~~680.3	$	~~2,105.0~~	$	~~1,358.8~~

⁽¹⁾

Includes web revenue for online game and web advertising revenue and other revenue for advertising and other

The following table presents our revenue disaggregated based on the geographic location of our payers (in millions):

	Three Months Ended September 30,				Nine Months Ended September 30,
	Three Months Ended March 31,
	2021		2020		2021		2020
	2022		2021
United States	$	~~425~~422.19	$	~~311~~412.90	$	~~1,273.4~~	$	~~831.4~~
All other countries(1)		~~279~~268.63		~~191~~268.43		~~831.6~~		~~527.4~~
Total revenue	$	~~704~~691.72	$	~~503~~680.3	$	~~2,105.0~~	$	~~1,358.8~~

⁽¹⁾

No foreign country exceeded 10% of our total revenue for any periods presented.

The estimated weighted average playing period of payers was ten ~~and nine~~ months for the three months ended ~~September~~March 3031, ~~2021~~2022 and ~~2020, respectively. The estimated weighted average playing period of payers was ten months for the nine months ended September 30,~~ 2021 ~~and 2020~~.

During the three months ended March 31, 2022, we deferred recognition of $6.8 million of online game revenue due to changes in our estimated average playing period of payers that required adjusting the recognition period of deferred revenue generated in prior periods. During the three months ended March 31, 2021, we accelerated the recognition of $1.9 million of online game revenue from changes in our estimated average playing period of payers that required adjusting the recognition period of deferred revenue generated in prior periods.

Contract Balances

We receive payments from our customers based on the payment terms established in our contracts. Payments for online game revenue are required at time of purchase, are non-refundable and relate to non-cancellable contracts that specify our performance obligations. Such payments are initially recorded to deferred revenue and are recognized into revenue as we satisfy our performance obligations. Further, payments made by our players are collected by payment processors and remitted to us generally within 45 days of invoicing. Our right to the payments collected on our behalf is unconditional and therefore recorded as accounts receivable, net of the associated payment processing fees.

Payments for advertising arrangements, including advertising transactions generated through our demand side and supply side software platform, are due based on the contractually stated payment terms. The contract terms generally require payment within 30 to 60 days subsequent to the end of the month. Our right to payment from the customer is unconditional and therefore recorded as accounts receivable. Payments due to publishers are recorded as other current liabilities.

During the three months ended March 31, 2022, we recognized $391.9 million of revenue that was included in the current deferred revenue balance on December 31, 2021.

~~During~~The ~~the~~decrease ~~three~~in ~~and~~accounts ~~nine~~receivable, net during the three months ended ~~September~~March 3031, ~~2021,~~2022 wewas ~~recognized~~primarily ~~$96.4~~driven ~~million~~by ~~and~~cash ~~$726.7~~collections ~~million,~~of ~~respectively,~~current ofperiod ~~revenue~~and ~~that~~previously ~~was~~due ~~included~~amounts inexceeding sales on account during the ~~current~~period. The decrease in deferred revenue ~~balance~~during onthe ~~December~~three months ended March 31, ~~2020.~~2022 was primarily driven by revenue recognized from the satisfaction of our performance obligations exceeding the sale of virtual items during the period.

The decrease in accounts receivable, net during the nine months ended September 30, 2021 was primarily driven by cash collections of current period and previously due amounts exceeding sales on account during the period, partially offset by the contribution from Chartboost, which was acquired in August 2021. The decrease in deferred revenue during the nine months ended September 30, 2021 was primarily driven by revenue recognized from the satisfaction of our performance obligations exceeding the sale of virtual items during the period.

Unsatisfied Performance Obligations

Substantially all of our unsatisfied performance obligations relate to contracts with an original expected length of one year or less.

3. Financial Instruments

Debt Securities

The following tables summarize the amortized cost, gross unrealized gains and losses and fair value of our short-term ~~and long-term~~ debt securities as of ~~September~~March 3031, ~~2021~~2022 and December 31, ~~2020~~2021 (in millions):

	September 30, 2021
	March 31, 2022
			Gross		Gross
	Amortized		Unrealized		Unrealized		Aggregate
	Cost		Gains		Losses		Fair Value
Short-term debt securities:
Corporate debt securities	$	195.4	$	—	$	—	$	195.4
Foreign certificates of deposit and time deposits	$	10.5	$	—	$	—	$	10.5
Foreign certificates of deposit and time deposits		9.8		—		—		9.8
Total	$	10.5	$	—	$	—	$	10.5
Total	$	205.2	$	—	$	—	$	205.2

	December 31, 2020
	December 31, 2021
			Gross		Gross
	Amortized		Unrealized		Unrealized		Aggregate
	Cost		Gains		Losses		Fair Value
Short-term debt securities:
Corporate debt securities	$	~~152~~112.70	$	~~0.1~~—	$	—	$	~~152~~112.80
Foreign certificates of deposit and time deposits		611.53		—		—		611.53
Total	$	~~159~~123.23	$	~~0.1~~—	$	—	$	~~159~~123.3
Long-term debt securities:
Corporate debt securities	$	2.0	$	—	$	—	$	2.0
Total	$	2.0	$	—	$	—	$	2.0

Equity Securities

We recognized a ~~gain~~loss oftotaling $0.14 million and ~~$0.3 million during the three and nine months ended September 30, 2021, respectively, as~~ a ~~component of other income (expense), net in our consolidated statement of operations associated with our mutual fund equity investments. We recognized a~~ gain oftotaling $0.32 million ~~and a loss of $0.4 million~~ during the three ~~and nine~~ months ended ~~September~~March 3031, ~~2020~~2022 and 2021, respectively, as a component of other income (expense), net in our consolidated statement of operations associated with our mutual fund equity investments.

~~Derivative Financial Instruments~~Derivatives

Beginning in July 2021, ~~the~~we ~~Company~~ entered into derivative instruments to manage certain of our foreign exchange risks. We use foreign currency contracts to reduce the risk that our cash flows, earnings and investment in foreign subsidiaries will be adversely affected by foreign currency exchange rate fluctuations. The Company records all derivatives net, as either other current assets or liabilities, at fair value.

Designated Hedging Derivatives - Net Investment Hedge

Certain foreign currency forward contracts are designated as net investment hedges to hedge foreign currency risks related to the Company’s investment in certain foreign subsidiaries. Changes in the fair value of the net investment hedge amounts that are included in the assessment of hedge effectiveness are recorded in ~~Other~~other ~~Comprehensive~~comprehensive ~~Income~~income (~~Loss~~loss) ("OCI") ~~with~~as a component of the foreign currency translation adjustment and the excluded components (e.g. forward points) from the assessment of hedge effectiveness are recognized in other income (expense) on a straight-line basis over the life of the hedge.

Non-designated Hedging Derivatives - Other Derivatives

Other derivatives not designated as hedging instruments consist of foreign currency forward contracts that are used to offset foreign currency risks associated with the remeasurement of certain intercompany loans, as well as certain contingent consideration payments. Gains and losses on these contracts are recognized in either other income (expense), net or research and development expenses in our consolidated statement of operations, depending on the underlying nature of the risk the derivative is designed to mitigate.

The following table summarizes the notional amounts of our outstanding derivative instruments (in millions):

	September 30, 2021
	March 31, 2022
Designated Hedging Derivatives:
Foreign exchange contracts
Net investment hedge	$	202.5
Non-Designated Hedging Derivatives:
Foreign exchange contracts	$	~~243~~304.73

The following table shows the gains and losses on designated hedging derivatives recognized in OCI (in millions):

	Gains (Losses) Recognized in OCI
	Three and Nine Months Ended September 30,
	Three Months Ended March 31,
	2021
	2022
Net Investment Hedging Derivatives:
Foreign exchange contracts
Amount included in the assessment of effectiveness	$	214.8

~~The following table shows the effect of derivative instruments recorded in other income (expense), net in our consolidated statements of operations (in millions):~~10

	Gains (Losses) Recognized in Other Income (Expense)
	Three and Nine Months Ended September 30,
	2021
Net Investment Hedging Derivatives:
Foreign exchange contracts
Amount excluded from the assessment of effectiveness	$	0.3
Non-Designated Hedging Derivatives:
Foreign exchange contracts	$	(4.2	)

The following table shows the effect of derivative instruments recorded in other income (expense), net and research and development expenses in our consolidated statements of operations (in millions):

	Gains (Losses)
	Three Months Ended March 31,
	2022
Net Investment Hedging Derivatives:
Foreign exchange contracts
Amount excluded from the assessment of effectiveness (recognized as a component of other income (expense), net)	$	0.3

Non-Designated Hedging Derivatives:
Foreign exchange contracts (recognized as a component of other income (expense), net)	$	(9.2	)
Foreign exchange contracts (recognized as a component of research and development expense)		(11.9	)

4. Fair Value Measurements

The composition of our financial assets and liabilities among the three levels of the fair value hierarchy are as follows (in millions):

	September 30, 2021
	March 31, 2022
	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents:
Money market funds	$	~~384~~20.20	$	—	$	—	$	~~384~~20.20
Foreign certificates of deposit and time deposits		—		~~189~~245.43		—		~~189~~245.43
Short-term investments:
Corporate debt securities		—		195.4		—		195.4
Foreign certificates of deposit and time deposits		—		10.5		—		10.5
Foreign certificates of deposit and time deposits		—		9.8		—		9.8
Mutual funds		—		47.4		—		47.4
Derivative assets:
Designated hedging derivatives - foreign exchange contracts		—		2.8		—		2.8
Designated hedging derivatives - foreign exchange contracts(1)		—		14.8		—		14.8
Non-designated hedging derivatives - foreign exchange contracts		—		0.3		—		0.3
Total financial assets	$	20.0	$	270.6	$	—	$	290.6
Total financial assets	$	384.2	$	445.1	$	—	$	829.3
Liabilities:
Contingent consideration	$	—	$	—	$	213.9	$	213.9
Derivative liabilities:
Total financial liabilities	$	—	$	—	$	213.9	$	213.9
Non-designated hedging derivatives - foreign exchange contracts(1)	$	—	$	3.8	$	—	$	3.8
Contingent consideration		—		—		7.3		7.3
Total financial liabilities	$	—	$	3.8	$	7.3	$	11.1

	December 31, 2020
	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents:
Money market funds	$	611.1	$	—	$	—	$	611.1
Corporate debt securities		—		313.0		—		313.0
Foreign certificates of deposit and time deposits		—		85.6		—		85.6
Short-term investments:
Corporate debt securities		—		152.8		—		152.8
Foreign certificates of deposit and time deposits		—		6.5		—		6.5
Mutual funds		—		49.1		—		49.1
Long-term investments:
Corporate debt securities		—		2.0		—		2.0
Total financial assets	$	611.1	$	609.0	$	—	$	1,220.1
Liabilities:
Contingent consideration	$	—	$	—	$	463.1	$	463.1
Total financial liabilities	$	—	$	—	$	463.1	$	463.1

⁽¹⁾Designated hedging derivatives are presented net of the non-designated hedging derivatives within other current assets in the Company’s consolidated balance sheet.

~~The following table presents the activity for the nine months ended September 30, 2021 related to our Level 3 liabilities (in millions):~~11

Level 3 Liabilities:	Contingent Consideration
		December 31, 2021
Balance as of December 31, 2020	$	463.1
		Level 1		Level 2		Level 3		Total
Additions		—
Assets:
Fair value adjustments		50.0
Cash equivalents:
Payments		(239.6	)
Money market funds		$	117.7	$	—	$	—	$	117.7
Rollic contingency resolution		(59.6	)
Foreign certificates of deposit and time deposits			—		216.4		—		216.4
Balance as of September 30, 2021	$	213.9
Short-term investments:
Corporate debt securities			—		112.0		—		112.0
Foreign certificates of deposit and time deposits			—		11.3		—		11.3
Mutual funds			—		45.7		—		45.7
Derivative assets:
Designated hedging derivatives - foreign exchange contracts(1)			—		9.3		—		9.3
Total financial assets		$	117.7	$	394.7	$	—	$	512.4
Liabilities:
Derivative liabilities:
Non-designated hedging derivatives - foreign exchange contracts(1)		$	—	$	2.3	$	—	$	2.3
Contingent consideration			—		—		257.6		257.6
Total financial liabilities		$	—	$	2.3	$	257.6	$	259.9

⁽¹⁾ Designated hedging derivatives are presented net of the non-designated hedging derivatives within other current assets in the Company’s consolidated balance sheet.

The following table presents the activity for the three months ended March 31, 2022 related to our Level 3 contingent consideration liabilities (in millions):

Level 3 Liabilities:	Contingent Consideration
Balance as of December 31, 2021	$	257.6
Additions		—
Fair value adjustments		(25.7	)
Payments		(224.6	)
Balance as of March 31, 2022	$	7.3

In February and March 2022, the Company settled the final contingent consideration obligations related to its Rollic and Small Giant acquisitions in the amounts of $40.0 million and $224.6 million, respectively. For the three months ended March 31, 2022, we recognized expense of $0.1 million and a benefit of $17.7 million within research and development expenses in our consolidated statement of operations related to the Rollic and Small Giant contingent consideration, respectively.

As of March 31, 2022, our contingent consideration obligations relate to the consideration payable in connection Rollic’s acquisitions of Creasaur, Zero Sum and Forgerhero (collectively, the “Rollic studio acquisitions”), in October 2021 (Creasaur and Zero Sum) and November 2021 (Forgerhero).

Under the terms of the Rollic studio acquisitions, contingent consideration may be payable based on the achievement of certain future bookings metrics during each annual period following each individual acquisition’s respective acquisition date for a total of three years, with no maximum limit as to the contingent consideration achievable. For these acquisitions, we estimated the acquisition date fair value of the contingent consideration obligations using a discounted cash flow model. The significant unobservable inputs used in estimating these acquisition date fair value measurements were each entity’s projected performance and a risk-adjusted discount rate.

We estimate the fair value of the Rollic studio acquisitions contingent consideration liabilities at each subsequent reporting period using a discounted cash flow model. The table below outlines the significant unobservable inputs used in estimating their fair values as of March 31, 2022, weighted by the relative fair value of each annual period’s obligation to the total obligation (in millions, except percentages):

	March 31, 2022
	Range	Weighted Average
Annual bookings	$6.9 - $34.8	$25.8
Discount rates	14.0% - 14.0%	14.0%

InChanges ~~July 2021, the Company settled the final contingent consideration obligation for $75.0 million related to its acquisition of Gram Games~~ in the ~~second~~projected ~~quarter~~performance of ~~2018. For~~ the ~~three~~acquired ~~and~~studios ~~nine~~could ~~months~~result ~~ended~~in ~~September 30,~~a ~~2021,~~higher weor ~~recognized~~lower ~~$0.1~~contingent ~~million~~consideration ~~and~~obligation ~~$0.9 million of expense, respectively, within research and development expenses~~ in ~~our consolidated statement of operations related to~~ the ~~Gram Games contingent consideration~~future.

AsThe estimated fair value of ~~September 30,~~the ~~2021,~~Rollic ~~our~~studio acquisitions contingent consideration obligations ~~relate~~decreased from $15.3 million as of December 31, 2021 to ~~the~~$7.3 ~~additional~~million ~~consideration~~as ~~payable~~of inMarch ~~connection~~31, ~~with~~2022, ~~our~~driven ~~acquisitions~~by continued refinement of ~~Small~~forecasted ~~Giant~~financial inresults. For the ~~first~~three ~~quarter~~months ended March 31, 2022, we recognized a benefit of ~~2019~~$8.0 million within research and ~~Rollic~~development expenses in ~~the~~our ~~fourth~~consolidated ~~quarter~~statements of ~~2020.~~operations related to the Rollic studio acquisitions.

Under the original terms of the Small Giant acquisition, contingent consideration may be payable based on the achievement of certain future profitability metrics during each annual period following the acquisition date for a total of three years, with no maximum limit as to the contingent consideration achievable. Under the original terms of the Rollic acquisition, contingent consideration may be payable based on the achievement of certain future bookings and profitability metrics during each annual period following the respective acquisition date for a total of three years, with no maximum limit as to the contingent consideration achievable. For these acquisitions, we estimated the acquisition date fair value of the contingent consideration obligations using a Monte Carlo simulation. The significant unobservable inputs used in estimating these acquisition date fair value measurements were each entity’s projected performance, a risk-adjusted discount rate and performance volatility similar to industry peers.

With respect to the remaining Rollic contingent consideration obligation, the Company executed an amendment to the Share Purchase Agreement with the former owners of Rollic in the second quarter of 2021 to accelerate the Company’s acquisition of the remaining 20% ownership in Rollic and to set the total contingent consideration payment at $60.0 million (the “Rollic Amendment”). In July 2021, the Company acquired the remaining 20% ownership and paid $20.0 million, with the remaining $40.0 million to be paid in first quarter of 2022. At the date of the Rollic Amendment, the Company measured the remaining final obligation by calculating the present value of the final payments using a discount rate of 1.3%, commensurate with the remaining term. The Company accretes the obligation up to its final amount using the effective interest method.

The estimated value of the Rollic contingent consideration obligation decreased from $53.8 million as of December 31, 2020 to $39.8 million as of September 30, 2021. For the three and nine months ended September 30, 2021, we recognized $0.1 million and $6.0 million of expense, respectively, within research and development expenses in our consolidated statement of operations related to the Rollic contingent consideration.

With the respect to the remaining Small Giant contingent consideration obligation, we estimate the fair value at each subsequent reporting period using a Monte Carlo simulation. The table below outlines the significant unobservable inputs used in estimating the fair value of the last remaining Small Giant contingent consideration liability as of September 30, 2021:

	Unobservable Inputs
Annual bookings growth (decline) rate	(7.7%)
Bookings volatility	30.0%
Asset volatility	40.0%
Net cash flow margin	53.7%
Discount rate	9.5%

Changes in the projected performance of the acquired businesses could result in a higher or lower contingent consideration obligation in the future.

In April 2021, the Company executed an amendment to the Share Purchase Agreement with the former owners of Small Giant to exclude the direct profitability (which includes marketing expenses) of Puzzle Combat, which launched globally in April 2021, from the remaining performance period.

The estimated fair value of the Small Giant contingent consideration obligation decreased from $409.3 million as of December 31, 2020 to $213.9 million as of September 30, 2021. The decrease was driven by a $239.6 million payment in the first quarter of 2021 to the former owners of Small Giant for its performance during the second contingent consideration period, partially offset by the increased probability of achievement and stronger than expected performance during the remaining performance period. For the three and nine months ended September 30, 2021, we recognized $21.3 million and $44.2 million of expense, respectively, within research and development expenses in our consolidated statements of operations.

5. Property and Equipment, Net

During the third quarter of 2021, the Company recognized an impairment loss related to its leasehold improvements, computer equipment and furniture and fixtures in the amounts of $7.5 million, $0.7 million and $0.7 million, respectively. Following the impairment, the adjusted carrying amount of the impacted assets represent their new cost basis. Refer to Note 6 – “Leases” for further background on the impairment loss.

Property and equipment, net consist of the following (in millions):

	September 30,			December 31,
	March 31,			December 31,
	2021			2020
	2022			2021
Computer equipment	$	3236.51		$	3034.41
Software		3536.56			3536.14
Furniture and fixtures		78.65			108.60
Leasehold improvements		2028.93			3023.81
Total property and equipment, gross	$	96109.5		$	~~106~~101.96
Less: Accumulated depreciation		(7072.29	)		(6771.63	)
Total property and equipment, net	$	2636.36		$	3930.3

The following represents our property and equipment, net by location (in millions):

	September 30,		December 31,
	March 31,		December 31,
	2021		2020
	2022		2021
United States	$	1016.69	$	2312.42
Turkey		89.0		78.7
India		3.69		4.3.8
United Kingdom		23.92		3.01
All other countries(1)		13.26		02.95
Total property and equipment, net	$	2636.36	$	3930.3

⁽¹⁾No other foreign country exceeded 10% of our total property and equipment, net for any periods presented.

6. Leases

InAs ~~August 2021, in consideration~~ of ~~the changing nature of the Company’s need for office space for its workforce~~March 31, ~~the Company’s Board of Directors approved a plan to sublease the Company’s current 185~~2022,~~000~~ ~~square~~future foot San Francisco, California office space (the “San Francisco Office Building”), as the Company transitions to a hybrid in-office and remote employee work model. As a result of the Board of Director’s decision and the accumulation of other factors, the Company recognized a $66.8 million impairment loss during the third quarter of 2021. The impairment loss recorded included $57.9 million related to the San Francisco Office Building right-of-use lease ~~asset~~payments ~~and $8.9 million~~ related to ~~property~~our ~~and~~operating ~~equipment,~~leases ~~net~~were ~~associated~~as ~~with~~follows ~~the San Francisco Office Building~~ (~~collectively,~~in ~~the “San Francisco Office Asset Group”~~millions).:

The fair value of the San Francisco Office Asset Group was estimated using a risk-adjusted, discounted cash flow model with Level 3 inputs. The significant assumptions used in estimating the fair value include the projected sublease income over the remaining lease term, expected downtime prior to the commencement of future subleases, expected rent concessions offered to future tenants and discount rates that reflected the level of risk associated with these future cash flows.

Year ending December 31:	Operating Leases
Remaining 2022	$	10.3
2023		24.3
2024		22.0
2025		17.6
2026		17.6
2027		18.2
Thereafter		71.5
Total lease payments		181.5
Less: Imputed interest		(32.0	)
Total lease liability balance	$	149.5

As of September 30, 2021, future lease payments related to our operating leases were as follows (in millions):

Year ending December 31:	Operating Leases
Remaining 2021	$	6.0
2022		14.3
2023		23.4
2024		21.4
2025		17.5
2026		17.6
Thereafter		89.7
Total lease payments		189.9
Less: Imputed interest		(34.9	)
Total lease liability balance	$	155.0

7. Acquisitions

Acquisition of ~~Chartboost,~~NanoTribe ~~Inc.~~GmbH (“~~Chartboost~~NanoTribe”)

On ~~August~~February 49, ~~2021~~2022, wethe Company acquired 100% of all issued and outstanding share capital of ~~Chartboost~~NanoTribe, toa ~~acquire~~Germany-based ~~Chartboost’s mobile programmatic advertising and monetization platform and enhance Zynga’s advertising capabilities~~company, ~~for total consideration of $232.7 million. The total purchase consideration included $204.7 million~~ in ~~cash,~~order $25.0 million of cash that was deposited into an escrow account for a period of 15 months as security for certain indemnification obligations of the former Chartboost securityholders (the “Escrow Consideration”) and Zynga’s replacement of unvested Chartboost stock options (the “Zynga Replacement Stock Options”). The Zynga Replacement Stock Options allow the option holders to ~~purchase~~optimize upits tohyper-casual ~~1,012,388~~published ~~shares~~game ofcost ~~Zynga’s Class A common stock~~structure, offor ~~which $2.2 million of the~~ total ~~acquisition date fair value was allocated to the~~ purchase consideration. ~~Additionally,~~of ~~the total purchase consideration includes~~ $0.8.7 million ~~of deferred cash consideration (the “Deferred Cash Consideration”)~~.

InThe ~~connection~~following ~~with~~table ~~the~~summarizes ~~transaction,~~ the Chartboost employees were paid cash bonuses totaling $19.3 million, inclusive of payroll-related taxes. These employee bonuses were determined to primarily benefit the combined Zynga and Chartboost entity and were recognized by the Company separate from the business combination. One of the Chartboost employee bonuses included a two-year post-acquisition ~~service period and is recognized as expense on a straight-line basis over the two-year period following the acquisition~~ date. ~~The~~fair ~~remaining~~value ~~Chartboost~~of ~~employee bonuses were expensed immediately following~~ the ~~acquisition~~assets, asincluding ~~there~~intangible ~~were~~assets, noliabilities ~~post-acquisition~~assumed ~~retention periods. The Chartboost employee bonuses are recognized as a component of research~~ and ~~development,~~related ~~sales~~goodwill ~~and~~acquired ~~marketing~~from orNanoTribe ~~general and administrative expenses~~ (in ~~our consolidated statements of operations based upon the respective employee’s job responsibilities.~~millions):

	Estimated Purchase Price Allocation
Cash	$	0.2
Other current assets		0.1
Intangible assets, net:
Developed technology, useful life of 1 year		1.5
Goodwill		7.5
Total assets acquired		9.3
Other current liabilities		(0.1	)
Deferred tax liabilities, net		(0.5	)
Total liabilities		(0.6	)
Total cash consideration	$	8.7

The following table summarizes the acquisition date fair value of the assets, including intangible assets, liabilities assumed and related goodwill acquired from Chartboost (in millions):

	Estimated Purchase Price Allocation
Cash	$	12.2
Restricted cash		0.4
Accounts receivable		19.4
Prepaid expenses		0.6
Other current assets		2.6
Intangible assets, net:
Developed technology, useful life of 5 years		99.8
Trade names, useful life of 8 years		12.8
Customer relationships, useful life of 4 years		2.7
Goodwill		129.3
Property and equipment		0.2
Right-of-use assets		0.5
Other non-current assets		0.1
Total assets acquired		280.6
Accounts payable	$	(1.4	)
Income taxes payable		(0.1	)
Operating lease liabilities		(0.4	)
Other current liabilities		(31.0	)
Deferred tax liabilities, net		(14.4	)
Non-current operating lease liabilities		(0.1	)
Other non-current liabilities		(0.5	)
Total liabilities		(47.9	)
Total purchase price consideration	$	232.7
Fair value of Zynga Replacement Stock Options allocated to purchase consideration (1)		(2.2	)
Total cash consideration (2)	$	230.5

(1) The fair value of the Zynga Replacement Stock Options allocated to purchase consideration was determined by calculating the acquisition-date fair value of the replaced unvested Chartboost stock options, multiplied by the ratio of the pre-combination service period to the total service period for the Zynga Replacement Stock Option. The fair value of the unvested Chartboost stock options was estimated using the Black-Scholes option-pricing model. The fair value of the Zynga Replacement Stock Options, less the value allocated to the purchase consideration, represents post-combination stock-based compensation expense. Refer to Note 12 – “Stockholders’ Equity” for further discussion.

(2) The amount shown represents the cash paid at closing (which includes the Escrow Consideration), as well the Deferred Cash Consideration.

Certain amounts noted above are preliminary and subject to change during the respective measurement period (up to one year from the acquisition date) as we obtain additional information for the preliminary fair value estimates of the assets acquired and liabilities assumed. The primary preliminary estimates that are not yet finalized relate to certain tangible assets and liabilities assumed, identifiable intangible assets, income and non-income based taxes and residual goodwill.

The fair value of our intangible assets, net was determined using a risk-adjusted, discounted cash flow model. The weighted-average amortization period of the acquired intangible assets was 5.3 years at acquisition.

Goodwill, which is non-deductible for tax purposes, represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired and is primarily attributable to the assembled workforce of the acquired business and expected synergies at the time of the acquisition.

The results of operations from Chartboost have been included in our consolidated statement of operations since the date of acquisition. Transaction costs incurred by the Company in connection with the Chartboost acquisition include professional fees and Chartboost employee bonuses. Transaction costs incurred during the three months ended September 30, 2021, were $13.0 million, of which $4.1 million, $2.8 million and $6.1 million were recorded within research and development, sales and marketing and general and administrative expenses, respectively, in our consolidated statements of operations. Transaction costs incurred during the nine months ended September 30, 2021 were $14.3 million, of which $4.1 million, $2.8 million and $7.4 million recorded within research

and development, sales and marketing and general and administrative expenses, respectively, in our consolidated statements of operations.

Acquisition of Uncosoft Yazılım Anonim Şirketi (“Uncosoft”)

On April 21, 2021, the Company’s subsidiary, Rollic, acquired 100% of all issued and outstanding share capital of Uncosoft, a Turkey joint stock company, in order to optimize its published game cost structure, for total purchase consideration of $10.5 million. On the acquisition date, Rollic paid a total of $12.5 million to the former owners of Uncosoft, of which $2.0 million settled a pre-acquisition contractual obligation for amounts owed to Uncosoft under Rollic and Uncosoft’s pre-existing profit sharing arrangement.

The following table summarizes the acquisition date fair value of the assets, including intangible assets, and related goodwill acquired from Uncosoft (in millions):

	Estimated Purchase Price Allocation
Cash	$	0.1
Intangible assets, net:
Developed technology, useful life of 1 year		1.8
Goodwill		9.0
Total assets acquired		10.9
Deferred tax liabilities		(0.4	)
Total liabilities		(0.4	)
Total cash consideration	$	10.5

Goodwill, which is deductible for tax purposes, represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired and is primarily attributable to the assembled workforce of the acquired business and expected synergies at the time of the acquisition.

Acquisition of Echtra Games, Inc.

On March 2, 2021, the Company acquired 100% of all issued and outstanding share capital of Echtra Games, Inc. (“Echtra”), to expand our cross-platform game development tools, technologies and experience, for total purchase consideration of $21.1 million. The total purchase consideration included $19.6 million in cash and $1.5 million of unrestricted cash that was retained for a period of 12 months as security for general representations and warranties (the “Holdback Consideration”).

The following table summarizes the acquisition date fair value of the assets, including intangible assets, and related goodwill acquired from Echtra (in millions):

	Estimated Purchase Price Allocation
Prepaid expenses	$	0.1
Intangible assets, net:
Developed technology, useful life of 10 years		10.7
Goodwill		10.3
Total assets acquired		21.1
Total cash consideration, including Holdback Consideration	$	21.1

The fair value of the developed technology intangible asset was determined using a cost to recreate approach. Goodwill, which is deductible for tax purposes, represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired and is primarily attributable to the assembled workforce of the acquired business and expected synergies at the time of the acquisition.

8. Goodwill and Intangible Assets, Net

The following table presents the changes to goodwill for the ~~nine~~three months ended ~~September~~March 3031, ~~2021~~2022 (in millions):

	Goodwill
Balance as of December 31, 2020(1)	$	3,160.8
Balance as of December 31, 2021(1)	$	3,601.1
Additions		~~148~~7.65
Foreign currency translation adjustments(2)		(1221.8	)
Balance as of September 30, 2021(1)	$	3,296.6
Balance as of March 31, 2021(1)	$	3,586.8

(31) There are no accumulated impairment losses at the beginning or end of the period.

(42) The change is primarily related to translation adjustments on goodwill associated with the acquisitions of Small Giant and NaturalMotion, which have functional currencies denominated in the Euro and British Pound, respectively.

~~The details of our acquisition-related intangible assets as of September 30, 2021 and December 31, 2020 are as follows (in millions):~~14

	September 30, 2021
	Gross Carrying Value		Accumulated Amortization			Net Book Value
Developed technology	$	1,082.9	$	(475.0	)	$	607.9
Trademarks, branding and domain names		219.8		(55.5	)		164.3
Developer and customer relationships		44.7		(10.6	)		34.1
Total	$	1,347.4	$	(541.1	)	$	806.3

The details of our acquisition-related intangible assets as of March 31, 2022 and December 31, 2021 are as follows (in millions):

	December 31, 2020
	March 31, 2022
	Gross Carrying Value		Accumulated Amortization			Net Book Value
Developed technology	$	~~972~~1,202.27	$	(~~346~~575.59	)	$	~~625~~626.78
Trademarks, branding and domain names		~~208~~250.59		(3571.54	)		~~173~~179.05
Developer and customer relationships		4244.07		(216.62	)		3928.45
Total	$	1,~~222~~498.73	$	(~~384~~663.65	)	$	~~838~~834.18

Our trademarks, branding and domain names intangible assets include $6.1 million of indefinite-lived intangible assets as of September 30, 2021 and December 31, 2020. The remaining assets were, and continue to be, amortized on a straight-line basis. Amortization expense related to intangible assets was $54.6 million and $159.5 million for the three and nine months ended September 30, 2021, respectively. Comparatively, amortization expense related to intangible assets was $46.0 million and $78.7 million for the three and nine months ended September 30, 2020 respectively.

	December 31, 2021
	Gross Carrying Value		Accumulated Amortization			Net Book Value
Developed technology	$	1,206.2	$	(525.3	)	$	680.9
Trademarks, branding and domain names		251.8		(63.5	)		188.3
Developer and customer relationships		44.7		(13.4	)		31.3
Total	$	1,502.7	$	(602.2	)	$	900.5

AsOur ~~of September 30~~trademarks, ~~2021,~~branding ~~the~~and ~~weighted-average~~domain ~~remaining~~names ~~useful~~intangible ~~lives~~assets ofinclude ~~our~~$6.1 ~~acquired~~million of indefinite-lived intangible assets ~~were~~as ~~3.8~~of ~~years~~March 31, ~~for~~2022 ~~developed~~and ~~technology~~December 31, 52021.8 ~~years~~The ~~for~~remaining ~~trademarks~~assets were, ~~branding~~ and ~~domain~~continue ~~names~~to be, 3amortized on a straight-line basis.1 ~~years~~Amortization ~~for~~expense ~~developer~~related ~~and~~to ~~customer~~intangible ~~relationships~~assets ~~and~~was 4$66.21 ~~years~~million inand ~~total,~~$52.8 million for ~~all~~the ~~acquired~~three ~~intangible~~months ~~assets.~~ended March 31, 2022 and 2021, respectively.

As of ~~September~~March 3031, ~~2021~~2022, ~~future~~the ~~amortization~~weighted-average ~~expense~~remaining ~~related~~useful tolives of our acquired intangible assets iswere ~~expected~~3.4 toyears befor ~~recognized~~developed astechnology, ~~follows~~5.4 (years for trademarks, branding and domain names, 2.6 years for developer and customer relationships and 3.8 years in ~~millions):~~total, for all acquired intangible assets.

Year ending December 31:
Remaining 2021	$	56.1
2022		214.9
2023		199.9
2024		162.0
2025		102.9
2026		39.1
Thereafter		25.3
Total	$	800.2

As of March 31, 2022, future amortization expense related to our intangible assets is expected to be recognized as follows (in millions):

Year ending December 31:
Remaining 2022	$	189.2
2023		234.8
2024		198.7
2025		123.8
2026		44.6
2027		21.4
Thereafter		16.2
Total	$	828.7

9. Income Taxes

The provision for ~~(benefit from)~~ income increased $248.42 million during the three months ended ~~September~~March 3031, ~~2021~~2022 compared to the three months ended ~~September~~March 3031, ~~2020~~2021. The increase was primarily driven by current ~~period~~tax ~~statutory~~expense ~~income~~associated ofwith our Peak subsidiary ~~compared to a statutory loss in the prior period~~, ~~further~~namely ~~supplemented~~driven by anthe ~~increase~~appreciation inof ~~expense related to~~ the ~~Base Erosion and Anti-Abuse Tax (“BEAT”)~~U.S. ~~The~~Dollar ~~overall~~compared ~~increase~~to ~~was partially offset by~~ the ~~partial~~Turkish ~~valuation allowance release from acquired Chartboost deferred tax liabilities~~Lira.

The provision for (benefit from) income taxes increased $36.0 million in the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. The increase was primarily driven by current period statutory income of our Peak subsidiary compared to a statutory loss in the prior period, higher statutory income of our Small Giant subsidiary and an increase in BEAT expense. The increase was partially offset by the partial valuation allowance release from acquired Chartboost deferred tax liabilities and the prior period income tax expense of $9.4 million that did not repeat in 2021 related to Zynga’s revision of its prior tax position as a result of the Altera Corp v. Commissioner court ruling.

10. Debt

Convertible Senior Notes

On December 17, 2020, we issued $874.5 million aggregate principal amount of 0% Convertible Senior Notes due 2026 (the “2026 Notes”) including the initial purchasers’ full exercise of their option to purchase an additional $112.5 million principal amount of the 2026 Notes, in a private placement to qualified institutional buyers in an offering exempt from registration under the Securities Act of 1933. The net proceeds from the issuance of the 2026 Notes was $856.8 million after deducting transaction costs.

On June 14, 2019, we issued $690.0 million aggregate principal amount of 0.25% Convertible Senior Notes due 2024 (the “2024 Notes”), including the initial purchasers’ full exercise of their option to purchase an additional $90.0 million principal amount of the 2024 Notes, in a private placement to qualified institutional buyers in an offering exempt from registration under the Securities Act of 1933. The net proceeds from the issuance of the 2024 Notes was $672.2 million after deducting transaction costs.

The 2026 Notes and 2024 Notes are each governed by an indenture between us, as the issuer, and Wells Fargo Bank, National Association, as trustee. The 2026 Notes and 2024 Notes are senior unsecured obligations and rank senior in right of payment to all of our indebtedness that is expressly subordinated in right of payment to such notes; equal in right of payment to all of our existing and future liabilities that are not so subordinated; effectively junior to any of our secured indebtedness to the extent of the value of the assets securing such indebtedness; and structurally junior to all indebtedness and other liabilities of our current or future subsidiaries (including trade payables). The indentures governing the 2026 Notes and 2024 Notes, as applicable, do not contain any financial covenants.

The 2026 Notes and 2024 Notes mature on December 15, 2026 and June 1, 2024, respectively, unless earlier converted, redeemed or repurchased in accordance with their terms respectively prior to the maturity date. The 2026 Notes do not bear regular interest, and the principal amount does not accrete, while interest is payable semiannually on the 2024 Notes in arrears on June 1 and December 1 of each year.

The 2026 Notes have an initial conversion rate of 76.5404 shares of our Class A common stock per $1,000 principal amount of 2026 Notes, which is equal to an initial conversion price of approximately $13.07 per share of our Class A common stock, subject to adjustment if certain events occur. The 2024 Notes have an initial conversion rate of 120.3695 shares of our Class A common stock per $1,000 principal amount of 2024 Notes, which is equal to an initial conversion price of approximately $8.31 per share of our Class A common stock, subject to adjustment if certain events occur. Following certain corporate events that occur prior to the maturity date or following our issuance of a notice of redemption, we will increase the conversion rate for a holder who elects to convert its 2026 Notes or 2024 Notes in connection with such corporate event or during the related redemption period in certain circumstances. Additionally, upon the occurrence of a corporate event that constitutes a “fundamental change” per the indentures, holders of the 2026 Notes and 2024 Notes may require us to repurchase for cash all or a portion of their respective 2026 Notes or 2024 Notes at a purchase price equal to 100% of the principal amount of the 2026 Notes and 2024 Notes plus accrued and unpaid interest.

Prior to the close of business on the business day immediately preceding September 15, 2026 with respect to the 2026 Notes and March 1, 2024 with respect to the 2024 Notes, the 2026 Notes and 2024 Notes will be convertible only under the following circumstances:

•

during any calendar quarter, if the last reported sale price of our Class A common stock for at least 20 trading days in a period of 30 consecutive trading days ending on the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price of the applicable series of the 2026 Notes or 2024 Notes on each applicable trading day;

•

during the five business-day period after any five consecutive trading-day period in which the trading price per $1,000 principal amount of each applicable series of the 2026 Notes or 2024 Notes for such trading day was less than 98% of the product of the last reported sale price of our Class A common stock and the conversion rate of each applicable series of the 2026 Notes or 2024 Notes on each such trading day;

•

if we call the 2026 Notes or 2024 Notes for redemption, at any time prior to the close of business on the second scheduled trading day immediately preceding the redemption date; or

•

upon the occurrence of specified corporate events described in the respective indentures.

On or after the dates specified above, holders of the 2026 Notes and 2024 Notes may convert all or any portion of their 2026 Notes and 2024 Notes regardless of the foregoing conditions. Upon any conversion, holders will receive cash, shares of our Class A common stock or a combination of cash and shares of our Class A common stock, at our election.

The Company may not redeem the 2026 Notes or 2024 Notes prior to December 20, 2023 and June 5, 2022, respectively. On or after those respective dates, the Company may redeem for cash all or any portion of the applicable series of the 2026 Notes or 2024 Notes, at its option, if the last reported sale price of our Class A common stock has been at least 130% of the conversion price of the applicable series of the 2026 Notes or 2024 Notes for at least 20 trading days during any 30 consecutive trading-day period ending on and including the trading day immediately preceding the date when the Company provides a notice of redemption at a redemption price equal to 100% of the principal amount of the applicable series of the 2026 Notes or 2024 Notes to be redeemed, plus any accrued and unpaid interest or special interest, as applicable.

As of ~~September~~March 3031, ~~2021~~2022, the conditions allowing holders of the 2026 Notes or 2024 Notes to convert their respective series of the 2026 Notes and 2024 Notes have not been met and therefore both the 2026 Notes and 2024 Notes are not yet convertible.

WeOn ~~separately~~January ~~accounted~~1, ~~for~~2022, ~~the~~we ~~liability~~adopted ~~and~~ASU ~~equity~~2020-06 ~~components~~using the modified retrospective method of adoption and accordingly, present the 2026 Notes and 2024 Notes. Weas ~~determined~~a ~~the~~single ~~initial~~liability ~~carrying~~measured ~~amount~~at ofamortized ~~the~~cost, ~~$707.4~~with ~~million~~no ~~liability~~conversion ~~component~~features separately recorded in equity. Further, as of ~~the~~January ~~2026~~1, ~~Notes~~2022, bytransaction ~~calculating~~costs related to the ~~present~~issuance ~~value~~of the respective series of the ~~cash~~2026 ~~flows~~Notes ~~using~~and an2024 ~~effective~~Notes ~~interest~~are ~~rate~~no oflonger ~~3.5%.~~allocated Webetween ~~determined~~liability ~~the~~and ~~initial~~equity ~~carrying~~components, ~~amount~~but rather, are presented solely as reduction of the ~~$572~~debt liability.0 ~~million~~Subsequent ~~liability~~to ~~component~~January of1, 2022, the ~~2024~~unamortized ~~Notes~~transaction bycosts ~~calculating~~are amortized to interest expense using the ~~present~~effective ~~value~~interest method over the terms of the ~~cash~~respective ~~flows~~series of 2026 Notes and 2024 Notes, using anthe same effective interest rate ofas ~~4.1%.~~prior ~~The~~to ~~effective~~the ~~interest~~adoption ~~rates~~of ~~were~~ASU ~~determined~~2020-06. ~~based~~Refer onto ~~non-convertible~~“Recent ~~debt~~Accounting ~~offerings,~~Pronouncements” ofincluded ~~similar~~in ~~sizes~~Note ~~and~~1 ~~terms,~~—“Overview byand ~~companies~~Summary ~~with~~of ~~similar~~Significant ~~credit~~Accounting ~~ratings~~Policies” ~~and~~for ~~other~~further ~~observable~~discussion ~~market~~on ~~data~~the ~~(Level~~adoption 2of ~~inputs)~~ASU 2020-06.

The amount of the equity component, representing the conversion option, was $167.1 million for the 2026 Notes and $118.0 million for the 2024 Notes and was calculated by deducting the initial carrying value of the liability component from the principal amount of the 2026 Notes and 2024 Notes, respectively. This difference represents a debt discount that is amortized to interest expense over the 6-year and 5-year contractual periods of the 2026 Notes and 2024 Notes, respectively, using the effective interest rate method. The equity components are not subsequently remeasured as long as they continue to meet the conditions for equity classification.16

WePrior ~~allocated~~to ~~transaction~~January ~~costs~~1, ~~related~~2022, towe ~~the~~separately ~~issuance~~accounted offor the ~~respective~~liability ~~series~~and equity components of the 2026 Notes and 2024 Notes. toWe ~~the~~determined ~~liability and equity components using~~ the ~~same proportions as the~~ initial carrying ~~value~~amount of the ~~respective~~$707.4 ~~series~~million liability component of the 2026 Notes ~~and~~by ~~2024~~calculating ~~Notes.~~the ~~The~~present ~~respective~~value ~~transaction~~of ~~costs~~the ~~are~~cash ~~then~~flows ~~amortized to interest expense~~ using ~~the~~an effective interest ~~method~~rate ~~over~~of ~~the~~3.5%. ~~terms~~We ofdetermined the ~~respective~~initial ~~series~~carrying amount of ~~2026~~the ~~Notes and 2024 Notes~~$572.0 ~~Transaction~~million ~~costs initially attributable to the~~ liability component of the ~~2026 Notes and~~ 2024 Notes ~~were~~by ~~$14.3~~calculating ~~million~~the ~~and~~present ~~$14.8~~value ~~million,~~of ~~respectively,~~the ~~while~~cash ~~transaction~~flows ~~costs~~using ~~attributable~~an toeffective ~~the~~interest ~~equity~~rate ~~component~~ of ~~the~~4.1%. ~~2026~~The ~~Notes~~effective ~~and~~interest ~~2024~~rates ~~Notes~~ were ~~$3.4~~determined ~~million~~based ~~and~~on ~~$3.1~~non-convertible ~~million~~debt offerings, ~~respectively.~~of ~~The~~similar ~~transaction~~sizes ~~costs~~and ~~attributable~~terms, toby ~~the~~companies ~~equity component are accounted for consistently~~ with ~~the~~similar ~~equity~~credit ~~component~~ratings ofand ~~the~~other ~~2026~~observable ~~Notes~~market ~~and~~data ~~2024~~(Level ~~Notes~~2 inputs).

20Prior to January 1, 2022, the amount of the equity component, representing the conversion option, was $167.1 million for the 2026 Notes and $118.0 million for the 2024 Notes and was calculated by deducting the initial carrying value of the liability component from the principal amount of the 2026 Notes and 2024 Notes, respectively. This difference represented a debt discount that was initially amortized to interest expense over the 6-year and 5-year contractual periods of the 2026 Notes and 2024 Notes, respectively, using the effective interest rate method.

~~The~~Further, ~~net~~prior ~~carrying~~to ~~amount~~January 1, 2022, we allocated transaction costs related to the issuance of the respective series of the 2026 Notes and 2024 Notes to the liability and equity components using the same proportions as the initial carrying value of the respective series of the 2026 Notes and 2024 Notes. asThe respective transaction costs were then initially amortized to interest expense using the effective interest method over the terms of ~~September 30~~the respective series of 2026 Notes and 2024 Notes. Transaction costs initially attributable to the liability component of the 2026 Notes and 2024 Notes were $14.3 million and $14.8 million, ~~2021~~respectively, while transaction costs initially attributable to the equity component of the 2026 Notes and 2024 Notes were as$3.4 ~~follows~~million ~~(in~~and ~~millions):~~$3.1 million, respectively. Prior to January 1, 2022, the transaction costs attributable to the equity component were accounted for consistently with the equity component of the 2026 Notes and 2024 Notes.

	2024 Notes			2026 Notes			Total
Liability component:
Principal	$	690.0		$	874.5		$	1,564.5
Unamortized debt discount		(66.4	)		(147.0	)		(213.4	)
Unamortized transaction costs		(8.3	)		(12.6	)		(20.9	)
Net carrying amount	$	615.3		$	714.9		$	1,330.2
Equity component, net of transaction costs	$	114.9		$	163.7		$	278.6

The net carrying amount of the liability and equity components of the 2026 Notes and 2024 Notes as of March 31, 2022 were as follows (in millions):

The net carrying amount of the liability and equity components of the 2026 Notes and 2024 Notes as of December 31, 2020 were as follows (in millions):


	2024 Notes			2026 Notes			Total
Liability component:
Principal	$	690.0		$	874.5		$	1,564.5
Unamortized transaction costs		(8.2	)		(14.2	)		(22.4	)
Net carrying amount	$	681.8		$	860.3		$	1,542.1

	2024 Notes			2026 Notes			Total
Liability component:
Principal	$	690.0		$	874.5		$	1,564.5
Unamortized debt discount		(83.8	)		(166.1	)		(249.9	)
Unamortized transaction costs		(10.5	)		(14.2	)		(24.7	)
Net carrying amount	$	595.7		$	694.2		$	1,289.9
Equity component, net of transaction costs	$	114.9		$	163.7		$	278.6

The net carrying amount of the liability and equity components of the 2026 Notes and 2024 Notes as of December 31, 2021 were as follows (in millions):

Interest expense recognized related to the Notes was as follows (in millions):


	2024 Notes			2026 Notes			Total
Liability component:
Principal	$	690.0		$	874.5		$	1,564.5
Unamortized debt discount		(60.5	)		(140.6	)		(201.1	)
Unamortized transaction costs		(7.6	)		(12.0	)		(19.6	)
Net carrying amount	$	621.9		$	721.9		$	1,343.8

Equity component, net of transaction costs	$	114.9		$	163.7		$	278.6

	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Contractual interest expense	$	0.4	$	0.4	$	1.3	$	1.3
Amortization of debt discount		12.3		5.6		36.4		16.7
Amortization of transaction costs		1.2		0.7		3.8		2.1
Total	$	13.9	$	6.7	$	41.5	$	20.1

Interest expense recognized related to the 2026 Notes and 2024 Notes was as follows (in millions):

As of September 30, 2021, the estimated fair value of the 2026 Notes and 2024 Notes was $849.1 million and $788.0 million, respectively. We estimated the fair value based on the quoted market prices in an inactive market on the last trading day of the reporting period, which are considered Level 2 inputs.

	Three Months Ended March 31,
	2022		2021
Contractual interest expense	$	0.4	$	0.4
Amortization of debt discount		—		12.0
Amortization of transaction costs		1.6		1.2
Total	$	2.0	$	13.6

As of March 31, 2022, the estimated fair value of the 2026 Notes and 2024 Notes was $891.3 million and $841.1 million, respectively. We estimated the fair value based on the quoted market prices in an inactive market on the last trading day of the reporting period, which are considered Level 2 inputs.

Capped Call Transactions

In connection with the offering of the 2026 Notes and 2024 Notes, the Company entered into privately negotiated capped call options with certain counterparties (the “2026 Capped Calls” and “2024 Capped Calls”, respectively). The 2026 Capped Calls have an initial strike price of approximately $13.07 per share, subject to certain adjustments, which corresponds to the initial conversion price of the 2026 Notes and an initial cap price of $17.42 per share, subject to certain adjustments. The 2026 Capped Calls are intended to reduce the potential economic dilution of approximately 66.9 million shares to our Class A common stock upon any conversion of the 2026 Notes and/or offset any cash payments we make in excess of the principal amount of converted notes with such reduction and/or offset, as the case may be, subject to a maximum based on the cap price. The cost of $63.0 million incurred in connection with the 2026 Capped Calls was recorded as a reduction to additional paid-in capital.

The 2024 Capped Calls have an initial strike price of approximately $8.31 per share, subject to certain adjustments, which corresponds to the initial conversion price of the 2024 Notes and an initial cap price of $12.54 per share, subject to certain adjustments. The 2024 Capped Calls are intended to reduce the potential economic dilution of approximately 83.1 million shares to our Class A common stock upon any conversion of the 2024 Notes and/or offset any cash payments we make in excess of the principal amount of converted notes with such reduction and/or offset, as the case may be, subject to a maximum based on the cap price. The cost of $73.8 million incurred in connection with the 2024 Capped Calls was recorded as a reduction to additional paid-in capital.

As both the 2026 Capped Calls and 2024 Capped Calls are considered indexed to our own stock and are equity classified, ~~therefore~~ they are recorded in stockholders’ equity and are not accounted for as derivatives.

Convertible Senior Notes and Capped Call Transactions – Impact on Earnings per Share

~~The~~Beginning on and subsequent to January 1, 2022, the Company computes the potentially dilutive impact of the shares of Class A common stock related to the 2026 Notes and 2024 Notes ~~using~~under the ~~treasury~~if-converted ~~stock~~ method, aswhich wegenerally ~~intend~~requires ~~and have~~ the ~~ability~~assumption tothat ~~settle~~ the ~~principal amount of the~~ 2026 Notes and 2024 Notes inconvert ~~cash~~into upon conversion. However, the 66.9 million shares initially underlying the conversion option of the 2026 Notes and the 83.1 million shares initially underlying the conversion option of the 2024 Notes do not have an impact on our ~~diluted earnings per share unless the average market price of our~~ Class A common stock ~~exceeds~~at the ~~respective~~beginning ~~conversion price~~ of the ~~2026~~reporting ~~Notes and 2024 Notes during a~~ period ~~of net income~~.

Prior to January 1, 2022, the Company computed the potentially dilutive impact of the shares of Class A common stock related to the 2026 Notes and 2024 Notes using the treasury stock method, as we intended and expected to have the ability to settle the principal amount of the 2026 Notes and 2024 Notes in cash upon conversion. However, the 66.9 million shares initially underlying the conversion option of the 2026 Notes and the 83.1 million shares initially underlying the conversion option of the 2024 Notes did not have an impact on our diluted earnings per share unless the average market price of our Class A common stock exceeded the respective conversion price of the 2026 Notes and 2024 Notes during a period of net income.

The 2026 Capped Calls and 2024 Capped Calls are excluded from the calculation of diluted earnings per share, as they would be antidilutive under the treasury stock method.

Credit Facility

In December 2020, the Company entered into a credit agreement (the “2020 Credit Agreement”) with certain financial institutions that provides for a three-year revolving credit facility in an aggregate principal amount of up to $425.0 million and is secured by a blanket lien on the Company’s assets. The Company may borrow, repay and re-borrow funds under the 2020 Credit Agreement until December 31, 2023, at which time the 2020 Credit Agreement will terminate, and all outstanding revolving loans, together with all accrued and unpaid interest, must be repaid. The Company may use the proceeds of future borrowings under the 2020 Credit Agreement for general corporate purposes.

Under the 2020 Credit Agreement, at the Company’s option, revolving loans accrue interest at a per annum rate based on either (i) the base rate plus a margin ranging from 0.50% to 1.00%, determined based on the Company’s consolidated leverage ratio for the four most recent fiscal quarters (the “Consolidated Leverage Ratio”) or (ii) the LIBOR rate (for interest periods of one, two, three or six months) plus a margin ranging from 1.50% to 2.00%, determined based on the Company’s Consolidated Leverage Ratio. The base rate is defined as the highest of (i) the federal funds rate, plus 0.50%, (ii) Bank of America, N.A.’s prime rate and (iii) the LIBOR rate for a one-month interest period plus 1.00%. The Company is also obligated to pay an ongoing commitment fee on undrawn amounts at a rate ranging from 0.25% to 0.35%, determined based on the Company’s Consolidated Leverage Ratio.

As of ~~September~~March 3031, ~~2021~~2022, we had no amounts outstanding under the 2020 Credit Agreement.

11. Other Current and Non-Current Liabilities

Other current liabilities consist of the following (in millions):

	September 30,		December 31,
	March 31,		December 31,
	2021		2020
	2022		2021
Contingent consideration payable	$	253.7	$	323.6
Accrued accounts payable	$	101.3	$	81.1
Accrued payables from acquisitions		~~137~~81.50		—161.0
Accrued accounts payable		64.2		58.1
Accrued compensation liability		33.6		61.9
Accrued compensation liability		48.8		61.7
Value-added taxes payable		5.2		7.3
Value-added taxes payable		6.8		6.4
Contingent consideration payable		1.3		286.7
Other current liabilities		4161.26		1252.64
Total other current liabilities	$	~~552~~284.20	$	~~462~~650.4

Our accrued compensation liability represents employee bonus and other payroll withholding expenses, while other current liabilities include various expenses that we accrue for sales and other taxes, customer deposits, accrued vendor expenses and deferred consideration payable from acquisitions.

Other non-current liabilities consist of the following (in millions):

	September 30,		December 31,
	March 31,		December 31,
	2021		2020
	2022		2021
Deferred consideration payable from acquisitions	$	25.3	$	24.4
Deferred consideration payable	$	26.3	$	26.0
Uncertain tax positions, including interest and penalties		2522.03		2422.80
Contingent consideration obligation		—6.0		~~213~~10.68
Accrued payables from acquisitions		~~25.0~~—		~~136~~40.0
Other non-current liabilities		313.01		213.35
Total other non-current liabilities	$	7867.37	$	~~401~~112.13

12. Stockholders’ Equity

We recorded stock-based compensation expense related to grants of employee stock options, restricted stock units (“RSUs”) and performance and market-based awards in our consolidated statements of operations as follows (in millions):

	Three Months Ended September 30,				Nine Months Ended September 30,
	Three Months Ended March 31,
	2021		2020		2021		2020
	2022		2021
Cost of revenue	$	0.87	$	0.6	$	~~2.0~~	$	~~1.5~~
Research and development		2931.90		2524.43		~~83.0~~		~~48.6~~
Sales and marketing		4.48		43.09		~~13.0~~		~~11.0~~
General and administrative		98.5		8.84		~~27.0~~		~~23.8~~
Total stock-based compensation expense	$	4445.60	$	3837.82	$	~~125.0~~	$	~~84.9~~

Stock Option Activity

The following table shows stock option activity for the ~~nine~~three months ended ~~September~~March 3031, ~~2021~~2022 (in millions, except weighted-average exercise price and weighted-average contractual term):

	Outstanding Options
						Aggregate		Weighted-
				Weighted-Average		Intrinsic Value of		Average
				Exercise Price		Stock Options		Contractual Term
	Stock Options			(per option)		Outstanding		(in years)
Balance as of December 31, 2020		30.1		$	3.46	$	193.1		6.43
Balance as of December 31, 2021		22.7		$	3.56	$	64.9		5.71
Granted		~~1.0~~—			~~2.93~~—
Forfeited, expired and cancelled		—			—
Exercised		(2.0.2	)		23.9621
Balance as of September 30, 2021		29.1		$	3.47	$	118.4		5.83
Balance as of March 31, 2022		22.5		$	3.56	$	127.8		5.37

~~The following table presents the weighted-average grant date fair value and related assumptions used to estimate the fair value of the Zynga Replacement Stock Options:~~ 19

	Three and Nine Months Ended September 30,
	2021
Expected term, in years		5.6
Risk-free interest rates		0.7	%
Expected volatility		34.2	%
Dividend yield		—
Weighted-average estimated fair value of options granted(1)	$	7.21

(1) Of the total the weighted-average estimated fair value of the Zynga Replacement Stock options, $5.10 was allocated to the post-combination value.

RSU Activity

The following table shows a summary of RSU activity for the ~~nine~~three months ended ~~September~~March 3031, ~~2021~~2022, which includes performance and market-based awards (in millions, except weighted-average grant date fair value):

	Outstanding RSUs
				Weighted-Average		Aggregate
				Grant Date Fair Value		Intrinsic Value of
	Shares			(per share)		Unvested RSUs
Unvested as of December 31, 2020		64.5		$	7.43	$	636.0
Unvested as of December 31, 2021		62.4		$	8.68	$	399.4
Granted		2117.86			108.1286
Vested		(165.8	)		68.3630
Forfeited		(3.1.5	)		68.9250
Unvested as of September 30, 2021		66.4		$	8.61	$	500.0
Unvested as of March 31, 2022		72.7		$	8.76	$	671.7

23Performance RSUs

~~Performance~~On March 15, 2022, the Company granted performance-~~Based~~based awards to certain executives and senior management (the “2022 Performance RSUs”) and members of studio management (the “2022 Studio Performance RSUs”). As it relates to the 2022 Performance RSUs, the number of shares earned will range from 0% to 150% of the target number of shares granted, depending on an adjusted operating cash flow metric for the year ended December 31, 2022 relative to pre-established thresholds. Shares earned (if any) based on the level of achievement will vest over a period of four years following the grant date, with 25% vesting on the one year anniversary of the grant date and the remaining quarterly thereafter, subject to continued service by the employees. The target number of shares granted totaled 1.1 million.

OnAs ~~March~~it ~~15,~~relates ~~2021, the Company granted performance-based awards~~ to ~~certain executives (~~the ~~“2021~~2022 Studio Performance RSUs~~”).~~, ~~The~~the number of shares earned will range from 0% to ~~150~~100% of the target number of shares granted, depending on anbookings ~~adjusted~~and/or ~~operating~~profitability ~~cash~~metrics ~~flow~~for ~~metric~~the ~~for~~individual studios during the year ended December 31, ~~2021~~2022 relative to pre-established thresholds. Shares earned (if any) based on the level of achievement will vest over aeither ~~period~~one of or four years following the grant date, ~~with 25%~~depending ~~vesting~~ on the ~~one~~terms ~~year~~of ~~anniversary~~award. All of the ~~grant~~2022 ~~date~~Studio ~~and~~Performance ~~the~~RSUs ~~remaining~~are ~~quarterly thereafter,~~ subject to continued service by the employees. The target number of shares granted across all of the 2022 Studio Performance RSUs totaled 1 0.2 9 million.

The Company recognizes stock-based compensation expense for the 2021 Performance RSUs using the accelerated attribution method over the requisite service period. The amount of stock-based compensation is determined based on the probability of achievement of the pre-established thresholds at each reporting period. If necessary, at each reporting period, the Company records a cumulative catch-up adjustment to reflect any revised estimates regarding the probability of achievement.

Stock Repurchases

In April 2018, a share repurchase program was authorized for up to $200.0 million of our outstanding Class A common stock (the “2018 Share Repurchase Program”). The timing and amount of any stock repurchase will be determined based on market conditions, share price and other factors. The program does not require us to repurchase any specific number of shares of our Class A common stock and may be modified, suspended or terminated at any time without notice. The 2018 Share Repurchase Program isremained ~~authorized to remain~~ in effect until April 2022 ~~and will be funded from existing cash on hand or other sources of funding as the Company may determine to be appropriate~~. Share repurchases under these authorizations may be made through a variety of methods, which may include open market purchases, privately negotiated transactions, block trades, accelerated share repurchase transactions, purchases through 10b5-1 plans or by any combination of such methods. During the three ~~and nine~~ months ended ~~September~~March 3031, ~~2021~~2022, no share repurchases were made under the 2018 Share Repurchase Program. As of ~~September~~March 3031, ~~2021~~2022, we had $173.8 million remaining under the 2018 Share Repurchase Program.

All of our previous stock repurchases were made through open market purchases under Rule 10b5-1 plans and subsequently retired.

13. Accumulated Other Comprehensive Income (Loss)

The following table shows a summary of changes in accumulated other comprehensive income (loss) by component for the ~~nine~~three months ended ~~September~~March 3031, ~~2021~~2022 (in millions):

	Foreign Currency Translation			Unrealized Gains (Losses) on Available-For- Sale Marketable Debt Securities			Total
Balance as of December 31, 2020	$	(50.8	)	$	0.1		$	(50.7	)
Balance as of December 31, 2021	$	(107.1	)	$	—		$	(107.1	)
Other comprehensive income (loss) before reclassifications		(2431.62	)		~~(0.1~~—	)		(2431.72	)
Amounts reclassified from accumulated other comprehensive income (loss)		—			—			—
Net other comprehensive income (loss), net of tax		(2431.62	)		~~(0.1~~—	)		(2431.72	)
Balance as of September 30, 2021	$	(75.4	)	$	—		$	(75.4	)
Balance as of March 31, 2022	$	(138.3	)	$	—		$	(138.3	)

14. Net Income (Loss) Per Share of Common Stock

Basic net income (loss) per share is computed by dividing net income (loss) attributable to common stockholders by the weighted-average number of common shares outstanding during the period. Diluted net income (loss) per share is computed by dividing net income (loss) attributable to common stockholders by the weighted-average number of common shares outstanding, including potential dilutive securities. In computing diluted net income (loss) per share, net income (loss) attributable to common shareholders is re-allocated to reflect the potential impact of dilutive securities, including stock options, unvested RSUs, unvested performance and market-based RSUs, ESPP withholdings and convertible debt instruments. For periods in which we have generated a net loss or there is no income attributable to common stockholders, we do not include dilutive securities in our calculation of diluted net income (loss) per share, as the impact of these awards is anti-dilutive.

The following tables set forth the computation of basic and diluted net income (loss) per share of common stock (in millions, except per share data):

	Three Months Ended September 30,						Nine Months Ended September 30,
	Three Months Ended March 31,
	2021			2020			2021			2020
	2022			2021
BASIC AND DILUTED:
Basic and Diluted:
Net income (loss) attributable to common stockholders	$	(4124.75	)	$	(~~122~~23.20	)	$	~~(36.9~~	)	$	~~(376.4~~	)
Weighted-average common shares outstanding		1,~~097~~133.12			1,~~076~~084.74			~~1,090.4~~			~~995.6~~
Net income (loss) per share attributable to common stockholders	$	(0.0402	)	$	(0.1102	)	$	~~(0.03~~	)	$	~~(0.38~~	)

The following weighted-average employee equity awards and convertible debt instruments were excluded from the calculation of diluted net income (loss) per share because their effect would have been anti-dilutive for the periods presented (in millions):

	Three Months Ended September 30,				Nine Months Ended September 30,
	Three Months Ended March 31,
	2021		2020		2021		2020
	2022		2021
Stock options and employee stock purchase plan		2923.14		3029.90		~~28.9~~		~~30.9~~
RSUs (including performance and market- based awards)		6764.34		6964.8		~~68.0~~		~~53.0~~
Convertible senior notes		7.1		8.9		14.2		—
Convertible senior notes(1)		150.0		17.0
Total		~~103~~237.58		~~109~~110.68		~~111.1~~		~~83.9~~

⁽¹⁾

The amount shown for three months ended March 31, 2022 reflects the adoption of ASU 2020-06 and follows the if-converted method. Refer to “Recent Accounting Pronouncements” included in Note 1 —“Overview and Summary of Significant Accounting Policies” for further discussion on the adoption of ASU 2020-06.

15. Commitments and Contingencies

The amounts represented in the tables below reflect our minimum cash obligations for the respective calendar years based on contractual terms, but not necessarily the periods in which these costs will be expensed in the Company’s consolidated statement of operations.

Licensor and Marketing Commitments

We have entered into several contracts with licensors that contain minimum contractual royalty and marketing commitments that may not be dependent on any deliverables. As of ~~September~~March 3031, ~~2021~~2022, future minimum contractual royalty payments due to licensors and associated marketing commitments for the licensed products are as follows (in millions):

Year ending December 31:
Remaining 2021	$	10.3
Remaining 2022	$	11.0
2022		8.3
2023		10.4
2024		—
2025		1015.0
2026		5.0
Thereafter		—
Total	$	3941.04

Other Purchase Commitments

We have entered into several contracts primarily for hosting of data systems and other services. As of ~~September~~March 3031, ~~2021~~2022, future minimum purchase commitments that have initial or remaining non-cancelable terms are as follows (in millions):

Year ending December 31:
Remaining 2021	$	12.5
Remaining 2022	$	49.2
2022		42.9
2023		51.7
2023		33.6
2024		36.9
2024		16.5
Thereafter		—
Total	$	~~105~~137.58

25Excluded from tables above is our uncertain income tax position liability of $22.3 million, which includes interest and penalties, as the Company cannot make a reasonably reliable estimate of the period of cash settlement.

Excluded from tables above is our uncertain income tax position liability of $25.0 million, which includes interest and penalties, as the Company cannot make a reasonably reliable estimate of the period of cash settlement.

Legal Matters

The Company is involved in legal and regulatory proceedings on an ongoing basis. Some of these proceedings are in early stages and may seek an indeterminate amount of damages. If the Company believes that a loss arising from such matters is probable and can be reasonably estimated, the Company accrues the estimated liability in its financial statements. If only a range of estimated losses can be determined, the Company accrues an amount within the range that, in its judgment, reflects the most likely outcome; if none of the estimates within that range is a better estimate than any other amount, the Company accrues the low end of the range. For proceedings in which an unfavorable outcome is reasonably possible but not probable and an estimate of the loss or range of losses arising from the proceeding can be made, the Company discloses such an estimate, if material. If such a loss or range of losses is not reasonably estimable, the Company discloses that fact. In assessing the materiality of a proceeding, the Company evaluates, among other factors, the amount of monetary damages claimed, as well as the potential impact of non-monetary remedies sought by plaintiffs that may require changes to business practices in a manner that could have a material adverse impact on the Company’s business. Legal expenses are recognized as incurred.

On September 12, 2019, the Company announced that an incident had occurred that may have involved player data (the “Data Incident”). Upon our discovery of the Data Incident, an investigation immediately commenced and advisors and third-party forensics firms were retained to assist. The investigation revealed that, during the third quarter of 2019, outside hackers illegally accessed certain player account information and other Zynga information, and that no financial information was accessed. The Company has provided notifications to players, investors, regulators and other third parties, where we believe notice was required or appropriate. The Company has exchanged correspondence with certain regulators as a result of the incident. The Company has also received and has responded to data subject access requests from certain European Union players of Zynga’s games.

Since March 3, 2020, five consumer class action complaints have been filed in connection with the Data Incident in federal court. On March 3, 2020, two plaintiffs – minor “I.C.” (acting through his parent Nasim Chaudhri) and Amy Gitre – filed a class action complaint arising out of the Data Incident (the “Chaudhri complaint”), generally alleging that Zynga failed to reasonably safeguard certain player information, including names, email addresses, and passwords (among other items); failed to provide them with timely notification of the breach; and made misleading representations concerning the safety and security of plaintiffs’ personal information. Plaintiffs allege claims against Zynga under several state law theories, including negligence, intrusion upon seclusion, failure to comply with data breach notification statutes, and unjust enrichment, and they seek injunctive relief and damages. Zynga filed a motion to compel arbitration and arbitration-related discovery on May 8, 2020.

On March 23, 2020, plaintiffs Carol Johnson and Lisa Thomas filed a second class action complaint in the Northern District of California federal court (the “Johnson complaint”). Similar to the Chaudhri complaint, the Johnson plaintiffs – residents of Missouri and Wisconsin – assert Zynga failed to adequately protect certain player information, including names, email addresses, and passwords (among other items). Plaintiffs contend that, despite Zynga’s representations in its privacy policy that sensitive player information would be adequately protected, plaintiffs’ passwords were stored using inadequate hashing methods or in plain text. Plaintiffs allege that the lack of adequate security measures caused them harm as a result of the Data Incident, and they assert numerous various claims against Zynga, including claims for negligence, negligence per se, unjust enrichment, declaratory relief, breach of confidence, breach of contract and implied contract, violations of California’s Unfair Competition Law (“UCL”, CGL 17200, et seq.), and state-specific violations of Missouri’s Merchandising Practices Act and Wisconsin’s Deceptive Trade Practices Act. Plaintiffs seek damages, as well as declaratory and injunctive relief. On May 26, 2020, Zynga filed a motion to compel arbitration and arbitration-related discovery.

On April 15, 2020, plaintiffs Joseph Martinez IV and Daniel Petro, residents of Colorado and Iowa, filed a third class action complaint in the Northern District of California (the “Martinez complaint”). Plaintiffs allege they are longtime Zynga players who were affected by the Data Incident. Similar to the Chaudhri and Johnson plaintiffs, the Martinez plaintiffs generally allege that Zynga failed to adequately store and protect or otherwise secure certain player information, including names, email addresses, and passwords (among other items); that Zynga used outdated and improper password encryption methods; that Zynga failed to adequately provide notice of the Data Incident; and that they have been harmed as a result of the Data Incident. Like the Johnson and Chaudhri plaintiffs, the Martinez plaintiffs assert claims for negligence, negligence per se, and unjust enrichment, as well as contractual claims, and claims for relief under multiple state consumer protection statutes. Additionally, the Martinez plaintiffs also assert misrepresentation and omission claims under California’s false advertising law and the California Consumer Legal Remedies Act. Plaintiffs seek injunctive and monetary relief on behalf of a nationwide class. Zynga responded to the Martinez complaint by filing a motion to compel arbitration on June 19, 2020.

On June 9, 2020 plaintiffs James Oeste and Marissa Oeste, both residents of Maryland, filed a fourth class action complaint in the Northern District of Maryland (the “Oeste complaint”). Plaintiffs allege they were Zynga players who were affected by the Data Incident. Similar to all the foregoing plaintiffs, the Oeste plaintiffs seek to represent a nationwide class and generally allege that Zynga failed to adequately or reasonably protect certain player information, including names, email addresses, and passwords (among other items); that Zynga used outdated or improper password hashing methods; that Zynga failed to adequately provide notice of the Data Incident; and that they have been harmed as a result of the Data Incident. The Oeste plaintiffs assert claims for contractual breach, negligence, negligence per se, invasion of privacy, and claims for relief under California consumer protection and unfair competition statutes. Zynga responded to the complaint on August 31, 2020, with a motion to transfer the action to the Northern District of California. On May 5, 2021, the court granted Zynga’s motion to transfer, and the case was transferred to the Northern District of California. The California district court has consolidated Oeste proceedings in connection with the other already pending cases before the court.

Incident. Similar to all the foregoing plaintiffs, the Oeste plaintiffs seek to represent a nationwide class and generally allege that Zynga failed to adequately or reasonably protect certain player information, including names, email addresses, and passwords (among other items); that Zynga used outdated or improper password hashing methods; that Zynga failed to adequately provide notice of the Data Incident; and that they have been harmed as a result of the Data Incident. The Oeste plaintiffs assert claims for contractual breach, negligence, negligence per se, invasion of privacy, and claims for relief under California consumer protection and unfair competition statutes. Zynga responded to the complaint on August 31, 2020, with a motion to transfer the action to the Northern District of California. On May 5, 2021, the court granted Zynga’s motion to transfer, and the case was transferred to the Northern District of California. The California district court has consolidated Oeste proceedings in connection with the other already pending cases before the court.

On August 13, 2020, plaintiff Christopher Rosiak filed a fifth class action in the Northern District of California (the “Rosiak complaint”). Plaintiff alleges similar and analogous claims to those in the Martinez (and others) actions pending in the Northern District, alleging that he suffered harm as a result of Zynga’s data breach. Plaintiff Rosiak alleges multiple state law claims, including contract-based claims, negligence, and violation of California’s unfair competition, false advertising, and consumer protection statutes.

On January 6, 2021, the Northern California district court issued an order in three of the above actions—Chaudhri, Johnson, and Martinez—denying Zynga’s motions to compel arbitration without prejudice, and granting an alternative request for preliminary arbitration-related discovery that Zynga had made in connection with its motions. Plaintiffs were ordered to provide Zynga with plaintiffs’ identifying information. Following a status hearing before the court as to all actions pending before it, plaintiffs filed an amended and consolidated complaint in connection with the Chaudhri, Johnson, and Martinez complaints, as well as in connection with the Rosiak complaint. The amended and consolidated complaint was filed in the Northern District of California on March 12, 2021.

In response to the amended and consolidated complaint, on April 21, 2021, the Company filed renewed motions to compel arbitration in connection with the claims alleged by three of the individual named plaintiffs in the Chaudhri, Johnson, and Martinez actions. On the same date, the Company also filed a motion to dismiss claims alleged by all remaining plaintiffs in those actions, and in the Rosiak action. Following oral argument held by the court on July 27, 2021, the court granted Zynga’s motion to compel arbitration and granted the motion to dismiss with leave to amend. Plaintiffs filed their second amended consolidated complaint on August 27, 2021. Zynga filed a responsive motion to dismiss the amended complaint on September 20, 2021. AOn ~~hearing~~March on29, 2022, the ~~motion~~district ~~scheduled~~court ~~for~~granted ~~October~~Zynga’s ~~26,~~motion ~~2021 was vacated,~~ to bedismiss ~~reset~~the asamended ~~necessary.~~complaint ~~Zynga~~with isprejudice, ~~awaiting~~resulting ~~either~~in athe ~~rescheduled~~effective ~~hearing~~dismissal orof ~~the~~all ~~court’s~~claims ~~decision~~in on the ~~motion~~collective actions.

On ~~February~~March 262, 2021, a class -action lawsuit (the “Bourgeois complaint”) was filed in the ~~United~~Superior ~~States~~Court ~~District~~of ~~Court~~Quebec, ~~for~~in the ~~Northern~~province ~~District~~ of ~~California~~Montreal, byCanada. ~~named~~The ~~plaintiff~~lawsuit, ~~Michael~~which ~~Owens~~was ~~(the~~subsequently ~~“Owens~~amended ~~complaint”),~~via ~~who~~an ~~purchased~~amended ~~in-game~~application ~~currency~~on inOctober ~~connection~~15, ~~with~~2021, ~~his~~was ~~use~~filed ofby ~~certain~~named ~~Zynga~~plaintiff ~~social~~Gabriel ~~slots~~Bourgeois, ~~games.~~who ~~The~~purchased ~~Zynga~~loot ~~social~~box ~~slots~~items ~~games~~in atconnection ~~issue~~with ~~included:~~his ~~Hit~~use Itof ~~Rich!~~the ~~Slots,~~Marvel ~~Black~~Strike ~~Diamond~~Force ~~Casino,~~and ~~Wizard~~Pokemon ofGo! Ozelectronic ~~Slots,~~and ~~Willy~~online ~~Wonka~~games ~~Slots,~~(plaintiff ~~Game~~does ofnot ~~Thrones™~~allege ~~Slots~~that ~~Casino,~~he ~~Spin~~purchased ita ~~Rich!,~~loot ~~Princess~~box ~~Bride~~in ~~Slots~~connection ~~and~~with ~~Riches~~any ofZynga ~~Olympus~~games). Plaintiff ~~alleged~~alleges that Zynga ~~unlawfully developed, owned,~~ and ~~operated~~multiple ~~games~~other ~~that~~gaming ~~qualify~~defendants ashave ~~unlawful~~unlawfully ~~slot~~developed, ~~machines~~own, ~~under California Penal Code section 330b;~~ and ~~that~~operate ~~Zynga~~an ~~“developed,~~unlicensed ~~owned,~~gaming ~~operated~~system, ~~and~~through ~~controlled”~~the ~~such~~use ~~in violation~~ of ~~California~~loot ~~Penal~~boxes ~~Code~~in ~~sections~~connection ~~330,~~with ettheir ~~seq~~games., ~~the~~Plaintiff ~~Illegal~~asserts ~~Gambling~~that ~~Business~~defendants ~~Act~~have ~~(18~~unlawfully ~~U.S.C.~~offered §loot ~~1955),~~boxes ~~and~~to the ~~Unlawful~~public ~~Internet~~in ~~Gambling~~connection ~~Enforcement~~with ~~Act~~their ofgames; ~~2006~~failed ~~(31~~to ~~U.S.C.~~properly §§disclose ~~5361-5367).~~the ~~Plaintiff~~odds ~~also~~of ~~alleged~~winning ~~that~~in ~~Zynga~~connection ~~unlawfully~~with ~~designed~~loot boxes; and ~~marketed~~failed ~~its~~to ~~social~~employ ~~slots~~appropriate ~~games~~safeguards insurrounding ~~order~~minors’ ability to ~~target~~purchase ~~individuals~~loot ~~with~~boxes. ~~addictive~~The ~~tendencies;~~specific ~~and that~~ Zynga ~~implemented~~games ~~game~~at ~~features~~issue—which ~~that~~plaintiff ~~violated~~does ~~state~~not ~~consumer~~claim ~~protection~~to ~~laws.~~have ~~Plaintiff~~played—include ~~sought~~CSR ~~money~~Racing ~~damages~~2, ~~restitution,~~Empires ~~disgorgement~~& ~~and~~Puzzles, ~~other~~FarmVille: ~~remedies,~~Country asEscape ~~well~~and asDawn ~~injunctive~~of ~~relief~~Titans. Plaintiff ~~filed~~collectively anasserts ~~amended~~that ~~complaint~~by onoffering ~~March~~loot 29boxes, ~~2021,~~all ~~including~~defendants ~~claims~~have byviolated ~~additional~~the ~~named~~Criminal ~~plaintiffs~~Code ~~Jennie~~of ~~Plumley,~~Canada ~~Jon~~provisions ~~Schweitzer,~~that ~~Charlie~~regulate ~~Finlay~~gaming; the Competition Act of Canada; and ~~Melissa~~various ~~Irelan.~~individual Onconsumer ~~May~~protection 4,laws ~~2021~~of the ~~Company~~individual ~~filed~~Canadian aprovinces. ~~motion~~Plaintiff toseeks ~~compel~~monetary ~~arbitration~~damages in ~~response to~~ the ~~amended~~form ~~complaint.~~of Oncompensatory ~~June~~and ~~21,~~punitive ~~2021~~damages, ~~all~~on ~~named~~his ~~plaintiffs~~own ~~filed~~behalf aand ~~notice~~that of ~~voluntary~~a ~~dismissal,~~nationwide ~~dismissing~~Canadian ~~the complaint in its entirety without prejudice~~class. Zynga ~~Subsequent~~filed toresponsive ~~the~~applications ~~voluntary~~on ~~dismissal~~December of21, ~~plaintiffs’~~2021 ~~claims~~seeking ~~and~~to ~~during~~adduce ~~the~~relevant ~~third quarter of 2021~~evidence, ~~Zynga~~ and ~~the~~for ~~individual~~a ~~plaintiffs~~declinatory ~~agreed~~exception tobased aon ~~mutual~~lack ~~resolution~~ of ~~claims~~jurisdiction.

2723

On ~~March~~April 212, 2021, aIGT ~~class-action~~and ~~lawsuit~~IGT ~~(the~~Canada ~~“Bourgeois~~Solutions ~~complaint~~ULC (“IGT”) ~~was~~served ~~filed~~Zynga with a lawsuit in the ~~Superior~~Western ~~Court~~District of ~~Quebec,~~Texas infederal court (the ~~province~~“IGT ~~of Montreal~~complaint”), ~~Canada.~~accusing ~~The~~the ~~lawsuit,~~Company ~~which~~of ~~was~~infringing ~~subsequently~~United ~~amended~~States ~~via~~Patent anNos. ~~amended~~8,708,791; ~~application~~9,159,189; on7,168,089; ~~October 15~~7,303,473; ~~2021~~8,795,064; ~~was~~and ~~filed~~8,266,212. byThe ~~named plaintiff Gabriel Bourgeois~~complaint, ~~who~~as ~~purchased~~amended ~~loot~~on ~~box~~April ~~items~~26, in2022, ~~connection~~alleges ~~with~~that ~~his use of~~ the ~~Marvel~~following ~~Strike~~games ~~Force~~ and ~~Pokemon~~certain ~~Go!~~features ~~electronic~~contained ~~and~~within ~~online~~them ~~games~~infringe ~~(plaintiff~~on ~~does~~the ~~not~~IGT ~~allege~~patents: ~~that he purchased a loot box in connection with any~~ Zynga ~~games).~~Poker, ~~Plaintiff~~Words ~~alleges~~With ~~that~~Friends, ~~Zynga~~FarmVille and ~~multiple~~Zynga ~~other~~social ~~gaming~~slots ~~defendants have unlawfully developed~~games, ~~own,~~including ~~and operate an unlicensed gaming system~~specifically, ~~through~~Hit ~~the~~It ~~use~~Rich! ~~of loot boxes in connection with their games~~Slots. ~~Plaintiff~~On ~~asserts~~June ~~that~~16, ~~defendants~~2021, ~~have~~Zynga ~~unlawfully~~filed ~~offered~~a ~~loot~~partial ~~boxes~~motion to ~~the~~dismiss ~~public~~or instrike ~~connection~~plaintiff’s ~~with their games~~claims; ~~failed~~and toin ~~properly disclose~~ the ~~odds~~alternative, offor ~~winning~~a inmore ~~connection~~definitive ~~with loot boxes; and failed to employ appropriate safeguards surrounding minors’ ability to purchase loot boxes~~statement. ~~The~~IGT ~~specific~~filed ~~Zynga~~its ~~games~~opposition atbrief ~~issue—which~~on ~~plaintiff~~June ~~does not claim to have played—include CSR Racing 2~~30, ~~Empires & Puzzles~~2021, ~~Farmville: Country Escape~~ and ~~Dawn~~Zynga offiled ~~Titans.~~its ~~Plaintiff~~reply ~~collectively~~on ~~asserts~~July ~~that~~7, by2021. ~~offering~~The ~~loot~~parties ~~boxes,~~are ~~all~~awaiting ~~defendants~~a ~~have~~hearing ~~violated~~on the ~~Criminal~~motion. ~~Code~~On ofSeptember ~~Canada~~28, ~~provisions~~2021, ~~that regulate gaming;~~ the ~~Competition~~court ~~Act~~adopted ofdiscovery ~~Canada;~~ and ~~various~~scheduling ~~individual~~deadlines ~~consumer~~that ~~protection~~include ~~laws~~a ofdispositive ~~the~~motion ~~individual~~deadline ~~Canadian provinces. Plaintiff seeks monetary damages in the form~~ of ~~compensatory~~October ~~and~~26, ~~punitive damages~~2022, onand ~~his~~an ~~own~~anticipated ~~behalf~~trial ~~and~~date ~~that~~ of aFebruary ~~nationwide~~6, ~~Canadian class~~2023.

On ~~April~~February 1224, ~~2021~~2022, ~~IGT~~a ~~and~~putative ~~IGT~~class ~~Canada~~action ~~Solutions~~complaint ~~ULC~~was ~~(“IGT”)~~filed ~~served~~in ~~Zynga~~the ~~with~~U.S. aDistrict ~~lawsuit~~Court infor the Western District of ~~Texas~~Washington ~~federal~~by ~~court~~plaintiffs ~~(the~~Tonda ~~“IGT~~Ferrando ~~complaint”),~~and ~~accusing~~Dex ~~the~~Marzano, ~~Company~~both of ~~infringing~~whom ~~United~~purport ~~States~~to ~~Patent~~be ~~Nos.~~Washington 8residents,~~708,791;~~ ~~9,159,189;~~on ~~7,168,089;~~behalf ~~7,303,473;~~of ~~8,795,064;~~a ~~and~~Washington ~~8,266,212.~~class ~~The~~of ~~complaint~~individuals ~~alleges~~who ~~that~~made purchases in the ~~following~~Company’s ~~games~~online ~~and~~social ~~certain~~casino ~~features~~games, ~~contained~~including ~~within~~Hit ~~them~~it ~~infringe~~Rich!, onBlack ~~the~~Diamond ~~IGT~~Casino, ~~patents:~~Wizard ~~Zynga~~of ~~Poker~~Oz Slots, ~~Words~~Willy ~~With~~Wonka ~~Friends~~Slots, ~~Farmville~~ and ~~Zynga~~Game ~~social~~of ~~slots~~Thrones™ ~~games,~~Slots ~~including~~Casino ~~specifically,~~(the ~~Hit~~“Washington Itplayer ~~Rich! Slots~~complaint”). OnThe ~~June~~Washington ~~16,~~player ~~2021,~~complaint ~~Zynga~~alleges ~~filed~~that athose ~~partial~~games ~~motion~~violate toWashington ~~dismiss~~state orlaws. ~~strike~~Following ~~plaintiff’s~~a ~~claims;~~formal ~~and~~mediation insession ~~the~~on ~~alternative~~May 4, ~~for~~2022 abetween ~~more~~Zynga ~~definitive~~and ~~statement.~~plaintiffs, ~~IGT~~the ~~filed~~parties ~~its~~agreed ~~opposition~~to ~~brief~~a onsettlement, ~~June~~subject ~~30,~~to ~~2021~~court approval, ~~and~~that ~~Zynga~~calls ~~filed~~for ~~its~~a ~~reply~~full onrelease ~~July~~of 7claims, ~~2021.~~in ~~The~~exchange ~~parties~~for ~~are awaiting~~ a ~~hearing~~settlement onpayment ~~the~~of ~~motion~~$12.0 Onmillion ~~September~~by 28Zynga, ~~2021,~~as ~~the~~well ~~court~~as ~~adopted~~agreement ~~discovery~~to ~~and~~certain ~~scheduling~~non-monetary ~~deadlines~~terms. ~~that~~The ~~include~~Company aaccrued ~~dispositive~~$12.0 ~~motion~~million ~~deadline~~within ofother ~~October~~current ~~26,~~liabilities ~~2022,~~in ~~and~~our anconsolidated ~~anticipated~~balance ~~trial~~sheet ~~date~~as of ~~February~~March 631, ~~2023.~~2022 related to this matter.

Beginning March 14, 2022, multiple individual complaints filed by individual shareholder plaintiffs in have been filed. The ~~Company~~actions ~~intends~~have been filed in differing jurisdictions, and to ~~defend~~date ~~itself~~include ~~vigorously~~the ~~against~~following: Stein ~~all~~v. ~~claims~~Zynga ~~asserted~~Inc., Atet ~~this~~al., ~~time~~No. 22-cv-2091 (S.D. N.Y.); O’Dell v. Zynga Inc., et al., No. 1:22-cv-02139 (S.D. N.Y.); Henninger v. Zynga Inc., et al. No. 3:22-cv-01694 (N.D. Cal.); Whitfield v. Zynga Inc., et al. No. 2:22-cv-01054 (E.D. Pa.); Baker v. Zynga Inc., et al. No. 1:22-cv-01514 (N.D. Cal.); LR Trust v. Zynga Inc., et al. No. 3:22-cv-01821-AGT (N.D. Cal.); Daks v. Zynga Inc., et al. No. 1:22-cv-02434 (S.D. N.Y.); Mercer v. Zynga Inc., et al. No. 1:22-cv-01691 (E.D. N.Y.); Bolyen v. Zynga Inc., et al. No. 1:22-cv-00393 (D. Del.); and Morano v. Zynga Inc., et al. No. 1:22-cv-03084 (S.D. N.Y.). The individual shareholder plaintiffs collectively allege violation of federal securities laws in connection with the ~~Company~~Take-Two isInteractive ~~unable~~Software, toInc. ~~reasonably~~Registration ~~estimate~~Statement on Form S-4 (the ~~loss~~“Registration orStatement”) ~~range~~filed with the Securities and Exchange Commission on March 11, 2022 and Zynga’s Definitive Proxy Statement filed on Schedule 14A with the SEC on April 7, 2022. Plaintiffs generally allege that Zynga defendants (including directors and officers of ~~loss~~the company) violated the Securities and Exchange Act by causing a materially incomplete and misleading Registration Statement and Definitive Proxy Statement to be filed on March 11, if2022 ~~any~~and April 7, ~~arising~~2022, ~~from~~respectively, ~~any~~and disseminated to Company stockholders. Specifically, plaintiffs allege that the Registration Statement and Definitive Proxy Statement contain materially incomplete and misleading information concerning: the analyses performed by the Company’s financial advisor, Goldman Sachs & Co. LLC (“Goldman Sachs”) in support of its fairness opinion, the ~~above~~independence of certain Zynga directors, and Goldman Sachs’ relationship with Take-~~referenced~~Two. In ~~matters~~addition, on April 28, 2022, the shareholder plaintiff in the Morano action filed an amended complaint styled as a class action and also filed an application for a preliminary injunction. The plaintiff withdrew their application on May 2, 2022. Zynga will defend itself vigorously in response to the complaints.

~~The~~On ~~Company~~May is2, ~~at various times~~2022, ~~also~~IBM ~~party~~served toZynga ~~various~~and ~~other~~its ~~legal~~subsidiary ~~proceedings~~Chartboost, ~~claims~~Inc. ~~and/or~~with ~~regulatory~~a ~~inquiries~~lawsuit ~~not~~alleging ~~previously~~patent ~~discussed~~infringement ~~which arise~~ in the ~~ordinary~~District ~~course~~ of ~~business.~~Delaware Infederal ~~addition~~court. Specifically, the ~~Company~~complaint ~~may~~alleges ~~receive~~Zynga’s ~~notifications alleging~~ infringement of ~~patent~~United orStates ~~other~~Patent ~~intellectual property rights~~Nos. ~~Adverse results in any such litigation~~7, ~~legal proceedings or claims may include awards of substantial monetary damages~~072,849 ~~expensive~~(the ~~legal~~"'849 ~~fees~~patent"), ~~costly royalty or licensing agreements~~7, ~~or orders preventing us from offering certain games~~631, ~~features~~346, orand ~~services~~7,702,719; and ~~may~~Chartboost's ~~also~~infringement ~~result~~of ~~in changes in~~ the ~~Company’s~~'849 ~~business~~patent ~~practices, which could result in additional costs or a loss of revenue~~ and ~~could~~United ~~otherwise~~States ~~harm~~Patent ~~the Company’s business~~No. ~~Although the results of such litigation cannot be predicted with certainty~~8,315,904. ~~the~~The Company ~~believes~~is ~~that~~reviewing the ~~amount~~complaint, orand ~~range~~intends ~~of reasonably possible losses related~~ to ~~such~~assert ~~pending or threatened litigation will not have~~ a ~~material~~vigorous ~~adverse effect on its business, operating results, cash flows, or financial condition should such litigation be resolved unfavorably~~defense.

16The Company intends to defend itself vigorously against all claims asserted. ~~Subsequent~~Except ~~Events~~as disclosed above, at this time, the Company is unable to reasonably estimate the loss or range of loss, if any, arising from any of the above-referenced matters. The Company is, at various times, also party to various other legal proceedings, claims and/or regulatory inquiries not previously discussed which arise in the ordinary course of business. In addition, the Company may receive notifications alleging infringement of patent or other intellectual property rights. Adverse results in any such litigation, legal proceedings or claims may include awards of substantial monetary damages, expensive legal fees, costly royalty or licensing agreements, or orders preventing us from offering certain games, features, or services, and may also result in changes in the Company’s business practices, which could result in additional costs or a loss of revenue and could otherwise harm the Company’s business. Although the results of such litigation cannot be predicted with certainty, the Company believes that the amount or range of reasonably possible losses related to such pending or threatened litigation will not have a material adverse effect on its business, operating results, cash flows, or financial condition should such litigation be resolved unfavorably.

~~Acquisition of Beijing StarLark Technology Co~~16., ~~Ltd.~~Proposed ~~(“StarLark”)~~Merger ~~and~~with ~~Lvy~~Take-Two ~~Technology Limited (“Lvy”)~~

On ~~August~~January 39, ~~2021~~2022, the Company ~~executed~~entered ainto ~~Master~~an ~~Business Transfer~~ Agreement ~~among~~and ~~Beijing~~Plan ~~Fotoable~~of ~~Technology Limited~~Merger, ~~Funjoy~~as ~~Technology~~amended ~~Limited,~~on ~~Lvy~~March 10, ~~StarLark~~2022 ~~and certain other parties~~ (the “~~StarkLark~~Merger Agreement”)., Onwith ~~October~~Take-Two, 5Zebra MS I, ~~2021~~Inc. (~~the~~ “~~StarLark~~Merger ~~Closing~~Sub ~~Date~~1”), ~~Zynga acquired Lvy, StarLark, the Golf Rival mobile game franchise~~ and ~~related~~Zebra ~~other~~MS ~~games and certain other specified assets and liabilities in a series of related closings~~II, ~~in exchange for consideration of $276~~Inc.0 ~~million~~(“Merger inSub ~~cash~~2”), ~~$40.0~~two ~~million~~wholly ofowned ~~cash~~subsidiaries ~~that was deposited into an escrow account for a period~~ of 15Take-Two. ~~months~~Pursuant asto ~~security~~the ~~for~~Merger ~~certain~~Agreement, ~~indemnification~~and ~~obligations~~subject ofto the ~~sellers~~satisfaction ~~and~~or ~~the~~waiver ~~issuance~~ of ~~20,009,528 shares of Class A common stock of Zynga, valued at $145.7 million on~~ the ~~StarLark~~conditions ~~Closing~~set ~~Date.~~

Pursuant to the StarLark Agreement, on the StarLark Closing Date, the Company acquired Lvy and StarLark, with StarLark becoming a direct, wholly-owned subsidiary of Lvy and Lvy becoming a direct, wholly-owned subsidiary of Zynga.24

28forth therein, Merger Sub 1 will be merged with and into Zynga (the “Merger”) with Zynga continuing as the surviving corporation and a wholly owned subsidiary of Take-Two, and immediately following the Merger, the surviving corporation in the Merger will merge with and into Merger Sub 2, with Merger Sub 2 continuing as the surviving corporation (the “Subsequent Merger” and together with the Merger, the “Combination”). The Merger Agreement has been and may be amended from time to time by its parties in accordance with its terms by action taken or authorized by their respective boards of directors. The Combination is intended to qualify as a tax-free reorganization for U.S. federal income tax purposes.

As a result of the Combination, each issued and outstanding share of Zynga’s Class A Common Stock, other than dissenting shares and treasury shares, will be converted into a number of shares of Take-Two’s common stock (the “Stock Consideration”), equal to the Exchange Ratio (as defined below), and the right to receive $3.50 in cash.

The “Exchange Ratio” will be the following: (i) if the Take-Two Common Stock Price (as defined below) is an amount greater than $181.88, then the Exchange Ratio is 0.0350; (ii) if the Take-Two Common Stock Price is an amount greater than or equal to $156.50 but less than or equal to $181.88, then the Exchange Ratio is an amount equal to the quotient (rounded to five decimal places) obtained by dividing (a) $6.36 by (b) the Take-Two Common Stock Price; and (iii) if the Take-Two Common Stock Price is less than $156.50, then the Exchange Ratio is 0.0406. “Take-Two Common Stock Price” will be the volume-weighted average sales price per share of Take-Two Common Stock on the Nasdaq Global Select Market for the consecutive period beginning at 9:30 a.m. New York time on the twenty-third trading day immediately preceding the closing date of the Combination and concluding at 4:00 p.m. New York time on the third trading day immediately preceding such closing date.

The Merger Agreement also provides that at the effective time of the Combination (the “Effective Time”), (i) issued and outstanding options to purchase Zynga Common Stock will be assumed by Take-Two and automatically converted into options exercisable for shares of Take-Two Common Stock (the “Converted Options”), (ii) each issued and outstanding restricted stock unit award covering Zynga Common Stock will be assumed by Take-Two and automatically converted into a Take-Two restricted share unit award covering shares of Take-Two Common Stock (the “Converted RSUs”), and (iii) each issued and outstanding performance stock unit award covering Zynga Common Stock will be assumed by Take-Two and automatically converted into a Take-Two restricted share unit award covering a number of shares of Take-Two Common Stock determined based on the number of shares of Zynga Common Stock subject to the award immediately prior to the Effective Time as determined in accordance with the requirements of the applicable Zynga award agreement (the “Converted PSUs” and, together with the Converted Options, and the Converted RSUs, the “Converted Awards”), in each case with the number of shares (and exercise price, with respect to Converted Options) adjusted based on an exchange ratio that is intended to maintain the intrinsic value of the award immediately prior to the Effective Time. Following the Effective Time, the Converted Awards will vest based on continued service and will continue to be governed by substantially the same terms and conditions as were applicable to the corresponding Zynga equity awards immediately prior to the Effective Time.

The Merger Agreement contains customary representations, warranties and covenants made by each of Zynga and Take-Two, including, among others, covenants by each of Zynga and Take-Two to (i) continue conducting its respective businesses in the ordinary course, consistent with past practice during the interim period between the execution of the Merger Agreement and consummation of the Combination, (ii) not engage in certain specified kinds of transactions during that period and (iii) unless the Merger Agreement is validly terminated, hold a meeting of its stockholders to vote upon, in the case of Zynga’s stockholders, the approval and adoption of the Merger Agreement and the Combination, and, in the case of Take-Two’s stockholders, the approval of both the issuance of the Stock Consideration and the adoption of an amendment to Take-Two’s Amended and Restated Certificate of Incorporation increasing the number of authorized shares of Take-Two Common Stock (the “Take-Two Charter Amendment”). Zynga and Take-Two have each called a special meeting of their respective stockholders to vote upon proposals to approve these and related matters, each to be held on May 19, 2022, at they may be adjourned or postponed in accordance with the terms of the Merger Agreement and applicable law.

Zynga and Take-Two have agreed that, commencing at 12:01 a.m. (New York time) on February 25, 2022 (following the conclusion of a “go-shop” period that expired on February 24, 2022, in the case of Zynga), and commencing upon the execution of the Merger Agreement (in the case of Take-Two), Zynga and Take-Two will be subject to “no-shop” restrictions and will not, subject to certain exceptions set forth in the Merger Agreement, (i) solicit or knowingly encourage inquiries or proposals relating to alternative acquisition transactions or (ii) engage in discussions or negotiations regarding, or provide any non-public information to third parties in connection with, alternative acquisition proposals. In addition, each of Zynga and Take-Two have agreed that, subject to certain exceptions, its board of directors will not withdraw its respective recommendations to their respective stockholders in favor of the approval and adoption of Merger Agreement and the Combination (in the case of Zynga), or the approval of the issuance of the Stock Consideration and the adoption of the Take-Two Charter Amendment (in the case of Take-Two).

The closing of the Combination is subject to certain conditions, including (i) the approval and adoption of the Merger Agreement and the Combination by Zynga’s stockholders, (ii) the approval of the issuance of the Stock Consideration and the Take-Two Charter Amendment by Take-Two’s stockholders, (iii) the expiration or termination of applicable waiting periods under the Hart-

Scott-Rodino Antitrust Improvements Act of 1976 and clearance under the antitrust laws of certain non-United States jurisdictions, (iv) there having not occurred a material adverse effect on the other party, (v) the effectiveness of a registration statement on Form S-4 with respect to shares of Take-Two Common Stock to be issued in the Merger and (vi) other customary conditions. The applicable waiting period under the HSR Act expired at 11:59 p.m. Eastern Time on February 23, 2022 and all other required antitrust approvals have been obtained as of the date of this quarterly report. The registration statement on Form S-4 with respect to shares of Take-Two Common Stock to be issued in the Merger was declared effective on April 7, 2022.

Either Zynga or Take-Two may terminate the Merger Agreement if, among certain other circumstances, (i) the Combination has not become effective on or before January 9, 2023 or (ii) Zynga’s stockholders fail to approve and adopt the Merger Agreement and the Combination, or Take-Two’s stockholders fail to approve the issuance of the Stock Consideration and/or the adoption of the Take-Two Charter Amendment. Zynga may terminate the Merger Agreement in certain additional circumstances, including: (a) to allow Zynga to enter into a definitive agreement for an alternative business combination proposal that constitutes a “superior proposal” (as defined in the Merger Agreement), or (b) if Take-Two’s board of directors withdraws or adversely changes its recommendation to Take-Two’s stockholders in favor of the approval of the issuance of the Stock Consideration or the adoption of the Take-Two Charter Amendment. Take-Two may terminate the Merger Agreement in certain additional circumstances, including if Zynga’s board of directors withdraws or adversely changes its recommendation to Zynga’s stockholders in favor of the approval and adoption of the Merger Agreement and the Combination.

The Merger Agreement provides for the payment of a “termination fee” upon the termination of the Merger Agreement in specified circumstances, including if the Merger Agreement is terminated by either Take-Two or Zynga as a result of an adverse change in the recommendation of the other party’s board of directors. In the event that Zynga terminates the Merger Agreement following an adverse change in the recommendation of Take-Two’s board of directors, Take-Two would be required to pay to Zynga a termination fee of $550.0 million. In the event that Take-Two terminates the Merger Agreement following an adverse change in the recommendation of Zynga’s board of directors, Zynga would be required to pay to Take-Two a termination fee of $550.0 million. In addition, Zynga is required to pay to Take-Two a termination fee of $550 million if Zynga terminates the Merger Agreement to enter into a definitive agreement for an alternative acquisition proposal for Zynga that constitutes a “superior proposal.” If the Merger Agreement is terminated because Zynga’s stockholders fail to approve the adoption of the Merger Agreement and the Combination, and Take-Two’s stockholders approve the issuance of the Stock Consideration and the adoption of the Take-Two Charter Amendment, Zynga will be required to pay Take-Two an expense reimbursement of $50.0 million. If the Merger Agreement is terminated because Take-Two’s stockholders fail to approve the issuance of the Stock Consideration and the adoption of the Take-Two Charter Amendment, and Zynga’s stockholders approve the adoption of the Merger Agreement and the Combination, Take-Two will be required to pay to Zynga an expense reimbursement of $50.0 million.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion of our financial condition and results of operations in conjunction with the consolidated financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Quarterly Report on Form 10-Q, particularly in “Special Note Regarding Forward-Looking Statements” and “Risk Factors.” The forward-looking statements included in this Quarterly Report on Form 10-Q are made only as of the date hereof.

COVID-19 Update

We continue to remain focused on monitoring and assessing the COVID-19 pandemic including prioritizing the interests of our employees and players. As it relates to our employees, in mid-March 2020, our global workforce transitioned to remote working as we closed our offices, without any material disruption to our day-to-day operations. Our global offices largely continue to remain closed, with our global studios predominately operating remotely while we continue to assess the impact of the COVID-19 pandemic on the health and safety of our employees.

As it relates to our user base, towards the end of the second quarter of 2021, we observed a decline in players from cohorts that began playing certain of our games during the pandemic, as communities started to reopen and reduce their COVID-19 restrictions. Moving forward, we continue to believe the effects of the COVID-19 pandemic on society and player behavior are highly uncertain.

While we believe that we have been able to observe certain trends, we may not be able to determine the quantifiable impact specifically attributable to the COVID-19 pandemic on our results of operations and financial performance for the three and nine months ended September 30, 2021 and for future periods. See further discussion below in Part II, Item 1A. “Risk Factors” included in this Quarterly Report on Form 10-Q of the possible impact of the COVID-19 pandemic on our business.

Overview

We are a ~~leading~~global ~~provider~~leader ofin ~~social~~interactive ~~game~~entertainment ~~services~~ with approximately ~~183~~209 million average mobile monthly active users (“MAUs”) in the ~~third~~first quarter of ~~2021~~2022. We develop, market and operate social games as live services played on mobile platforms (such as Apple’s iOS and Google’s Android), social networking platforms (such as Facebook and Snapchat), Personal Computers (“PCs”), consoles (such as Nintendo’s Switch) and other platforms. ~~We also operate a mobile programmatic advertising and monetization platform.~~ Generally, all of our games are free to play, and we generate substantially all of our revenue through the sale of in-game virtual items (“online game revenue”) and advertising services (“advertising revenue”). We also operate a mobile programmatic advertising and monetization platform.

We are a pioneer and innovator of social games and a leader in making “play” a core activity primarily on mobile devices and social networking sites. Our objective is to become the worldwide leader in play by connecting the world through games.

Consistent with our free-to-play business model, a small portion of our players have historically been payers. For example, in the ~~third~~first quarter of ~~2021~~2022, our average ~~mobile~~Mobile ~~monthly unique payers (“~~MUPs”) represented approximately 3.79% of our average ~~mobile~~Mobile ~~monthly unique users (“~~MUUs”) – for more information about the uses, estimates and limitations of these and other operating metrics, please see “Key Operating Metrics” below. Because the opportunity for social interactions increases as the number of players increases, we believe that maintaining and growing our overall number of players, including the number of players who may not purchase virtual items, is important to the success of our business. As a result, we believe that the number of players who choose to purchase virtual items will continue to constitute a small portion of our overall players.

Our top three online game revenue-generating games historically have contributed to a significant portion of our revenue, though the games that represent our top three online game revenue-generating games vary over time. Our top three online game revenue-generating games accounted for 4947%, 4849% and 4548% of our online game revenue in ~~2020~~2021, ~~2019~~2020 and ~~2018~~2019, respectively. In 2021, our top three online game revenue-generating games were Empires & Puzzles, Toon Blast and Merge Dragons!. With respect to advertising and other revenue, our hyper-casual games and Words With Friends games ~~generated~~accounted afor ~~substantial~~79% ~~portion~~and 69% of our collective advertising and other revenue in 2021 and 2020, ~~2019~~respectively, while our Words With Friends games generated a substantial portion of our advertising and ~~2018~~other revenue in 2019.

~~Acquisition~~Proposed ofMerger ~~Chartboost,~~with ~~Inc. (“Chartboost”)~~Take-Two

On ~~August~~January 49, ~~2021~~2022, wethe ~~acquired~~Company ~~100%~~entered ofinto ~~all~~the ~~issued~~Merger ~~and~~Agreement ~~outstanding~~with ~~share capital of Chartboost~~Take-Two, ~~for~~as ~~total~~amended ~~consideration~~on ofMarch ~~$232.7~~10, ~~million.~~2022, ~~The~~pursuant ~~total~~to ~~purchase~~which, ~~consideration~~and ~~included~~subject ~~$204.7~~to ~~million~~the insatisfaction ~~cash,~~or ~~$25.0~~waiver ~~million~~ of ~~cash~~the ~~that~~conditions ~~was~~set ~~deposited~~forth ~~into~~therein, anZynga ~~escrow~~would ~~account~~become ~~for~~ a ~~period~~wholly-owned subsidiary of 15Take-Two. ~~months~~The asclosing ~~security for certain indemnification obligations~~ of the ~~former~~Combination ~~Chartboost~~is ~~securityholders~~subject ~~and~~to ~~Zynga’s~~certain ~~replacement~~customary ofclosing ~~unvested~~conditions, ~~Chartboost~~including ~~stock options allowing~~ the ~~holders~~approval toof ~~purchase~~both upparties' tostockholders ~~1,012,388~~and ~~shares~~required ofregulatory ~~Zynga’s~~approvals.

29For more information, see Note 16 – “Proposed Merger with Take-Two” in the notes to the consolidated financial statements included herein.

~~Class~~Advertising AMonetization ~~common~~and ~~stock,~~User of which $2.2 million of the total acquisition date fair value was allocated to the purchase consideration. Additionally, the total purchase consideration includes $0.8 million of deferred cash consideration. Acquisition

~~Chartboost~~In isApril 2021, Apple released a ~~mobile~~version ~~programmatic~~update ~~advertising~~of iOS 14.5 that requires its users (and ~~monetization~~presumably ~~platform~~users of future iOS versions), ~~which~~on ~~includes~~an app-by-app basis, to explicitly opt-in to the use of identifier-for-advertising, a ~~demand~~device ~~side~~identifier ~~platform~~assigned by Apple to each of its devices and used by advertisers to attribute app installs to advertising campaigns, ~~supply~~target ~~side~~users ~~platform~~through user acquisition and ~~mediation~~deliver ~~capabilities~~targeted ads. ~~The~~While ~~Company~~we ~~expects~~believe that we have been able to observe certain trends, including a meaningful increase in the ~~acquisition~~adoption of iOS 14.5 by users, we may not be able to ~~meaningfully~~determine ~~enhance~~the ~~its~~quantifiable ~~advertising~~impact ~~capabilities~~specifically attributable to the Apple version update on our results of operations and financial performance for the three months ended March 31, 2022 and for future periods.

~~Acquisition of Beijing StarLark Technology Co., Ltd. (“StarLark”) and Lvy Technology Limited (“Lvy”)~~27

OnCOVID-19 August 3, 2021, the Company executed a Master Business Transfer Agreement among Beijing Fotoable Technology Limited, Funjoy Technology Limited, Lvy, StarLark and certain other parties (the “StarkLark Agreement”), pursuant to which Zynga acquired, on October 5, 2021 (the “StarLark Closing Date”), Lvy, StarLark, the Golf Rival mobile game franchise and related other games and certain other specified assets and liabilities in a series of related closings, in exchange for consideration of $276.0 million in cash, $40.0 million of cash that was deposited into an escrow account for a period of 15 months as security for certain indemnification obligations of the sellers and the issuance of 20,009,528 shares of Class A common stock of Zynga, valued at $145.7 million on the StarLark Closing Date. Update

~~Pursuant~~We continue to ~~the~~remain ~~StarLark~~focused ~~Agreement,~~ on monitoring and assessing the ~~StarLark~~COVID-19 ~~Closing~~pandemic ~~Date,~~including prioritizing the ~~Company~~interests ~~acquired~~of ~~Lvy~~our employees and ~~StarLark~~players. As it relates to our employees, ~~with~~in ~~StarLark~~mid-March ~~becoming~~2020, aour ~~direct~~global workforce transitioned to remote working as we closed our offices, ~~wholly~~without any material disruption to our day-~~owned~~to-day ~~subsidiary~~operations. Certain of ~~Lvy~~our ~~and~~global ~~Lvy~~offices ~~becoming~~have abegun ~~direct~~to re-open in phased approaches, ~~wholly~~while we continue to assess the impact of the COVID-~~owned~~19 ~~subsidiary~~pandemic on the health and safety of ~~Zynga~~our employees.

While we believe that we have been able to observe certain trends, we may not be able to determine the quantifiable impact specifically attributable to the COVID-19 pandemic on our results of operations and financial performance for the three months ended March 31, 2022 and for future periods. See further discussion below in Part II, Item 1A. “Risk Factors” included in this Quarterly Report on Form 10-Q of the possible impact of the COVID-19 pandemic on our business.

How We Generate Revenue

We operate our social games as live services that allow players to play for free. We generate revenue primarily from the sale of in-game virtual items and advertising services, which includes our mobile programmatic advertising and monetization platform. Revenue growth will continue to depend largely on our ability to attract and retain players and more effectively monetize our player base through the sale of in-game virtual items and advertising. We intend to do this through the launch of new games, enhancements to current games and expansion into new markets and distribution platforms.

Online game. We provide our players with the opportunity to purchase virtual items that enhance their game-playing experience. We believe players choose to pay for virtual items for the same reasons they are willing to pay for other forms of entertainment – they enjoy the additional playing time or added convenience, the ability to personalize their own game boards, the satisfaction of leveling up and the opportunity for sharing creative expressions. We believe players are more likely to purchase virtual items when they are connected to and playing with their family and friends, whether those individuals play for free or also purchase virtual items.

In ~~2021~~2022, our business continued generating a significant percentage of revenue and bookings through mobile platforms. In the ~~nine~~three months ended ~~September~~March 3031, ~~2021~~2022, we estimate that 5049% and 4647% of our revenue and 5149% and 4647% of our bookings were generated on Apple and Google platforms, respectively, while in the same period of the prior year, we estimate that 4951% and 4645% of our revenue and 51% and 45% of our bookings were generated on Apple and Google platforms, respectively. This information is estimated because certain payment methods we accept and certain advertising networks do not allow us to determine the platform used.

Advertising and other. Advertising revenue in our games primarily includes display advertisements, engagement advertisements and offers and branded virtual items and sponsorships. Advertising revenue also includes the net fees collected from our demand, supply and mediation advertising platforms. Other revenue primarily consists of royalties received from the licensing of our brands.

Key Metrics

We regularly review a number of metrics, including the following key financial and operating metrics, to evaluate our business, measure our performance, identify trends in our business, prepare financial projections and make strategic decisions.

Key Financial Metrics

Revenue and Bookings. Bookings is a non-GAAP financial measure that is equal to revenue recognized plus or minus the change in deferred revenue during the period and other adjustments (if applicable). We record the sale of virtual items (i.e. online game bookings) as deferred revenue and then recognize those bookings ratably over the estimated average playing period of payers or as the virtual items are consumed. Advertising sales consisting of certain branded virtual items and sponsorships are also initially recorded to deferred revenue and then these advertising bookings are recognized ratably over the estimated life of the branded virtual item, similar to online game revenue, or over the term of the advertising arrangement, depending on the nature of the agreement. Bookings is a fundamental top-line metric we use to manage our business, as we believe it is a useful indicator of the sales activity in a given period. Over the long-term, the factors impacting our revenue and bookings are generally the same. However, in the short term, there are various factors that may cause revenue to exceed or be less than bookings in any period.

We use revenue and bookings to evaluate the results of our operations, generate future operating plans and assess the performance of our company. While we believe that bookings are useful in evaluating our business, this information should be considered as supplemental in nature and is not intended to be considered in isolation of, as a substitute for, or as superior to, revenue recognized in accordance with U.S. GAAP. In addition, other companies, including companies in our industry, may calculate bookings differently or not at all, which reduces its usefulness as a comparative measure.

The following table presents a reconciliation of total revenue to total bookings for each of the periods presented (in millions):

	Three Months Ended September 30,					Nine Months Ended September 30,
	Three Months Ended March 31,
	2021			2020		2021			2020
	2022			2021
Reconciliation of Revenue to Bookings:
Revenue	$	~~704~~691.72		$	~~503~~680.3	$	~~2,105.0~~		$	~~1,358.8~~
Change in deferred revenue		~~(37~~3.07	)		~~124~~39.72		~~(5.9~~	)		~~212.2~~
Bookings	$	~~667~~694.79		$	~~628~~719.05	$	~~2,099.1~~		$	~~1,571.0~~

The following table presents a reconciliation of mobile revenue to mobile bookings for each of the periods presented (in millions):

	Three Months Ended September 30,					Nine Months Ended September 30,
	Three Months Ended March 31,
	2021			2020		2021			2020
	2022			2021
Reconciliation of Mobile Revenue to Mobile Bookings:
Mobile revenue	$	~~685~~672.12		$	~~484~~660.27	$	~~2,045.0~~		$	~~1,303.8~~
Change in mobile deferred revenue		~~(35~~3.8	)		~~124~~38.89		~~(4.9~~	)		~~212.0~~
Mobile bookings	$	~~649~~676.30		$	~~609~~699.06	$	~~2,040.1~~		$	~~1,515.8~~

Limitations of Bookings

Key limitations of bookings are:

• bookings do not reflect that we defer and recognize online game revenue and revenue from certain advertising transactions over the estimated average playing period of payers, the average life of branded virtual items, the term of the advertising arrangement or as virtual items are consumed, and also include other adjustments (if applicable); and

•

other companies, including companies in our industry, may calculate bookings differently or not at all, which reduces their usefulness as a comparative measure.

Because of these limitations, you should consider bookings along with other financial performance measures, including revenue, net income (loss) and our other financial results presented in accordance with U.S. GAAP.

Key Operating Metrics

We manage our business by tracking several operating metrics: “Mobile DAUs,” which measure daily active users of our mobile games, “Mobile MAUs,” which measure monthly active users of our mobile games, “Mobile MUUs,” which measure monthly unique users of our mobile games, “Mobile MUPs,” which measure monthly unique payers in our mobile games, and “Mobile ABPU,” which measures our average daily mobile bookings per average Mobile DAUs, each of which is recorded and estimated by our internal analytics systems. We determine these operating metrics by using internal company data based on tracking of user account activity. We also use information provided by third parties, including third party network logins provided by platform providers, to help us track whether a player logged in under two or more different user accounts is the same individual. We believe that the amounts are reasonable estimates of our user base for the applicable period of measurement and that the methodologies we employ and update from time-to-time are reasonably based on our efforts to identify trends in player behavior; however, factors relating to user activity and systems and our ability to identify and detect attempts to replicate legitimate player activity may impact these numbers.

Mobile DAUs. We define Mobile DAUs as the number of individuals who played one of our mobile games during a particular day. Under this metric, an individual who plays two different mobile games on the same day is counted as two Mobile DAUs. We use information provided by third parties to help us identify individuals who play the same mobile game to reduce this duplication. However, because we do not always have the third party network login data to link an individual who has played under multiple user accounts, a player may be counted as multiple Mobile DAUs. Average Mobile DAUs for a particular period is the average of the Mobile DAUs for each day during that period. We use Mobile DAUs as a measure of mobile audience engagement.

Mobile MAUs. We define Mobile MAUs as the number of individuals who played one of our mobile games in the 30-day period ending with the measurement date. Under this metric, an individual who plays two different mobile games in the same 30-day period is counted as two Mobile MAUs. We use information provided by third parties to help us identify individuals who play the same mobile game to reduce this duplication. However, because we do not always have the third party network login data to link an individual who has played under multiple user accounts, a player may be counted as multiple Mobile MAUs. Average Mobile MAUs for a particular period is the average of the Mobile MAUs at each month-end during that period. We use Mobile MAUs as a measure of total mobile game audience size.

Mobile MUUs. We define Mobile MUUs as the number of individuals who played one or more of our mobile games, which we were able to verify were played by the same individual in the 30-day period ending with the measurement date. An individual who plays more than one of our mobile games in a given 30-day period would be counted as a single Mobile MUU to the extent we can verify that the mobile games were played by the same individual. However, because we do not always have the third party network login data necessary to link an individual who has played under multiple user accounts in a given 30-day period, an individual may be counted as multiple Mobile MUUs. Because many of our players play more than one mobile game in a given 30-day period, Mobile MUUs are always equal to or lower than Mobile MAUs in any given time period. Average Mobile MUUs for a particular period is the average of the Mobile MUUs at each month end during that period. We use Mobile MUUs as a measure of total audience reach across our network of mobile games.

Mobile MUPs. We define Mobile MUPs as the number of individuals who made a payment in a mobile game at least once during the applicable 30-day period through a payment method for which we can quantify the number of individuals. Mobile MUPs do not include individuals who use certain payment methods for which we cannot quantify the number of unique payers. However, because we do not always have the third party network login data necessary to link an individual who has paid under multiple user accounts in a 30-day period, a player who has paid using multiple user accounts may be counted as multiple Mobile MUPs. Mobile MUPs are presented as an average of the three months in the applicable quarter. We use Mobile MUPs as a measure of the number of individuals who made payments across our network of mobile games during a 30-day period.

Mobile ABPU. We define Mobile ABPU as our total mobile bookings in a given period, divided by the number of days in that period, divided by, the average Mobile DAUs during the period. We believe that Mobile ABPU provides useful information to investors and others in understanding and evaluating our results in the same manner as management. We use Mobile ABPU as a measure of overall monetization across all of our mobile players through the sale of virtual items and advertising.

Our business model around our social games is designed so that, as more players play our games, social interactions increase and the more valuable our games and our business become. All engaged players of our games help drive our bookings, online game revenue and advertising revenue. Virtual items are purchased by players who are socializing with, competing against or collaborating with other players, most of whom do not buy virtual items. Accordingly, we primarily focus on the aforementioned key operating metrics, which we believe collectively best reflect key audience metrics.

Consistent with our focus on mobile gaming platforms, we report these audience-related metrics based only on mobile platforms. We have ceased including our web-based games in these audience metrics as a result of their decreasing significance as part of our overall financial and operating results and the technical challenges resulting from increased volumes of apparent player activity that we are unable to reliably validate and de-duplicate, as these web-based games are generally more susceptible than mobile platforms to attempts to replicate legitimate player activity.

In order to provide our best estimates of actual player metrics, we continually evaluate our methodologies including estimating audience metrics by applying data science techniques to identify suspicious player behavior. While we devote significant time and effort to developing player metrics, our estimates may not accurately reflect the actual amount of players in a reported period and our methodologies do not consistently identify all invalid traffic in prior reporting periods.

The table below shows average Mobile DAUs, Mobile MAUs, Mobile MUUs, Mobile MUPs and Mobile ABPU for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2021~~2022 and ~~2020~~2021:

	Three Months Ended September 30,				Nine Months Ended September 30,
	Three Months Ended March 31,
	2021		2020		2021		2020
	2022		2021
	(users and payers in millions)
Average Mobile DAUs(1)		3840		3138		39		25
Average Mobile MAUs(1)		~~183~~209		83164		~~184~~		74
Average Mobile MUUs(2)		3436		3537		35		42
Average Mobile MUPs(2)		1.24		1.34		~~1.3~~		~~1.3~~
Mobile ABPU	$	0.~~188~~190	$	0.~~213~~202	$	~~0.191~~	$	~~0.226~~

(1) We do not have the third party network login data to link an individual who has played under multiple user accounts for our hyper-casual games (which includes the games acquired from Rollic), our mobile messenger games (prior to the third quarter of 2021), Puzzle Combat, Merge Magic! and games acquired from Gram Games, Small Giant, Peak and ~~Peak~~StarLark and accordingly, actual average Mobile DAU and Mobile MAU may be lower than reported due to the potential duplication of these individuals.

32(2) Excluded from average Mobile MUUs and Mobile MUPs are players of our hyper-casual games (which includes the games acquired from Rollic), our mobile messenger games (prior to the third quarter of 2021), Puzzle Combat, Merge Magic! and games acquired from Gram Games, Small Giant, Peak and StarLark. These games are excluded to avoid potential double counting as our systems are unable to distinguish whether a player of these games is also a player of our other games during the applicable time periods.

~~(2)~~Average ~~Excluded from average~~ Mobile ~~MUUs~~DAUs and ~~Mobile~~MAUs ~~MUPs~~increased ~~are~~in ~~players~~the ofthree ~~our~~months ~~hyper-casual~~ended ~~games~~March ~~(which~~31, ~~includes~~2022 ~~the~~when ~~games~~compared ~~acquired~~to ~~from~~the ~~Rollic),~~same ~~our~~period ~~mobile~~of ~~messenger~~the ~~games (~~prior toyear, ~~the~~primarily ~~third~~driven ~~quarter~~by ofcontributions ~~2021)~~from Rollic, ~~Puzzle~~while ~~Combat,~~average ~~Merge~~Mobile ~~Magic!~~MUUs and ~~games~~average ~~acquired~~Mobile ~~from~~MUPs ~~Gram~~were ~~Games,~~relatively ~~Small Giant and Peak~~flat. ~~These~~Mobile ~~games~~ABPU ~~are~~decreased ~~excluded~~in tothe ~~avoid~~three ~~potential~~months ~~double~~ended ~~counting~~March as31, ~~our~~2022 ~~systems~~when ~~are~~compared ~~unable~~ to ~~distinguish~~the ~~whether~~same aperiod ~~player~~ of ~~these~~the ~~games~~prior isyear, ~~also~~due ato ~~player~~an ofincrease ~~our~~in ~~other~~average ~~games~~Mobile ~~during~~DAUs ~~the~~relative ~~applicable~~to ~~time~~a ~~periods~~decrease in mobile bookings.

~~Average Mobile DAUs and MAUs increased in the three months ended September~~ 30~~, 2021 when compared to the same period of the prior year, primarily driven by contributions from the games acquired from Rollic in October 2020.~~

Average Mobile MUUs was relatively flat in the three months ended September 30, 2021 compared to the same period of the prior year. Average Mobile MUPs decreased primarily due to a decline in payers in our older mobile games, CSR Racing 2 and Zynga Poker, partially offset by an increase in payers in Harry Potter™: Puzzles & Spells. Finally, Mobile ABPU decreased due to a larger increase in average Mobile DAUs relative to the increase in mobile bookings, primarily reflecting the addition of Rollic’s hyper-casual games into our portfolio.

Other Metrics

Although our management primarily focuses on the operating metrics above, we also monitor periodic trends in paying players of our games. The table below shows average monthly unique mobile online game payer bookings, average Mobile MUPs and average monthly unique mobile online game payer bookings per average Mobile MUP for the three months ended March 31, 2022 and 2021:

	Three Months Ended September 30,
	Three Months Ended March 31,
	2021		2020
	2022		2021
Average monthly unique mobile online game payer bookings (in millions)(1)	$	67	$	6274
Average Mobile MUPs (in millions)(2)		1.24		1.34
Average monthly unique mobile online game payer bookings per average Mobile MUP(3)	$	5447	$	4751

(1) Average monthly unique mobile online game payer bookings represent the monthly average amount of mobile online game bookings for the applicable quarter that we received through payment methods for which we can quantify the number of unique payers. Accordingly, mobile online game bookings from our hyper-casual games (which includes the games acquired from Rollic), our mobile messenger games (prior to the third quarter of 2021), Puzzle Combat, Merge Magic! and our games acquired from Gram Games, Small Giant, Peak and ~~Peak~~StarLark are excluded.

(2) Excluded from average Mobile MUPs are players of our hyper-casual games (which includes the games acquired from Rollic), our mobile messenger games (prior to the third quarter of 2021), Puzzle Combat, Merge Magic!, and games acquired from Gram Games, Small Giant, ~~and~~ Peak an StarLark. These games are excluded to avoid potential double counting as our systems are unable to distinguish whether a player of these games is also a player of our other games during the applicable time periods.

⁽³⁾

Average monthly unique mobile online game payer bookings per average Mobile MUP is calculated by dividing average monthly unique mobile online game payer bookings by average Mobile MUPs.

Average monthly unique mobile online game payer bookings ~~increased~~decreased in the three months ended ~~September~~March 3031, ~~2021~~2022 compared to the same period of the prior year, primarily due to ~~contribution from~~ Harry Potter™: Puzzles & Spells, ~~partially~~and ~~offset by a decline from~~ CSR Racing 2. Average monthly unique mobile online game payer bookings per average Mobile MUP ~~increased~~decreased due to the ~~increase~~decrease in average monthly unique mobile online game payer bookings ~~and decrease in average Mobile MUPs~~.

Although we monitor our unique mobile payer metrics, we focus on monetization, including in-game advertising, of all of our players and not just those who are payers. Accordingly, we strive to enhance content and our players’ game experience to increase our bookings and Mobile ABPU, which is a measure of overall monetization across all of our players through the sale of virtual items and advertising. Future growth in audience and engagement will depend on our ability to retain current players, attract new players, launch new games, expand into new markets and distribution platforms, and the success of our network. Our operating metrics may not correlate directly to quarterly revenue or bookings trends.

Factors Affecting Our Performance

Platform agreements. Our games are primarily distributed, marketed and promoted through third parties, primarily Apple’s App Store and the Google Play Store. Virtual items for our games are purchased through the payment processing systems of these platform providers. We generate a significant portion of our revenue, bookings and players through the Apple and Google platforms and expect to continue to do so for the foreseeable future as we launch more games for mobile devices. Apple and Google generally have the discretion to set the amounts of their platform fees and change their platforms’ terms of service and other policies with respect to us or other developers in their sole discretion, and those changes may be unfavorable to us. These platform fees are recorded as costs of revenue as incurred, while we recognize the majority of mobile online game revenue over the average playing period of payers, which generally results in costs of revenue exceeding revenue early in the life of a new or acquired game. Further, as a result of the platform fees associated with online game bookings, our mobile online game revenue generally generates lower gross margins than our advertising and other revenue. Accordingly, the overall mix between online game revenue and advertising and other revenue may impact our gross margins.

Launch of new games and release of enhancements. Our revenue and bookings results have been driven by the launch of new games and the release of fresh content and new features in existing games. Our future success depends on our ability to innovate and provide fresh content to keep our existing players engaged, while also engaging new and lapsed players, and launch and monetize new titles on various platforms. Although the amount of revenue and bookings we generate from an enhancement to an existing game or launch of a new game or can vary significantly, we expect our revenue and bookings to be correlated to our success in releasing engaging content and features for our existing games and the success and timely launch of our new games. Further, revenue and bookings from many of our games may decline over time after reaching a peak of popularity and player usage. As a result of this decline in the revenue and bookings of our games, our business depends on our ability to consistently release fresh content for our existing games and launch new games that achieve significant popularity and have the potential to become franchise games.

Game monetization. We generate most of our revenue and bookings from the sale of virtual items in our games. The degree to which our players choose to pay for virtual items in our games is driven by our ability to create content and virtual items that enhance the game-play experience. Our revenue, bookings and overall financial performance are affected by the number of players and the effectiveness of our monetization of players through the sale of virtual items and advertising. The percentage of paying players may increase or decrease based on a number of factors, including growth in mobile games as a percentage of total game audience, localization of content in international markets and the availability of payment options.

increase or decrease based on a number of factors, including growth in mobile games as a percentage of total game audience, localization of content in international markets and the availability of payment options.

Investment in game development. In order to develop new games and enhance the content and features in our existing games, we must continue to invest in a significant amount of engineering and creative resources. These expenditures generally occur in advance of the launch of a new game or the release of new content, and the resulting revenue may not equal or exceed our development costs, or the game or feature may be abandoned in its entirety. In addition, we recognize the majority of online game revenue over the average playing period of payers, which generally results in expenses exceeding revenue early in the life of a new or acquired game.

Player acquisition costs. We utilize advertising and other forms of player acquisition and retention to grow and retain our player audience. These expenditures generally relate to the promotion of new game launches and ongoing performance-based programs to drive new player acquisition and lapsed player reactivation. Over time, these acquisition and retention-related programs may become either less effective or costlier, negatively impacting our operating results.

Licensed branding. In addition to player acquisition costs, we utilize licensed intellectual property to grow and retain our player audience. We incur licensing fees related to the use of intellectual property within our games, and our gross margins can be affected by the mix of player purchases from games in which we own the intellectual property as compared to games in which we license certain intellectual properties. For example, we use licensed intellectual property as creative assets in games such as Game of Thrones™ Slots Casino, Harry Potter: Puzzles & Spells, Hit It Rich! Slots, Wizard of Oz Slots and Wonka’s World of Candy, and we are developing new games using licensed intellectual property for Star Wars™. While overall bookings within these games will benefit our revenue, a shift in the mix of our revenue towards such games using licensed intellectual property could decrease our gross margins.

New market development. We are investing in new distribution channels, cross-platform play, advertising networks and international markets to expand our reach and grow our business. ~~For example, we continue to expand our game publishing internationally, including the release of Harry Potter: Puzzles & Spells in Asia during 2020.~~ Our ability to be successful will depend on our ability to develop a successful mobile network, obtain new players and retain existing players on new and existing social networks and attract advertisers.

As we expand into new markets and distribution channels, we expect to incur headcount, marketing and other operating costs in advance of the associated revenue and bookings. Our financial performance will be impacted by our investment in these initiatives and their success.

Hiring and retaining key personnel. Our ability to compete depends in large part on our ability to hire and retain key talent and match that key talent to our current business needs. We are continually reviewing our hiring, learning and development and total rewards programs against best practices, with the goal of building and retaining world class teams. For further discussion on our human capital, refer to Part I, Item I “Business” included in our previously-filed Annual Report on Form 10-K for the year ended December 31, ~~2020~~2021.

Results of Operations

In April 2021, Apple released a version update of iOS 14.5 that requires its users (and presumably users of future iOS versions), on an app-by-app basis, to explicitly opt-in to the use of identifier-for-advertising, a device identifier assigned by Apple to each of its devices and used by advertisers to attribute app installs to advertising campaigns, target users through user acquisition and deliver targeted ads. While we believe that we have been able to observe certain trends, including a meaningful increase in the adoption of iOS 14.5 by users, we may not be able to determine the quantifiable impact specifically attributable to the Apple version update on our results of operations and financial performance for the three and nine months ended September 30, 2021 and for future periods.

Revenue

	Three Months Ended September 30,							Nine Months Ended September 30,
	Three Months Ended March 31,
	2021		2020		% Change			2021		2020		% Change
	2022		2021		% Change
	(dollars in millions)							~~(dollars in millions)~~
Online game:
Mobile	$	~~552~~519.8	$	~~418~~538.07		32(4	)%	$	~~1,659.1~~	$	~~1,117.0~~		49	%
Other(1)		1817.39		18.03		(2	)%		~~56.0~~		~~51.6~~		9	%
Online game total	$	~~571~~537.17	$	~~436~~557.0		31(3	)%	$	~~1,715.1~~	$	~~1,168.6~~		47	%
Advertising and other:
Mobile	$	~~132~~152.34	$	66122.1		~~100~~25	%	$	~~385.9~~	$	~~186.8~~		~~107~~	%
Other(1)		1.31		1.2		(8	)%		~~4.0~~		~~3.4~~		18	%
Advertising and other total	$	~~133~~153.65	$	67123.3		9924	%	$	~~389.9~~	$	~~190.2~~		~~105~~	%
Total revenue	$	~~704~~691.72	$	~~503~~680.3		402	%	$	~~2,105.0~~	$	~~1,358.8~~		55	%

⁽¹⁾

Includes web for online game and web advertising revenue and other revenue for advertising and other.

Three Months Ended ~~September~~March 3031, ~~2021~~2022 Compared to Three Months Ended ~~September~~March 3031, ~~2020~~2021

Total revenue increased $~~201~~10.49 million in the three months ended ~~September~~March 3031, ~~2021~~2022 as compared to the same period of the prior year, while bookings ~~increased~~decreased $3924.76 million over the same period.

Mobile online game revenue and other online game revenue increased $134.8 million and $0.3 million, respectively, in the three months ended September 30, 2021, as compared to the same period of the prior year, resulting in a total online game revenue increase of $135.1 million.32

~~The~~Mobile ~~increase in mobile~~ online game revenue ~~was~~and ~~primarily~~other ~~attributable~~online togame ~~increases in mobile~~ revenue ~~from~~decreased ~~Toon Blast and Toy Blast, in the amounts of~~ $8218.59 million and $430.84 million, respectively, ~~due~~in tothe ~~higher~~three ~~amortization~~months ofended ~~prior~~March ~~period~~31, ~~deferred revenue and overall increase in bookings~~2022, as ~~the~~compared ~~games were acquired in July 2020. The increase was also attributable~~ to ~~higher~~the ~~amortization~~same ~~of prior~~ period ~~deferred revenue and overall increase in bookings from Harry Potter™: Puzzles & Spells in the amount~~ of ~~$34.0 million, as~~ the ~~game~~prior ~~was launched in September 2020~~year, ~~and Zynga~~resulting ~~Poker~~ in ~~the~~a ~~amount~~total ofonline ~~$5.5~~game ~~million.~~revenue ~~The overall increase was offset by a~~ decrease ~~in revenue from Merge Dragons!, Merge Magic! and CSR Racing 2 in the amounts~~ of $1619.~~1 million, $13.0 million and $~~3.3 million ~~respectively, due to the overall decrease in bookings and audience metrics in the games~~.

InThe ~~the~~decrease ~~three~~in ~~months~~mobile ~~ended~~online ~~September~~game ~~30,~~revenue ~~2021,~~was primarily attributable to decreases in revenue from Merge Dragons!, Empires & Puzzles, Merge Magic! and ~~Toon~~CSR ~~Blast were~~Racing ~~our~~2 ~~top~~in ~~online~~the ~~revenue-generating~~amounts ~~games~~of ~~and~~$16.1 ~~comprised~~million, ~~19%~~$12.6 million, $12.0 million and ~~18%~~$6.9 million, respectively, ofdue ~~our~~to ~~online~~the ~~game~~overall ~~revenue~~decrease ~~for~~in bookings and audience metrics in the ~~period~~games. InThe ~~the~~overall ~~three~~decrease ~~months~~was ~~ended~~partially ~~September~~offset ~~30,~~by ~~2020, Empires~~an &increase ~~Puzzles and Merge~~in ~~Dragons!~~revenue from ~~were~~Harry ~~our~~Potter™: ~~top~~Puzzles ~~online~~& ~~revenue-generating~~Spells in ~~games~~the ~~and~~amount ~~comprised~~of ~~25%~~$15.7 ~~and~~million, ~~16%~~due ~~respectively,~~to higher amortization of ~~our~~prior ~~online~~period ~~game~~deferred revenue ~~for~~as the ~~period~~game launched in September 2020. NoThe ~~other~~overall ~~game~~decrease ~~generated~~was ~~more~~also ~~than~~partially ~~10%~~offset by revenue from Golf Rival in the amount of ~~online~~$12.8 million, as the game ~~revenue~~was ~~during~~acquired ~~either~~in ofthe ~~these~~fourth ~~periods~~quarter of 2021.

~~The~~In ~~estimated~~the ~~weighted~~three months ended March 31, 2022, we deferred recognition of $6.8 million of online game revenue due to changes in our estimated average playing period of payers ~~was~~that ~~ten~~required ~~months~~adjusting ~~for~~the recognition period of deferred revenue generated in prior periods. In the three months ended ~~September~~March 3031, 2021, aswe ~~compared~~accelerated tothe ~~nine~~recognition ~~months~~of ~~for~~$1.9 million of online game revenue from changes in our estimated average playing period of payers that required adjusting the ~~three~~recognition ~~months~~period ~~ended~~of ~~September~~deferred ~~30,~~revenue ~~2020~~generated in prior periods.

~~Mobile~~The ~~advertising~~estimated ~~revenue~~weighted ~~and~~average ~~other~~playing ~~advertising~~period ~~and~~of ~~other~~payers ~~revenue~~was ~~increased~~ten ~~$66.2~~months ~~million~~for ~~and $0.1 million, respectively, in~~ the three months ended ~~September~~March 3031, ~~2021,~~2022 ~~as compared to the same period of the prior year, resulting in a total advertising~~ and ~~other increase of $66~~2021.~~3 million.~~

~~The~~In ~~increase~~the inthree ~~mobile~~months ~~advertising~~ended ~~revenue~~March ~~was~~31, ~~primarily~~2022, Empires ~~due~~& toPuzzles aand ~~$37.6~~Toon ~~million~~Blast were ~~increase~~our intop ~~mobile~~online inrevenue-~~game~~generating ~~display~~games ~~advertising~~and ~~revenue~~comprised 20% and a17%, ~~$28.5~~respectively, ~~million~~of ~~increase~~our inonline game revenue ~~from~~for ~~mobile~~the ~~in-game~~period. ~~offers~~In the three months ended March 31, ~~engagement~~2021, ~~advertisements~~Empires & Puzzles, Toon Blast and ~~other~~Merge Dragons! were our top online revenue-generating games and comprised 21%, ~~both~~16% and 11%, respectively, of ~~which~~our ~~were~~online ~~primarily~~game ~~driven~~revenue byfor the ~~Rollic~~period. ~~acquisition~~No inother ~~October~~game ~~2020.~~generated more than 10% of online game revenue during either of these periods.

35Mobile advertising revenue increased $30.3 million and other advertising and other revenue decreased $0.1 million in the three months ended March 31, 2022 as compared to the same period of the prior year, resulting in a net advertising and other increase of $30.2 million.

~~International~~The increase in mobile advertising revenue aswas aprimarily ~~percentage~~due ofto ~~total~~an ~~revenue~~increase ~~was~~in ~~40%~~mobile in-game offers, engagement advertisements and ~~38%~~other revenue in the amount of $15.3 million, ~~respectively~~primarily driven by Rollic, as well as due to contribution from Golf Rival, which was acquired in the ~~three~~fourth ~~months~~quarter ~~ended~~of ~~September~~2021. 30The increase was further supplemented by an increase in mobile in-game display advertising revenue in the amount of $15.0 million, ~~2021~~primarily driven by Rollic and ~~2020~~contribution from Chartboost, which was acquired in the third quarter of 2021, partially offset by a decline from our Words with Friends game.

~~Nine~~International ~~Months~~revenue ~~Ended~~as ~~September 30,~~a ~~2021~~percentage ~~Compared~~of tototal ~~Nine~~revenue ~~Months~~was ~~September 30~~39% in the three months ended March 31, ~~2020~~2022 and 2021.

Total revenue increased $746.2 million in the nine months ended September 30, 2021 as compared to the same period of the prior year, while bookings increased $528.1 million in the nine months ended September 30, 2021 as compared to the same period of the prior year.

Mobile online game and other online game revenue increased $542.1 million and $4.4 million, respectively, in the nine months ended September 30, 2021 as compared to the same period of the prior year, resulting in a total online game revenue increase of $546.5 million.

The increase in mobile online game revenue was primarily attributable to increases in mobile revenue from Toon Blast and Toy Blast, in the amounts of $276.8 million and $142.5 million, respectively, due to higher amortization of prior period deferred revenue and overall increase in bookings, as the games were acquired in July 2020. The increase was also attributable to an increase in mobile revenue from Harry Potter™: Puzzles & Spells in the amount of $80.0 million, due to higher amortization of prior period deferred revenue and overall increase in bookings, as the game was launched in September 2020. The increase was further supplemented by increases in revenue from Empires & Puzzles in the amount of $45.1 million, due to higher amortization of prior period deferred revenue, and our social slots games, Zynga Poker and Words With Friends, in the amounts of $23.1 million, $11.8 million and $9.5 million, respectively, due to the overall increase in bookings in these games. The overall increase was offset by a decrease in revenue from Merge Dragons! in the amount of $40.9 million due to the overall decrease in bookings and audience metrics in the game.

The increase in other online game revenue was primarily attributable to increases in web revenue from Hit It Rich! Slots in the amount of $3.7 million, due to the overall increase in bookings in the game.

In the nine months ended September 30, 2021, Empires & Puzzles, Toon Blast and Merge Dragons! were our top online revenue-generating games and comprised 20%, 17% and 10%, respectively, of our online game revenue for the period. In the nine months ended September 30, 2020, Empires & Puzzles and Merge Dragons! were our top online revenue-generating games and comprised 25% and 18% respectively, of our online game revenue for the period. No other game generated more than 10% of online game revenue during either of these periods.

The estimated weighted average playing period of payers was ten months for the nine months ended September 30, 2021 and 2020.

Mobile advertising revenue and other advertising and other revenue increased $199.1 million and $0.6 million, respectively, in the nine months ended September 30, 2021, as compared to the same period of the prior year, resulting in a total advertising and other increase of $199.7 million.

The increase in mobile advertising revenue was primarily due to a $119.6 million increase in mobile in-game display advertising revenue and a $79.4 million increase in revenue from mobile in-game offers, engagement advertisements and other revenue, both of which were primarily driven by the Rollic acquisition in October 2020. The increase in mobile advertising revenue was further supplemented by an increase in advertising revenue from Words with Friends and Harry Potter™: Puzzles & Spells, which launched in September of 2020.

International revenue as a percentage of total revenue was 40% and 39%, respectively, in the nine months ended September 30, 2021 and 2020.

Cost of revenue

	Three Months Ended September 30,							Nine Months Ended September 30,
	Three Months Ended March 31,
	2021		2020		% Change			2021		2020		% Change
	2022		2021		% Change
	(dollars in millions)							~~(dollars in millions)~~
Cost of revenue	$	~~240~~252.82	$	~~235~~260.97		2(3	)%	$	~~754.8~~	$	~~561.4~~		34	%

Three Months Ended ~~September~~March 3031, ~~2021~~2022 Compared to Three Months Ended ~~September~~March 3031, ~~2020~~2021

Cost of revenue ~~increased~~decreased $48.95 million in the three months ended ~~September~~March 3031, ~~2021~~2022 compared to the same period of the prior year. The ~~increase~~decrease was primarily attributable to ~~increases~~a decrease of $821.64 million in payment processing fees from decreased online game bookings, partially offset by an increase of $13.3 million from the amortization of intangible assets, which was largely driven by our acquisitions of StarLark and Chartboost in the fourth and third quarters of 2021, respectively.

driven by our acquisitions of Rollic and Chartboost in the third quarter of 2020 and third quarter of 2021, respectively, and $3.1 million in hosting costs, partially offset by a decrease of $7.8 million in payment processing fees from decreased online game bookings.

Nine Months Ended September 30, 2021 Compared to Nine Months Ended September 30, 2020

Cost of revenue increased $193.4 million in the nine months ended September 30, 2021 compared to the same period of the prior year. The increase was primarily attributable to increases of $99.5 million in payment processing fees from increased bookings generated from mobile payment processors, which was predominately driven by the games acquired from Peak and the launch of Harry Potter™: Puzzles & Spells, $80.7 million from the amortization of intangible assets, which was largely driven by our acquisitions of Peak, Rollic and Chartboost, $6.0 million in hosting costs and $5.5 million in royalty expense.

Research and development

	Three Months Ended September 30,							Nine Months Ended September 30,
	Three Months Ended March 31,
	2021		2020		% Change			2021		2020		% Change
	2022		2021		% Change
	(dollars in millions)							~~(dollars in millions)~~
Research and development	$	~~143~~112.54	$	~~165~~140.97		(1420	)%	$	~~394.0~~	$	~~591.7~~		~~(33~~	)%

~~Three Months Ended September 30, 2021 Compared to Three Months September 30, 2020~~33

~~Research~~Three ~~and~~Months ~~development~~Ended ~~expenses decreased $22.4 million in the three months ended September~~March 3031, ~~2021~~2022 ~~compared~~Compared to ~~the~~Three ~~same~~Months ~~period~~Ended ~~of the prior year. The decrease was primarily attributable to a $45.2 million net decrease in collective expense related to fair value adjustments associated with our Small Giant~~March 31, Gram Games and Rollic contingent consideration obligations. The decrease was partially offset by increases of $11.7 million in headcount-related expenses and $4.5 million in stock-based compensation expense – both of which were primarily driven by our Rollic and Chartboost acquisitions, and $4.1 million from employee bonus expense associated with our Chartboost acquisition. 2021

~~Nine~~Research ~~Months Ended~~and ~~September~~development expenses decreased $28.3 million in the three months ended March 3031, ~~2021~~2022 ~~Compared~~compared to ~~Nine~~the ~~Months Ended~~same ~~September 30~~period of the prior year. The decrease was primarily attributable to a $59.0 million net decrease in collective expense related to contingent consideration fair value adjustments, ~~2020~~primarily associated with our Small Giant obligation. The decrease was partially offset by an $11.9 million loss on a forward contract entered into to mitigate foreign currency risk associated with our first quarter 2022 Small Giant contingent consideration payment, a $10.1 million increase in headcount-related expenses and a $6.6 million increase in stock-based compensation expense.

Research and development expenses decreased $197.7 million in the nine months ended September 30, 2021 compared to the same period of the prior year. The decrease was primarily attributable to a $284.6 million net decrease in collective expense related to fair value adjustments associated with our Small Giant, Gram Games and Rollic contingent consideration obligations. The decrease was partially offset by increases of $36.7 million in headcount-related expenses and $34.3 million in stock-based compensation expense – both of which were primarily driven by our Peak, Rollic and Chartboost acquisitions, $9.8 million related to outside services and $4.1 million from employee bonus expense associated with our Chartboost acquisition.

Sales and marketing

	Three Months Ended September 30,							Nine Months Ended September 30,
	Three Months Ended March 31,
	2021		2020		% Change			2021		2020		% Change
	2022		2021		% Change
	(dollars in millions)							~~(dollars in millions)~~
Sales and marketing	$	~~216~~251.71	$	~~187~~248.07		161	%	$	~~709.6~~	$	~~444.8~~		60	%

Three Months Ended ~~September~~March 3031, ~~2021~~2022 Compared to Three Months Ended ~~September~~March 3031, ~~2020~~2021

Sales and marketing expenses increased $292.74 million in the three months ended ~~September~~March 3031, ~~2021~~2022 compared to the same period of the prior year. The increase was primarily attributable to an increase of $~~21.~~3 ~~million in player acquisition costs, primarily related to the Rollic acquisition~~. ~~The increase was further supplemented by increases of $3.~~7 million in ~~other~~headcount-related ~~marketing costs and $2~~expenses.8 ~~million from employee bonus expense associated with our Chartboost acquisition.~~

Nine Months Ended September 30, 2021 Compared to Nine Months Ended September 30, 2020

Sales and marketing expenses increased $264.8 million in the nine months ended September 30, 2021 compared to the same period of the prior year. The increase was primarily attributable to an increase of $247.5 million in player acquisition costs, primarily Peak and Rollic acquisitions, as well as the launch of Harry Potter™: Puzzles & Spells. The increase was further supplemented by increases of $8.2 million in other marketing costs, $4.6 million in headcount-related expenses, $2.8 million from employee bonus expense associated with our Chartboost acquisition and $2.0 million in stock-based compensation expense.

General and administrative

	Three Months Ended September 30,							Nine Months Ended September 30,
	Three Months Ended March 31,
	2021		2020		% Change			2021		2020		% Change
	2022		2021		% Change
	(dollars in millions)							~~(dollars in millions)~~
General and administrative	$	4960.25	$	3635.17		3669	%	$	~~122.8~~	$	~~103.5~~		19	%

Three Months Ended ~~September~~March 3031, ~~2021~~2022 Compared to Three Months Ended ~~September~~March 3031, ~~2020~~2021

General and administrative expenses increased $1324.18 million in the three months ended ~~September~~March 3031, ~~2021~~2022 compared to the same period of the prior year. The increase was primarily attributable to increases of $412.0 million inassociated ~~acquisition-related~~with ~~transaction~~agreed ~~costs,~~upon ~~$3.1~~settlement ~~million~~related into ~~headcount-related~~the ~~expenses~~Washington ~~and~~player complaint, $19.35 million in ~~information technology~~acquisition-related ~~expenses.~~transaction ~~The~~costs ~~increase was further supplemented by lower overhead allocations out of general~~ and ~~administrative expenses of~~ $3.16 million, ~~primarily~~in ~~driven~~headcount-related ~~by the planned exit of our San Francisco office space~~expenses.

~~Nine~~For ~~Months Ended~~further ~~September 30~~discussion on the Washington player complaint, ~~2021~~see ~~Compared~~the tosection ~~Nine~~titled ~~Months Ended~~“Legal ~~September 30~~Matters” included in Note 15 —“Commitments and Contingencies” in Part I, ~~2020~~Item I “Notes to Consolidated Financial Statements” of this Quarterly Report on Form 10-Q.

General and administrative expenses increased $19.3 million in the nine months ended September 30, 2021 compared to the same period of the prior year. The increase was primarily attributable to increases of $5.0 million in headcount-related expenses, $3.3 million in stock-based compensation, $2.8 million in information technology-related expenses, $2.5 million in acquisition-related transaction costs and $1.9 million in legal expenses. The increase was further supplemented by lower overhead allocations out of general and administrative expenses of $2.3 million, primarily driven by the planned exit of our San Francisco office space.

Impairment related to real estate assets

	Three Months Ended September 30,					Nine Months Ended September 30,
	2021		2020		% Change	2021		2020		% Change
	(dollars in millions)					(dollars in millions)
Impairment related to real estate assets	$	66.8	$	—	NM	$	66.8	$	—	NM

Three Months Ended September 30, 2021 Compared to Three Months Ended September 30, 2020

Impairment related to real estate assets increased $66.8 million in the three months ended September 30, 2021 compared to the same period of the prior year. The increase was attributable to impairment expense associated with the Company’s right-of-use assets and property and equipment, net, recognized in connection with the planned exit of our San Francisco office space.

Nine Months Ended September 30, 2021 Compared to Nine Months Ended September 30, 2020

Impairment related to real estate assets increased $66.8 million in the nine months ended September 30, 2021 compared to the same period of the prior year. The increase was attributable to impairment expense associated with the Company’s right-of-use assets and property and equipment, net, recognized in connection with the planned exit of our San Francisco office space.

Interest income

	Three Months Ended September 30,							Nine Months Ended September 30,
	Three Months Ended March 31,
	2021		2020		% Change			2021		2020		% Change
	2022		2021		% Change
	(dollars in millions)							~~(dollars in millions)~~
Interest income	$	10.69	$	1.07		60(47	)%	$	~~5.0~~	$	~~10.2~~		~~(51~~	)%

Three Months Ended ~~September~~March 3031, ~~2021~~2022 Compared to Three Months Ended ~~September~~March 3031, ~~2020~~2021

Interest income ~~increased~~decreased $0.68 million in the three months ended ~~September~~March 3031, ~~2021~~2022 compared to the same period of the prior year. The ~~increase~~decrease was primarily attributable to a ~~higher~~lower average amount invested ~~in cash equivalents~~ when compared to the prior period.

Nine Months Ended September 30, 2021 Compared to Nine Months Ended September 30, 2020

Interest income decreased $5.2 million in the nine months ended September 30, 2021 compared to the same period of the prior year. The decrease was primarily attributable to a lower average investment yield on our short-term investments, partially offset by a higher average amount invested in cash equivalents when compared to the prior period.

Interest expense

	Three Months Ended September 30,							Nine Months Ended September 30,
	Three Months Ended March 31,
	2021		2020		% Change			2021		2020		% Change
	2022		2021		% Change
	(dollars in millions)							~~(dollars in millions)~~
Interest expense	$	143.81	$	714.37		~~103~~(79	)%	$	~~44.2~~	$	~~21.2~~		~~108~~	%

~~Three Months Ended September 30, 2021 Compared to Three Months Ended September 30, 2020~~34

~~Interest~~Three ~~expense~~Months ~~increased~~Ended ~~$7.5 million in the three months ended September~~March 3031, ~~2021~~2022 ~~compared~~Compared to ~~the~~Three ~~same~~Months ~~period~~Ended ofMarch 31, ~~the prior year. The increase was primarily attributable to an increase of $6.9 million in non-cash interest expense related to the convertible notes due 2026.~~ 2021

~~Nine~~Interest ~~Months Ended~~expense ~~September~~decreased $11.6 million in the three months ended March 3031, ~~2021~~2022 ~~Compared~~compared to ~~Nine~~the ~~Months Ended~~same ~~September 30~~period of the prior year. The decrease was primarily attributable to a decrease in non-cash interest expense related to the convertible notes due 2026 and 2024, as a result of the adoption of ASU 2020-06 on January 1, 2022.

~~Interest~~For ~~expense~~further ~~increased~~discussion ~~$23.0~~on ~~million~~ASU in2020-06, see the ~~nine~~section ~~months~~titled ~~ended~~“Recent ~~September 30,~~Accounting ~~2021~~Pronouncements” ~~compared~~included toin ~~the~~Note ~~same~~1 ~~period~~— of“Overview ~~the~~and ~~prior~~Summary ~~year.~~of ~~The~~Significant ~~increase~~Accounting ~~was~~Policies” ~~primarily~~in ~~attributable~~Part toI, anItem ~~increase~~I of“Notes ~~$21.4~~to ~~million~~Consolidated inFinancial ~~interest~~Statements” ~~expense~~of ~~related~~this toQuarterly ~~the~~Report ~~convertible~~on ~~notes~~Form ~~due 2026 and 2024~~10-Q.

Other income (expense), net

	Three Months Ended September 30,									Nine Months Ended September 30,
	Three Months Ended March 31,
	2021			2020			% Change			2021			2020			% Change
	2022			2021			% Change
	(dollars in millions)									~~(dollars in millions)~~
Other income (expense), net	$	(015.67	)	$	(38.19	)	NM	~~(81~~	)%	$	~~(0.8~~	)	$	~~(4.9~~	)		~~(84~~	)%

Three Months Ended ~~September~~March 3031, ~~2021~~2022 Compared to Three Months Ended ~~September~~March 3031, ~~2020~~2021

Other income (expense), net decreased $224.56 million in the three months ended ~~September~~March 3031, ~~2021~~2022 compared to the same period of the prior year. The decrease was primarily attributable to a net increase of $617.31 million in net foreign exchange transaction ~~gains~~losses, primarily associated with ~~the~~foreign ~~remeasurement~~currency offluctuations, ~~certain~~namely ~~intercompany~~the ~~loans~~depreciation ~~with~~of the ~~Company’s~~Turkish ~~foreign~~Lira ~~subsidiaries~~compared ~~and~~to ~~other~~the ~~foreign~~U.S. ~~currency~~Dollar. ~~fluctuations,~~The ~~partially~~decrease ~~offset~~was further supplemented by a net loss of $38.9 million associated with ~~our~~ non-designated hedging foreign currency forward contract derivatives.

Nine Months Ended September 30, 2021 Compared to Nine Months Ended September 30, 2020

Other income (expense), net decreased $4.1 million in the nine months ended September 30, 2021 compared to the same period of the prior year. The decrease was primarily attributable to a net increase of $7.2 million in net foreign exchange transaction gains, associated with the remeasurement of certain intercompany loans with the Company’s foreign subsidiaries and other foreign currency fluctuations, partially offset by a net loss of $3.9 million associated with our non-designated hedging foreign currency forward contract derivatives.

Provision for (benefit from) income taxes

	Three Months Ended September 30,								Nine Months Ended September 30,
	Three Months Ended March 31,
	2021		2020			% Change			2021		2020		% Change
	2022		2021			% Change
	(dollars in millions)								~~(dollars in millions)~~
Provision for (benefit from) income taxes	$	1521.6	$	(813.84	)		NM61	%	$	~~53.9~~	$	~~17.9~~		~~201~~	%

39Three Months Ended March 31, 2022 Compared to Three Months Ended March 31, 2021

~~Three~~The ~~Months~~provision ~~Ended~~for ~~September~~income taxes increased $8.2 million in the three months ended March 3031, ~~2021~~2022 ~~Compared~~compared to ~~Three~~the ~~Months~~same ~~Ended~~period ~~September 30~~of the prior year. The increase was primarily driven by current tax expense associated with our Peak subsidiary, ~~2020~~namely driven by appreciation of the U.S. Dollar compared to the Turkish Lira.

The provision for (benefit from) income taxes had a net change of $24.4 million when comparing the three months ended September 30, 2021 compared to the same period of the prior year. The net change was primarily driven by current period statutory income of our Peak subsidiary compared to a statutory loss in the prior period, further supplemented by an increase in expense related to the Base Erosion and Anti-Abuse Tax (“BEAT”). The overall increase was partially offset by the partial valuation allowance release from acquired Chartboost deferred tax liabilities.

Nine Months Ended September 30, 2021 Compared to Nine Months Ended September 30, 2020

The provision for (benefit from) income taxes increased $36.0 million in the nine months ended September 30, 2021 compared to the same period of the prior year. The increase was primarily driven by statutory income of our Peak subsidiary compared to a statutory loss in the prior period, higher statutory income of our Small Giant subsidiary and an increase in BEAT expense. The increase was partially offset by the partial valuation allowance release from acquired Chartboost deferred tax liabilities and the prior period income tax expense of $9.4 million that did not repeat in 2021 related to Zynga’s revision of its prior tax position as a result of the Altera Corp v. Commissioner court ruling.

Liquidity and Capital Resources

	Nine Months Ended September 30,
	Three Months Ended March 31,
	2021			2020
	2022			2021
	(in millions)
Consolidated Statements of Cash Flows Data:
Acquisition of property and equipment	$	(610.83	)	$	(~~16.~~1.7	)
Depreciation and amortization		~~170~~69.72			8756.15
Cash flows provided by (used in) operating activities		95(202.97	)		~~223~~(163.37	)
Cash flows provided by (used in) investing activities		(~~283~~7.17	)		~~175~~(475.98	)
Cash flows provided by (used in) financing activities		(5755.40	)		(9023.47	)

Our principal liquidity requirements are our lease commitments, licensing and marketing commitments, hosting commitments, capital expenditure needs, including strategic purchases and acquisitions, contingent consideration payments, interest payments and principal repayments of our convertible notes and any share repurchase activity we choose to effect. We expect to finance our operations primarily through cash provided by operating activities and cash on hand. However, we cannot be certain that these sources will be sufficient to finance our operations, future growth through acquisitions or share repurchase activity, thus we may seek additional financing in the future.

As of September 30, 2021 and December 31, 2020, we had cash, cash equivalents and short and long-term investments of $1.3 billion and $1.6 billion, respectively, which generally consisted of cash, money market funds, corporate debt securities, mutual funds and foreign certificates of deposit and time deposits. 35

As of March 31, 2022 and December 31, 2021, we had cash, cash equivalents and short investments of $0.8 billion and $1.2 billion, respectively, which generally consisted of cash, money market funds, corporate debt securities, mutual funds and foreign certificates of deposit and time deposits.

Under the terms of the Merger Agreement with Take-Two, we have agreed to various covenants and agreements, including, among others, agreements to conduct our business in the ordinary course during the period between the execution of the Merger Agreement and the closing of the Combination. Outside of certain limited exceptions, we may not take, commit or agree to do certain actions without Take-Two’s consent, including, but not limited to, entering into material transactions other than in the ordinary course of business, disposing of material assets, making capital expenditures in excess of the amounts specified in the Merger Agreement, issuing additional capital stock or other equity securities, or incurring additional indebtedness. We do not believe these restrictions will prevent us from meeting our ongoing operating expenses, working capital needs or capital expenditure requirements.

Hedging Instruments

In July 2021, we ~~executed~~started ~~two~~executing monthly forward contract derivatives designed to mitigate foreign currency exposures associated with two intercompany loans. ~~Following~~We ~~their execution, we~~ expect the derivatives to offset future foreign exchange transaction gains (losses) related to these intercompany loans. Further, in February 2022, we executed a forward contract derivative designed to mitigate foreign currency exposures associated with our first quarter 2022 Small Giant contingent consideration payment.

Also, in July 2021, we executed a forward contract derivative designed to mitigate foreign exchange exposure associated with the invested capital of one of our foreign subsidiaries. ~~Following~~We ~~its execution, we~~ expect the derivative to offset future foreign exchange exposure in our net investment in the foreign subsidiary. The Company applied hedge accounting on the net investment forward contract.

Convertible Senior Notes and Capped Call Transactions

In December 2020, we issued $874.5 million aggregate principal amount of 0% convertible senior notes due 2026, with an initial conversion rate of 76.5404 shares of our Class A common stock (equal to an initial conversion price of approximately $13.07 per share), subject to adjustment if certain events occur (the “2026 Notes”). In June 2019, we issued $690.0 million aggregate principal amount of 0.25% convertible senior notes due 2024, with an initial conversion rate of 120.3695 shares of our Class A common stock (equal to an initial conversion price of approximately $8.31 per share), subject to adjustment if certain events occur (the “2024 Notes”).

The 2026 Notes and 2024 Notes are senior unsecured obligations and rank senior in right of payment to all of our indebtedness that is expressly subordinated in right of payment to such notes; equal in right of payment to all of our existing and future liabilities that are not so subordinated; effectively junior to any of our secured indebtedness to the extent of the value of the assets securing such indebtedness; and structurally junior to all indebtedness and other liabilities of our current or future subsidiaries (including trade payables). The indentures governing the 2026 Notes and 2024 Notes, as applicable, do not contain any financial covenants.

The 2026 Notes mature on December 15, 2026 and the 2024 Notes mature on June 1, 2024, unless earlier converted, redeemed or repurchased in accordance with their terms respectively prior to the maturity date. The 2026 Notes do not bear regular interest, and the principal amount does not accrete. Interest is payable semiannually on the 2024 Notes in arrears on June 1 and December 1 of each year, beginning on December 1, 2019. The Company may not redeem the 2026 Notes or 2024 Notes prior to December 20, 2023 and June 5, 2022, respectively.

On or after those respective dates, the Company may redeem for cash all or any portion of the applicable series of ~~the~~ 2026 Notes or 2024 Notes, at its option, if the last reported sale price of our Class A common stock has been at least 130% of the conversion price of the applicable series of the 2026 Notes or 2024 Notes for at least 20 trading days during any 30 consecutive trading-day period ending on and including the trading day immediately preceding the date when the Company provides a notice of redemption at a redemption price equal to 100% of the principal amount of the applicable series of ~~the~~ 2026 Notes or 2024 Notes to be redeemed, plus any accrued and unpaid interest or special interest, as applicable.

In connection with the offering of the 2026 Notes and 2024 Notes, the Company also entered into privately negotiated capped call options with certain counterparties (the “2026 Capped Calls” and “2024 Capped Calls”, respectively). The 2026 Capped Calls have an initial strike price of approximately $13.07 per share, subject to certain adjustments, which corresponds to the initial conversion price of the 2026 Notes and an initial cap price of $17.42 per share, subject to certain adjustments. The 2026 Capped Calls are intended to reduce the potential economic dilution of approximately 66.9 million shares to our Class A common stock upon any conversion of the 2026 Notes and/or offset any cash payments we make in excess of the principal amount of converted notes with such reduction and/or offset, as the case may be, subject to a maximum based on the cap price.

Credit Facility and ~~Covenant Discussion~~Covenants

41As of March 31, 2022, we had no amounts outstanding under the 2020 Credit Agreement.

AsThe 2020 Credit Agreement also requires compliance with certain covenants, all of ~~September~~which the Company was in compliance with as of March 3031, ~~2021~~2022. Specifically, we ~~had~~are nosubject ~~amounts~~to ~~outstanding~~the ~~under~~following financial covenants (certain terms used and described below are as defined and described in the 2020 Credit Agreement. ):

The 2020 Credit Agreement also requires compliance with certain covenants, all of which the Company was in compliance with as of September 30, 2021. Specifically, we are subject to the following financial covenants (certain terms used and described below are as defined and described in the 2020 Credit Agreement):

•

Consolidated Interest Coverage Ratio: The Company is obligated to maintain a minimum consolidated interest coverage ratio of 4.00 to 1.00 as of the end of each fiscal quarter. The consolidated interest coverage ratio is measured by dividing (a) our consolidated EBITDA for the applicable measurement period by (b) the cash portion of our consolidated interest charges for the applicable measurement period.

• Consolidated Leverage Ratio: The Company is obligated to maintain a consolidated leverage ratio of up to an amount ranging from 4.2500 to 1.00 to 3.50 to 1.00 as of the end of each fiscal quarter, in amounts decreasing through the term of the 2020 Credit Agreement. The consolidated leverage ratio is measured by dividing (a) our consolidated funded indebtedness as of the end of the applicable measurement period by (b) our consolidated EBITDA for the applicable measurement period.

Share Repurchases

In April 2018, we authorized the 2018 Share Repurchase Program for up to $200.0 million of our outstanding Class A common stock. The 2018 Share Repurchase Program remained in effect until April 2022. During the three ~~and nine~~ months ended ~~September~~March 3031, ~~2021~~2022, no share repurchases were made and as of ~~September~~March 3031, ~~2021~~2022, we had $173.8 million remaining under the 2018 Share Repurchase Program. ~~The 2018 Share Repurchase Program is authorized to remain in effect until April 2022.~~

Operating Activities

After our net loss of $3624.95 million is adjusted to exclude certain non-cash items, operating activities ~~provided~~used $95202.97 million of cash, cash equivalents and restricted cash during the ~~nine~~three months ended ~~September~~March 3031, ~~2021~~2022. Significant non-cash, cash equivalent or restricted cash items included depreciation and amortization of $~~170~~69.72 million and stock-based compensation expense of $~~125~~45.0 million. Further, the non-cash ~~expense~~benefit associated with ~~the~~our ~~increase in the Small Giant, Rollic and Gram Games~~ contingent consideration obligations drove a $5125.16 million ~~increase~~decrease in our operating liabilities during the ~~nine~~three months ended ~~September~~March 3031, ~~2021~~2022.

The change in our operating assets and liabilities during the ~~nine~~three months ended ~~September~~March 3031, ~~2021~~2022 – excluding the impact from the aforementioned ~~increase~~decrease in our contingent consideration obligations – resulted in a $~~286~~289.06 million outflow of cash, cash equivalents and restricted cash, primarily due to the portion of the total acquisition-related contingent consideration ~~payment~~payments to the former owners of Small Giant, ~~Gram~~ and Rollic included in operating activities in the ~~amount~~amounts of $~~214~~199.58 million, and $598.92 million, ~~and~~respectively. The outflow was further supplemented by an outflow of $446.13 million from accounts payable, ~~respectively~~which was primarily driven by the timing of cash payments, payment of bonuses related to 2021 company performance, an outflow of $30.0 million from income taxes payable and an outflow of $19.2 million from prepaid and other assets.

Investing Activities

Investing activities used $~~283~~7.17 million of cash, cash equivalents and restricted cash during the ~~nine~~three months ended ~~September~~March 3031, ~~2021~~2022. The primary outflow of cash, cash equivalents and restricted cash associated with investing activities was $~~222~~120.20 million ~~associated~~of ~~with~~escrow ~~our~~release ~~Chartboost,~~related ~~Echtra~~to ~~and~~our ~~Uncosoft~~Peak ~~acquisitions~~acquisition, $19.5 ~~The~~million ~~outflow~~ of ~~cash,~~derivative ~~cash~~settlement ~~equivalents~~payments, ~~and~~$12.6 ~~restricted~~million ~~cash~~of ~~associated~~business ~~with~~combination ~~investing~~related ~~activities~~payments ~~was~~and ~~further supplemented by outflows of~~ $4310.93 million ~~for~~of ~~investment~~capital ~~purchases~~expenditures, ~~net~~primarily ofrelated ~~maturities~~to leasehold improvements, ~~and~~partially offset by $6156.86 million of ~~capital~~investment ~~expenditures,~~maturities ~~primarily~~and ~~related~~sales, tonet ~~leasehold~~of ~~improvements~~purchases.

Financing Activities

Financing activities used $5755.40 million of cash, cash equivalents and restricted cash during the ~~nine~~three months ended ~~September~~March 3031, ~~2021~~2022. The primary outflow of cash, cash equivalents and restricted cash associated with financing activities relates to the portion of the total acquisition-related contingent consideration ~~payment~~payments to the former owners of ~~Small Giant,~~ Rollic and ~~Gram~~Small Giant included in financing activities in the amount of $2531.18 million, ~~$15.9 million~~ and $1524.18 million, respectively.

Off-Balance Sheet Arrangements

We did not have any significant off-balance sheet arrangements during the three ~~and nine~~ months ended ~~September~~March 3031, ~~2021~~2022.

Contractual Obligations ⁽¹⁾

	Operating Leases		Licensor and Marketing		Other		Total
Year ending December 31:	(in millions)
Remaining 2021	$	6.0	$	10.3	$	12.5	$	28.8
Remaining 2022	$	10.3	$	11.0	$	49.2	$	70.5
2022		14.3		8.3		42.9		65.5
2023		24.3		10.4		51.7		86.4
2023		23.4		10.4		33.6		67.4
2024		22.0		—		36.9		58.9
2024		21.4		—		16.5		37.9
2025		17.6		15.0		—		32.6
2025		17.5		10.0		—		27.5
2026		17.6		5.0		—		22.6
2026		17.6		—		—		17.6
2027		18.2		—		—		18.2
Thereafter		8971.75		—		—		8971.75
Total	$	~~189~~181.95	$	3941.04	$	~~105~~137.58	$	~~334~~360.47

⁽¹⁾

The amounts represented in the table reflect our minimum cash obligations for the respective calendar years based on contractual terms, but not necessarily the periods in which they will be expensed in our consolidated statement of operations.

Lease Commitments

Our lease commitments primarily consist of operating leases for our office facilities. We do not have any finance lease obligations, and all of our property and equipment has been purchased with cash.

In August 2021, in consideration of the changing nature of the Company’s need for office space for its workforce, the Company’s Board of Directors approved a plan to sublease the Company’s current 185,000 square foot San Francisco, California office space (the “San Francisco Office Building”), as the Company transitions to a hybrid in-office and remote employee work model. As a result of the Board of Director’s decision and the accumulation of other factors, the Company recognized a $66.8 million impairment loss during the third quarter of 2021. The impairment loss recorded included $57.9 million related to the San Francisco Office Building right-of-use lease asset and $8.9 million related to property and equipment, net associated with the San Francisco Office Building.

In the second quarter of 2021, the Company executed a lease for office space of approximately 62,000 square feet in San Mateo, California (the “San Mateo Office Building”) over an approximate 11-year lease term (the “Office Lease Agreement”), with annual lease expense of approximately $3.0 million beginning in June 2021. The Office Lease Agreement provides the Company two separate options to extend the lease for five years each (for a total of an additional 10 years). At lease inception, the Company determined it was not reasonably certain to exercise any of the options to extend. The Company anticipates being able to occupy the San Mateo Office Building beginning in the second quarter of 2022, following the completion of its planned tenant improvements. Based on information and estimates as of the date of this filing, the Company anticipates total capital expenditures of approximately $20.0 million for its tenant improvements related to the San Mateo Office Building, of which $7.8 million will be reimbursable by the landlord. The landlord’s tenant improvement allowance is considered a lease incentive, and will be recognized as a reduction of lease expense ratably over the term of the lease.

Licensor and Marketing Commitments

Licensor commitments include minimum guarantee royalty payments due to licensors for use of their brands, properties and other licensed content in our games, as well as marketing commitments for specified spend related to our marketing products.

Other Commitments

Other commitments primarily include costs for hosting of data systems and other services. Excluded from other commitments is our uncertain income tax position liability of $2522.03 million, which includes interest and penalties, as the Company cannot make a reasonably reliable estimate of the period of cash settlement.

Contingent Consideration Obligations

Under the ~~original~~ terms of the ~~Small~~Creasaur, ~~Giant~~Forgerhero and ~~Rollic~~Zero Sum acquisitions by Rollic, contingent consideration may be payable based on the achievement of ~~certain~~ future ~~performance~~bookings targets –during ~~and~~each inannual period following the ~~case~~respective acquisition date for a total of ~~Rollic~~three years, ~~bookings~~with ~~targets~~no maximum limit as ~~well~~to –the ~~during~~contingent ~~each~~consideration ~~annual~~achievable. ~~period~~The estimated fair value of the collective contingent consideration obligations was $7.3 million as of March 31, 2022, of which $1.3 million was a current liability collectively across all three obligations.

4338

~~following~~With ~~the~~respect ~~respective~~to ~~acquisition~~the ~~date~~Small ~~for~~Giant aand ~~total~~Rollic ofcontingent ~~three~~consideration ~~years~~obligations, ~~with~~the noCompany ~~maximum~~made ~~limit~~its asfinal topayments under both obligations during the ~~contingent~~first ~~consideration~~quarter ~~achievable~~of 2022, with payments of $224.6 million and $40.0 million, respectively.

With respect to the Rollic contingent consideration obligation, the Company executed an amendment to the Share Purchase Agreement with the former owners of Rollic in the second quarter of 2021 to accelerate the Company’s acquisition of the remaining 20% ownership in Rollic and to set the total contingent consideration payment at $60.0 million (the “Rollic Amendment”). In the third quarter of 2021, the Company acquired the remaining 20% ownership and paid $20.0 million, with the remaining $40.0 million to be paid in first quarter of 2022. At the date of the Rollic Amendment, the Company measured the remaining final obligation by calculating the present value of the final payments using a discount rate of 1.3%, commensurate with the remaining term. As of September 30, 2021, the estimated current liability was $39.8 million.

With respect to the Small Giant contingent consideration obligation, during the first quarter of 2021, we paid $239.6 million to the former owners of Small Giant for its performance during the second annual contingent consideration period. As of September 30, 2021, the estimated fair value of the remaining contingent consideration obligation was a $213.9 million current liability.

With respect to the Gram Games contingent consideration obligation, the Company executed an amendment to the Share Purchase Agreement with the former owners of Gram Games in the fourth quarter of 2020 to set the final contingent consideration payment at $75.0 million. In the third quarter of 2021, the Company paid $75.0 million to settle the final contingent consideration obligation.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts in our consolidated financial statements and related notes. Our significant accounting policies are described in Note 1 to our consolidated financial statements included in our previously-filed Annual Report on Form 10-K for the year ended December 31, ~~2020~~2021. We have identified below our critical accounting policies and estimates that we believe require the greatest amount of judgment. These estimates and judgments have a significant impact on our consolidated financial statements. Actual results could differ materially from those estimates. The accounting policies that reflect our more significant estimates and judgments and that we believe are the most critical to fully understand and evaluate our reported financial results include the following:

•

Revenue recognition

•

Income taxes

•

Business combinations, including subsequent remeasurement of contingent consideration obligations

•

Licenses and royalties

•

Impairment related to real estate assets

~~Impairment~~Please ~~related~~refer to ~~real~~Part ~~estate~~II, ~~assets~~Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for our fiscal year ended December 31, 2021 for a more complete discussion of our critical accounting policies and estimates.

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate an asset’s carrying value may not be recoverable. When the projected undiscounted cash flows estimated to be generated by those assets are less than their carrying amounts, the assets are adjusted to their estimated fair value and an impairment loss is recorded as a component of operating income. 39

Significant judgment is required to estimate the amount and timing of future cash flows and the relative risk of achieving those cash flows. Assumptions and estimates about future values and remaining useful lives are complex and often subjective. They can be affected by a variety of factors, including external factors such as industry and economic trends, and internal factors such as changes in our business strategy and our internal forecasts.

In the third quarter of 2021, as a result of the Company’s plan to sublease its current San Francisco, California office space as it transitions to a hybrid in-office and remote employee work model, we reassessed our asset groupings and evaluated the recoverability of our right-of-use and other lease related assets – including leasehold improvements, furniture and fixtures and computer equipment (collectively, the “San Francisco Office Asset Group”), and determined that the carrying value of the San Francisco Asset Group was not fully recoverable. As a result, we utilized discounted cash flow models to estimate the fair value of the San Francisco Asset Group and calculate the corresponding impairment loss.

The development of the discounted cash flow model used to estimate the fair value of the San Francisco Asset Group required the application of significant judgement in determining market participant assumptions, including the projected sublease income over the remaining lease term, expected downtime prior to the commencement of future subleases, expected rent concessions offered to future tenants and discount rates that reflected the level of risk associated with these future cash flows.

All other critical accounting policies and estimates

Please refer to Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for our fiscal year ended December 31, 2020 for a more complete discussion of our critical accounting policies and estimates.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

During the ~~nine~~three months ended ~~September~~March 3031, ~~2021~~2022, there were no significant changes to our quantitative and qualitative disclosures about market risk, other than the foreign currency forward contract entered into during the third quarter of 2021 intended to manage certain of our foreign exchange risks, as discussed in Note 3 —“Financial Instruments” in Part I, Item I “Notes to Consolidated Financial Statements” of this Quarterly Report on Form 10-Q. However, should financial market conditions worsen in the future, including any potential impacts of the COVID-19 pandemic, investments in some financial instruments may pose risks arising from market liquidity and credit concerns, although we continue to believe that our current investment strategy has a low risk of future material impairment.

Please refer to Part II, Item 7A. “Quantitative and Qualitative Disclosure About Market Risk” included in our Annual Report on Form 10-K for our fiscal year ended December 31, ~~2020~~2021 for a more complete discussion on the market risks we encounter, as well as Part II, Item 1A. “Risk Factors” included in this Quarterly Report on Form 10-Q.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission (the “SEC”) rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Based on the evaluation of our disclosure controls and procedures as of ~~September~~March 3031, ~~2021~~2022, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the quarter ended ~~September~~March 3031, ~~2021~~2022 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. We have not experienced any material impact to our internal controls over financial reporting despite the fact that most of our employees are working remotely due to the COVID-19 pandemic. We are continually monitoring and assessing the effects of the COVID-19 pandemic on our internal controls to minimize the impact on their design and operating effectiveness.

Limitations on Effectiveness of Controls and Procedures

In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.

4640

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

For a description of our material legal proceedings, see the section titled “Legal Matters” included in Note 15 —“Commitments and Contingencies” in Part I, Item I “Notes to Consolidated Financial Statements” of this Quarterly Report on Form 10-Q which is incorporated by reference herein.

ITEM 1A. RISK FACTORS

We have identified the following risks and uncertainties that may have a material adverse effect on our business, financial condition, results of operations or reputation. The risks described below are not the only risks we face. Additional risks not presently known to us or that we currently believe are not material may also significantly affect our business, financial condition, results of operations or reputation. Our business could be harmed by any of these risks. The trading price of our Class A common stock could decline due to any of these risks, and you may lose all or part of your investment. In assessing these risks, you should also refer to the other information contained in this Quarterly Report on Form 10-Q, including our consolidated financial statements and related notes.

We have marked with an asterisk (*) those risks described below that reflect changes from, or additions to, the risks described in our Annual Report on Form 10-K for the year-ended December 31, ~~2020~~2021.

Summary of Risk Factors

Material risks that may affect our business, operating results and financial condition include, but are not necessarily limited to, those relating to:

Risks Related to our Proposed Merger with Take-Two

•

The consummation of the Combination is contingent upon the satisfaction of a number of conditions, including stockholder and regulatory approvals, that may be outside of our or Take-Two’s control and that we and Take-Two may be unable to satisfy or obtain or which may delay the consummation of the Combination or result in the imposition of conditions that could reduce the anticipated benefits from the Combination or cause the parties to abandon the Combination;

•

Failure to realize all of the anticipated benefits of the Combination, delay in realizing those benefits, or significant challenges in integrating with Take-Two;

•

Uncertainty about the Combination may adversely affect relationships with our players, advertising partners, business partners and employees, whether or not the Combination is completed;

•

As a result of the Combination, our current and prospective employees could experience uncertainty about their future with us or the combined company. As a result, key employees may depart because of issues relating to such uncertainty or a desire not to remain with Take-Two following the completion of the Combination;

•

Restrictions under the Merger Agreement may adversely affect our business and operations;

•

If the Combination is consummated, the combined company may not perform as we or the market expects, which could have an adverse effect on the price of Take-Two’s common stock that our current stockholders will own following the completion of the Combination;

•

The number of shares of Take-Two Common Stock issuable in the Combination in respect of one share of our Class A common stock is based on an exchange ratio corresponding to certain stock price thresholds of Take-Two Common Stock. Because the market price of the Take-Two Common Stock may fluctuate, including within the applicable price thresholds, our stockholders cannot be sure of the market value of the stock consideration they will receive in exchange for their shares of our common stock in connection with the Combination;

•

The Merger Agreement contains provisions that could discourage or deter a potential competing acquirer from making a favorable alternative transaction proposal and, in specified circumstances, could require us to pay substantial termination fees to Take-Two;

•

Litigation may arise in connection with the Combination, which could be costly, prevent consummation of the Combination, divert management’s attention and otherwise materially harm our business; and

•

The ability to complete the Combination is subject to the receipt of consents and approvals from government entities, which may impose conditions that could have an adverse effect on us or the combined company or could cause either party to abandon the Combination.

Risks Related to our Business and Industry

•

managing the risks related to the continuously evolving COVID-19 pandemic;

•

our ability to entertain our players, develop new games, improve the experience of our existing games and successfully monetize our games;

•

an industry that is intensely competitive and subject to rapid changes;

•

our operating results, which are volatile and difficult to predict;

•

our ability to successfully acquire or integrate acquired companies into our business or manage the growth associated with multiple acquisitions;

•

our ability to continue to launch, innovate and enhance games that players like and attract and retain a significant number of players;

•

our ability to grow our player base, or if player engagement declines, revenue, bookings and operating results will be harmed;

•

our ability to manage our game economies properly;

•

the proliferation of “cheating” programs and scam offers that seek to exploit our games and players;

•

fraudulent or unauthorized sales or purchases of virtual items used in our games through third-party websites;

•

maintaining awareness of our brand and games;

•

our ability to develop new games and features that achieve success;

•

our history of net losses and the possibility that our revenue, bookings and operating margins may decline;

•

our reliance on assumptions and estimates to calculate certain of our key metrics;

•

our core values of focusing on our players and acting for the long-term may conflict with the short-term expectations of analysts;

•

our ability to attract, retain and motivate key personnel;

• the decline or stagnation of mobile devices as game platforms or mobile devices generally; and

•

our international operations, which are subject to increased challenges and risks;

Risks Related to Our Dependence on Third Parties

•

maintaining a good relationship with our third-party platform providers, such as the Apple App Store and the Google Play Store;

•

our reliance on third-party hosting and cloud computing providers, such as Amazon Web Services;

•

competing for advertisements and offers that are incorporated into our free-to-play games and maintaining and improving our relationships with advertisers;

• managing companies and governmental agencies that may restrict access to platforms, our website, mobile applications or the Internet generally; and

•

our ability to acquire and maintain licenses to intellectual property;

Risks Related to Legal and Regulatory Compliance

•

cybersecurity attacks, including breaches, computer viruses and computer hacking attacks;

•

compliance with evolving laws and regulations, including those related to privacy, information security, data protection, tax, consumer protection and protection of minors;

• legal proceedings that may result in adverse outcomes; and

•

compliance with a variety of U.S. and foreign laws, many of which are unsettled and still developing;

Risks Related to Our Intellectual Property

• failure to efficiently protect or enforce our intellectual property rights or manage intellectual property disputes; and

•

current and future intellectual property disputes;

Risks Related to Our Indebtedness

•

limitations imposed by and risks related to the Indenture for Notes (as defined below) and the capped call transactions;

Risks Related to Our Class A Common Stock

•

the price of our common stock, which may be volatile and could fluctuate substantially;

•

provisions in our charter documents and under Delaware law that could limit certain stockholder actions;

•

our ability to implement and maintain effective internal control over financial reporting; and

•

our intention to not pay dividends for the foreseeable future.

Risks Related to Our Proposed Merger with Take-Two

Consummation of the Combination is contingent upon the satisfaction of a number of conditions, some of which are beyond our and Take-Two’s control, including, among others:

•

the adoption of the Merger Agreement by Zynga’s stockholders;

•

the approval of the issuance of shares of Take-Two common stock in the Combination and the adoption of an amendment to Take-Two’s Amended and Restated Certificate of Incorporation increasing the number of authorized shares of Take-Two Common Stock (the “Take-Two Charter Amendment”) by Take-Two’s stockholders;

•

the approval for listing on the Nasdaq Global Select Market of shares of Take-Two common stock to be issued in the Combination;

•

the effectiveness of a registration statement on Form S-4 filed with the SEC by Take-Two in connection with the issuance of shares of Take-Two common stock in the Combination;

•

the expiration or termination of the waiting period applicable to the consummation of the Combination under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended; and

•

the clearance under the antitrust laws of certain non-United States jurisdictions.

Each party's obligation to complete the Combination is also subject to certain additional customary conditions, including:

•

subject to certain exceptions, the accuracy of the representations and warranties of the other party; and

•

performance in all material respects by the other party of its obligations under the Merger Agreement.

These conditions to the closing of the Combination may not be fulfilled in a timely manner or at all, and, accordingly, the Combination may not be completed. In addition, each of Take-Two and Zynga may terminate the Merger Agreement under certain specified circumstances, including but not limited to, (i) if the Combination is not consummated by January 9, 2023 (the “End Date”), or (ii) if the required approval of Take-Two’s or our stockholders is not obtained. In addition, Take-Two may terminate the Merger Agreement if our board of directors changes its recommendation to our stockholders to vote in favor of the adoption of the Merger Agreement, and we may terminate the Merger Agreement if Take-Two’s board of directors changes its recommendation to Take-Two stockholders to vote to approve the Take-Two Share Issuance or the Take-Two Charter Amendment. If the Merger Agreement is terminated, either party may be required to pay the other party a termination fee of up to $550.0 million under certain circumstances.

As a condition to granting required regulatory approvals, governmental entities may impose conditions, limitations or costs, require divestitures or place restrictions on the conduct of the combined company after the closing of the Combination. Such conditions or changes and the process of obtaining regulatory approvals could, among other things, have the effect of delaying completion of the Combination or of imposing additional costs or limitations on the combined company following the Combination, any of which may have an adverse effect on the combined company following the Combination.

We and Take-Two may also be subject to lawsuits challenging the Combination, and adverse rulings in these lawsuits may delay or prevent the Combination from being completed or require us or Take-Two to incur significant costs to defend or settle these lawsuits. Any delay in completing the Combination could cause us not to realize, or to be delayed in realizing, some or all of the benefits that we expect to achieve if the Combination is successfully completed within its expected time frame.

Failure to realize all of the anticipated benefits of the Combination, delay in realizing those benefits, or significant challenges in integrating with Take-Two.

We and Take-Two have operated and, until the completion of the Combination, will continue to operate, independently. The success of the Combination, including anticipated benefits and cost savings, will depend, in part, on our and Take-Two’s ability to successfully integrate our respective operations in a manner that results in various benefits and that does not materially disrupt existing business and strategic relationships or result in decreased revenues due to loss of players or key business partners. The process of integrating operations could result in a loss of key personnel or cause an interruption of, or loss of momentum in, the activities of one or more of the combined company’s businesses. Inconsistencies in standards, controls, procedures and policies could adversely affect the combined company. The diversion of management's attention and any delays or difficulties encountered in connection with the Combination and the integration of our and Take-Two’s operations could have an adverse effect on the business, financial condition, operating results and prospects of the combined company.

If we experience difficulties in the integration process, including those listed above, we may not fully realize the anticipated benefits of the Combination in a timely manner or at all.

Uncertainty about the Combination may adversely affect relationships with our players, advertising partners, business partners and employees, whether or not the Combination is completed.

In response to the announcement of the Combination, our existing or prospective advertising partners and business partners may:

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delay, defer, or cease entering into a business relationship with us or the combined company;

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terminate their relationships with us or the combined company;

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delay or defer other decisions concerning us or the combined company; or

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seek to change the terms on which they do business with us or the combined company.

Any such delays or changes to terms could materially harm our business or, if the Combination is completed, the business of the combined company.

Losses of players, advertising partners, business partners, employees or other important strategic relationships could have a material adverse effect on our business, financial condition and results of operations. Such adverse effects could also be exacerbated by a delay in the completion of the Combination for any reason, including delays associated with obtaining requisite regulatory approvals or the approvals of our stockholders and/or Take-Two’s stockholders.

As a result of the Combination, our current and prospective employees could experience uncertainty about their future with us or the combined company, or decide that they do not want to continue their employment with the combined company. As a result, key employees may depart because of issues relating to such uncertainty or a desire not to remain with Take-Two following the completion of the Combination. Losses of officers, key employees or other employees could materially harm our business, results of operations, and financial condition. Such adverse effects could also be exacerbated by a delay in the completion of the Combination for any reason, including delays associated with obtaining requisite regulatory approvals or the approvals of our stockholders. We may also experience challenges in hiring new employees during the pendency of the Combination, or if the Merger Agreement is terminated, which could harm our ability to grow our business, execute on our business plans or enhance our operations. If the Combination is consummated, the combined company may be less attractive to current and prospective employees, which could harm the business and prospects of the combined company.

Restrictions under the Merger Agreement may adversely affect our business and operations.

Under the terms of the Merger Agreement, we are subject to certain restrictions on the conduct of our business prior to completing the Combination which may adversely affect our ability to execute certain of our business strategies, including, but not limited to, entering into material transactions other than in the ordinary course of business, disposing of material assets, making capital expenditures in excess of the amounts specified in the Merger Agreement, issuing additional capital stock or other equity securities convertible, or incurring additional indebtedness. These limitations may have adverse effects on our existing or planned relationships with our existing or prospective advertising partners, business partners and employees, which could adversely affect our business and operations prior to the completion of the Combination.

Even if the Combination is consummated, the combined company may not perform as we or the market expect. Risks associated with the combined company following the Combination include:

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integrating two businesses is a difficult, expensive, and time-consuming process, and the failure to integrate successfully the businesses of our company and Take-Two would adversely affect Take-Two’s future results following completion of the Combination;

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it is possible that key employees might decide not to remain with the combined company after the Combination is completed, and the loss of key personnel could materially harm the combined company’s results of operation, financial condition, and growth prospects;

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the success of the combined company will also depend upon relationships with third parties and pre-existing advertising and business partners of our company and Take-Two, which relationships may be affected by the preferences of these third parties or public attitudes about the Combination and the combined company. Any adverse changes in these relationships could adversely affect the combined company's business, financial condition and results of operations;

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the stock price of Take-Two’s common stock (“Take-Two Common Stock”) after the Combination may be affected by factors different from those currently affecting our common stock; and

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if governmental agencies or regulatory bodies impose requirements, limitations, costs, divestitures, or restrictions on the consummation of the proposed Combination, the combined company’s ability to realize the anticipated benefits of the Combination may be impaired.

If any of these events were to occur, the value of the Take-Two Common Stock received by our stockholders in the Combination could decline.

In connection with the Combination, our stockholders will receive a number of shares of Take-Two Common Stock for each of their shares of our Class A common stock based on an Exchange Ratio (as defined below). The “Exchange Ratio” will be the following: (i) if the Take-Two Common Stock Price (as defined below) is an amount greater than $181.88, then the Exchange Ratio is 0.0350; (ii) if the Take-Two Common Stock Price is an amount greater than or equal to $156.50 but less than or equal to $181.88, then the Exchange Ratio is an amount equal to the quotient (rounded to five decimal places) obtained by dividing (a) $6.36 by (b) the Take-Two Common Stock Price; and (iii) if the Take-Two Common Stock Price is less than $156.50, then the Exchange Ratio is 0.0406. “Take-Two Common Stock Price” will be the volume-weighted average sales price per share of Take-Two Common Stock on the Nasdaq Global Select Market for the consecutive period beginning at 9:30 a.m. New York time on the twenty-third trading day immediately preceding the closing date of the Combination and concluding at 4:00 p.m. New York time on the third trading day immediately preceding such closing date. Accordingly, the actual number of shares and the value of Take-Two Common Stock received by our stockholders will depend on the Take-Two Common Stock Price, and the value of the shares of Take-Two-Common Stock received for each such share of our Class A common stock may be greater than, less than or equal to $6.36. Further, a decline in the price of the Take-Two Common Stock may adversely impact our stock price prior to the closing of the Combination.

It is impossible to accurately predict the market price of Take-Two Common Stock at the completion of the Combination or during the period over which the Take-Two Common Stock Price is calculated and, therefore, impossible to accurately predict the number or value of the shares of the Take-Two Common Stock our stockholders will receive in the Combination, or the value of value of the shares of Take-Two-Common Stock received. A decline in the market price of the Take-Two Common Stock could result, either before or after the consummation of the Combination, from a variety of factors, some of which are beyond Take-Two’s control, including, among other things, the anticipated or actual: (i) financial performance of us or Take-Two, (ii) conditions in our or Take-Two’s industry and markets, (iii) perceptions of the prospects of us, Take-Two or the combined company, (iv) failure by Take-Two to achieve the expected benefits of the acquisition of our company as rapidly or to the extent anticipated, (v) failure of our business to perform as anticipated, (vi) failure of the combined company’s financial results to meet the expectations of Take-Two, financial analysts or investors, (vii) failure of the integration of our business to be successful, or to take longer or be more disruptive than anticipated, and (viii) numerous other factors affecting Take-Two, the combined company and its businesses that are unrelated to our company. Many of these factors are beyond our control.

Under the Merger Agreement, commencing at 12:01 a.m. (New York time) on February 25, 2022 we are subject to “no-shop” restrictions and are not permitted to, subject to certain exceptions set forth in the Merger Agreement, (i) solicit or knowingly encourage inquiries or proposals relating to alternative acquisition transactions or (ii) engage in discussions or negotiations regarding, or provide any non-public information to third parties in connection with, alternative acquisition proposals. In addition, we have agreed that, subject to certain exceptions, our board of directors will not withdraw its recommendations to our stockholders in favor of the approval and adoption of Merger Agreement. Unless the Merger Agreement is terminated in accordance with its terms, we are required to hold a meeting of our stockholders to vote on the adoption of the Merger Agreement. In addition, if we terminate the Merger Agreement, we may be required to pay a termination fee. Such provisions of the Merger Agreement could discourage or deter a third party that may be willing to pay more than Take-Two for our outstanding Class A common stock from considering or proposing such an acquisition of our company.

Litigation may arise in connection with the Combination, which could be costly, prevent consummation of the Combination, divert management’s attention and otherwise materially harm our business.

Regardless of the outcome of any future litigation related to the Combination, such litigation may be time-consuming and expensive and may distract our management from running the day-to-day operations of our business. The litigation costs and diversion of management’s attention and resources to address the claims and counterclaims in any litigation related to the Combination may materially adversely affect our business, results of operations, prospects, and financial condition. If the Combination is not consummated for any reason, litigation could be filed in connection with the failure to consummate the Combination. Any litigation related to the Combination may result in negative publicity or an unfavorable impression of us, which could adversely affect the price of our Class A common stock, impair our ability to recruit or retain employees, damage our relationships with our players, advertising partners and other business partners, or otherwise materially harm our operations and financial performance.

Completion of the Combination is conditioned upon, among other things, the expiration or termination of the required waiting period applicable to the Combination under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the receipt of all other required pre-closing approvals, consents or clearances under antitrust laws of certain specified jurisdictions. The relevant regulatory agencies may condition their approval of the Combination on Take-Two’s or our agreement to various requirements, limitations, or costs, or require divestitures or place restrictions on the conduct of the combined company’s business following the Combination. If we and Take-Two agree to these requirements, limitations, costs, divestitures, or restrictions, the ability to realize the anticipated benefits of the Combination may be impaired. We cannot provide any assurance that we or Take-Two will obtain the necessary approvals or that any of the requirements, limitations, costs, divestitures, or restrictions to which we might agree will not have a material adverse effect on the combined company following the Combination. In addition, these requirements, limitations, costs, divestitures, or restrictions may result in the delay or abandonment of the Combination.

Risks Related to Our Business and Industry

The COVID-19 pandemic and containment efforts across the globe have materially altered how individuals interact with each other and have materially affected how we and our business partners are operating, and the extent to which this situation will impact our future results of operations and overall financial performance remains uncertain.

The ongoing COVID-19 pandemic and resulting social distancing and shelter-in-place orders put in place around the world have caused widespread disruption in global economies, productivity and financial markets and have materially altered the way in which we conduct our day-to-day business.

As a result of the COVID-19 pandemic, we have temporarily closed Zynga offices around the world (including our corporate headquarters in San Francisco, California) and implemented travel restrictions. Towards the end of the first quarter of 2020, we implemented a remote working program across our global studios and supporting locations, and we engaged with significant vendors (such as Amazon), platform providers (such as Apple and Google), advertising partners (such as ~~Facebook~~Google and ~~Google~~Meta Platforms) and other business partners to understand their operating conditions and continue to evaluate our business continuity plans. The full extent to which the COVID-19 pandemic and the various responses to it impact our business, operations and financial results will depend on numerous evolving factors that we may not be able to accurately predict, including: the duration and scope of the COVID-19 pandemic, including any potential future waves of the COVID-19 pandemic; governmental, business and individuals’ actions that have been and continue to be taken in response to the COVID-19 pandemic; the availability and cost to access the capital markets; the effect on our players and their willingness and ability to pay for our games and services; disruptions or restrictions on our employees’ ability to work and travel; and interruptions related to our cloud networking and gaming infrastructure and partners, including impacts on Amazon Web Services, mobile application platform providers, advertising partners and customer service and support providers. During the COVID-19 pandemic, we may not be able to provide the same level of product features and customer support that our

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~~effect on our~~ players and their willingness and ability to pay for our games and services; disruptions or restrictions on our employees’ ability to work and travel; and interruptions related to our cloud networking and gaming infrastructure and partners, including impacts on Amazon Web Services, mobile application platform providers, advertising partners and customer service and support providers. During the COVID-19 pandemic, we may not be able to provide the same level of product features and customer support that our players expect from us, which could negatively impact our business and operations. While substantially all of our business operations can be performed remotely, many of our employees are juggling additional work-related and personal challenges, including ~~preparing~~dealing ~~for~~with athe prolonged duration of remote working environments, adjusting communication and work practices to collaborate remotely with work colleagues and business partners, managing technical and communication challenges of working from home on a daily basis, looking after children as a result of remote-learning and school closures, making plans for childcare, and caring for themselves, family members or other dependents who are or may become ill. If we seek to access the capital markets or increase our borrowing, there can be no assurance that financing and credit may be available on attractive terms, if at all. We will continue to actively monitor the issues raised by the COVID-19 pandemic and may take further actions that alter our business operations, including as may be required by federal, state, local or foreign authorities or that we determine are in the best interests of our employees, players, partners and stockholders.

The COVID-19 pandemic and resulting social distancing, shelter-in-place and similar restrictions led to increased player engagement from current, lapsed and new players in our games relative to our quarterly forecast and historic trends. These increases in player activity may not be indicative of our financial and operating results in future periods. The effects of the COVID-19 pandemic on society and player behavior are highly uncertain. For example, primarily during the second quarter of 2020, we saw increased player engagement from current, lapsed and new players in our games relative to our quarterly forecast and historic trends. Since then, audience levels have started to return to levels more consistent with prior periods, while player engagement and monetization remain strong. These changes in player activity may not be indicative of our financial and operating results in future periods. Furthermore, there is no assurance that player behavior will not further decrease, including below historic levels, as the full impacts of the pandemic on society and the global economy become more clear. In 2021 and in the first quarter of 2022, we ~~have~~saw ~~seen~~ the return of shelter-in-place and curfew mandates in certain geographies and other efforts to combat the ongoing pandemic, and there is no certainty how these developments may affect our operations and player behavior.

In addition to the potential direct impacts to our business, the global economy has experienced significant volatility as a result of the actions taken in response to COVID‐19, and future government intervention remains uncertain. An uncertain or weakened global economy may impact our players and their purchasing decisions within our games, consumers’ buying decisions across the globe and their impact on the allocation of advertising investments and the ability of our business partners to navigate this complex social health and economic environment, any of which could result in disruption to our business and results of our operations. We have experienced heightened levels of variability in the pricing of advertising both in terms of user acquisition and as it relates to our advertising revenues. If additional volatility or unexpected trends resulting in decreased pricing of advertising emerge, the revenue we make from advertisers paying to display ads in our games may be negatively impacted, particularly if the levels of player engagement in our games are not sufficient to offset these declines, and we may experience increased pressure on our overall margins, as our revenue may consist of higher contributions of sales of in‐game virtual items.

The duration and extent of the impact from the COVID-19 pandemic depends on future developments that cannot be accurately predicted at this time, such as the severity and transmission rate of the virus and its variants, the existence of any additional waves of the COVID-19 pandemic, the extent and effectiveness of containment actions, continued progress towards widespread rapid testing and effective treatment alternatives and vaccinations, and the impact of these and other factors on our employees, players and business partners. If we are not able to respond to and manage the impact of such events effectively, our business may be harmed.

Our business will suffer if we are unable to entertain our players, develop new games, improve the experience of our existing games and successfully monetize our games.

Our business depends on developing, publishing and continuing to service “free-to-play” games that consumers will download and spend time and money playing. We are primarily focused on mobile gaming, offering our games on mobile devices, including smartphones and tablets on Apple’s iOS and Google’s Android operating systems, and on social networking platforms such as Facebook and Snapchat. We have devoted and we expect to continue to devote substantial resources to the research, development, analytics and marketing of our games. Our development and marketing efforts are focused on improving the experience of our existing games (frequently through new content and feature releases for our live services), developing new games and successfully monetizing our games. We generate revenue primarily through the sale of in-game virtual items and advertising. For games distributed through third-party platforms, we are required to share a portion of the proceeds from in-game sales with the platform providers. Due to our focus on mobile gaming, these costs are expected to remain a significant operating expense. In order to be profitable, we need to generate sufficient revenue and bookings from our existing and new game offerings to offset our ongoing development, marketing and operating costs.

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Successfully monetizing “free-to-play” games is difficult and requires that we deliver valuable and entertaining player experiences that a sufficient number of players will pay for or that we are able to otherwise sufficiently monetize our games (for example, by serving in-game advertising). The success of our games depends, in part, on unpredictable and volatile factors beyond our control including consumer preferences, competing games, new mobile platforms and the availability of other entertainment experiences. If our games do not meet consumer expectations, or if they are not brought to market in a timely and effective manner, our revenue and financial performance will be negatively affected.

~~We focus our efforts on four categories: Action Strategy, Casual, Invest Express and Social Casino.~~ In addition to the market factors noted above, our ability to successfully develop games for mobile platforms and their ability to achieve commercial success will depend on our ability to:

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effectively market our games to existing and new players;

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achieve benefits from our player acquisition costs;

• achieve ~~viral~~ organic growth and gain customer interest in our games through free or more efficient channels;

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adapt to changing player preferences;

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adapt to new technologies and feature sets for mobile and other devices;

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expand and enhance games after their initial release;

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attract, retain and motivate talented and experienced game designers, product managers and engineers;

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partner with mobile platforms and obtain featuring opportunities;

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continue to adapt game feature sets for an increasingly diverse set of mobile devices, including various operating systems and specifications, limited bandwidth and varying processing power and screen sizes;

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minimize launch delays and cost overruns on the development of new games and features;

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achieve and maintain successful customer engagement and effectively monetize our games;

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maintain a quality social game experience and retain our players;

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develop games that can build upon or become franchise games;

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compete successfully against a large and growing number of existing market participants;

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accurately forecast the timing and expense of our operations, including game and feature development, marketing and customer acquisition, customer adoption and success of bookings growth;

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minimize and quickly resolve bugs or outages; and

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acquire and successfully integrate high quality mobile game assets, personnel or companies.

These and other uncertainties make it difficult to know whether we will succeed in continuing to develop successful live service games and launch new games and features in accordance with our operating plan. If we do not succeed in doing so, our business, financial condition, results of operations and reputation will suffer.

~~(*)~~ Our industry is intensely competitive and subject to rapid changes. If consumers prefer our competitors’ products or services over our own, our operating results could suffer.

Competition in the entertainment industry, especially the mobile gaming segment, is intense and subject to rapid changes, including changes from evolving consumer preferences and emerging technologies. Many new games are introduced in each major industry segment (mobile, PC and console), but only a relatively small number of titles account for a significant portion of total revenue in each segment. Our competitors that develop mobile games vary in size and include companies such as Activision Blizzard, AppLovin, Aristocrat, DoubleU, Electronic Arts, Epic Games, ironSource, Moon Active, NetEase, Netmarble, Niantic, Nintendo, Playrix, Playtika, SciPlay, Scopely, Take-Two Interactive Software, Tencent, Ubisoft, Voodoo SAS and others. As we expand our global operations and gaming offerings, we increasingly face competition from online game developers and distributors who have primarily focused on specific international markets, such as NetEase, Netmarble and Tencent in Asia, and high-profile companies with significant online presences with new and expanded gaming offerings, such as Apple, Google, Microsoft and Snap. In addition, other large companies that to date have not actively focused on mobile and social games, such as Amazon and ~~Facebook~~Meta Platforms, may decide to develop mobile and social games or partner with other developers. Some of these current and potential competitors have significant resources for developing or acquiring additional games, may be able to incorporate their own strong brands and assets into their games, have a more diversified set of revenue sources than we do and may be less severely affected by changes in consumer preferences, regulations or other developments that may impact our industry. Furthermore, with our acquisition of Chartboost, Inc. (“Chartboost”), our competitors also include mobile monetization and advertising platforms.

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As there are relatively low barriers to entry to develop a mobile or online game, we expect new game competitors to enter the market and existing competitors to allocate more resources to develop and market competing games and applications. We also compete or will compete with a vast number of small companies and individuals who are able to create and launch games and other content for devices and platforms using relatively limited resources and with relatively limited start-up time or expertise. The proliferation of titles in these open developer channels makes it difficult for us to differentiate ourselves from other developers and to compete for players without substantially increasing our marketing expenses and development costs. As an entertainment company, we also face competition for the leisure time, attention and discretionary spending of our players from other non-gaming activities, such as social media and messaging applications, PC and console games, video streaming services, television, movies, sports, reading, audiobooks and the Internet. Increasing competition could result in loss of players, increasing player acquisition and retention costs, and loss of talent, all of which could harm our business, financial condition or results of operations.

Our operating results are volatile and difficult to predict, and our stock price may decline if we fail to meet the expectations of securities analysts or investors.

Our bookings, revenue, player metrics and operating results have fluctuated in the past and could vary significantly from quarter-to-quarter and year-to-year and may fail to match our past performance or the expectations of securities analysts or investors because of a variety of factors, some of which are outside of our control. Factors that may contribute to the variability of our operating results include the risk factors listed in these “Risk Factors” and the factors discussed in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Factors Affecting Our Performance.”

In particular, it is difficult to predict if, when or how quickly bookings from one of our games may begin to decline. This difficulty may be exacerbated in the short- to intermediate-term by increased uncertainty about player behavior related to the COVID-19 pandemic. These levels of player activity may not sustain over the short-term or longer-term, and there is no assurance that player behavior will not decrease, including below historic levels, as the full impacts of the COVID-19 pandemic on society and the global economy become clearer. In general, the success of our business depends on our ability to consistently and timely launch new games and features that achieve significant popularity and have the potential to become franchise games as bookings from our older games decline. It is difficult for us to predict with certainty when we will launch a new game as games may require longer development schedules or soft launch periods to meet our quality standards and our players’ expectations. If declines are higher than expected in a particular quarterly period, we experience delays in the launch of new games or features and/or new games do not monetize well, we may not meet our expectations or the expectations of securities analysts or investors.

In addition, we recognize revenue from the sale of our virtual items in accordance with U.S. GAAP, which is complex and based on our assumptions and historical data with respect to the sale and use of various types of virtual items. In the event of changes in our assumptions or new trends in the mix of virtual items sold, the amount of revenue that we recognize in any particular period may fluctuate significantly. In addition, changes in the policies of Apple, Google or other third party platforms or accounting policies promulgated by the SEC and national accounting standards bodies affecting software and virtual items revenue recognition could further significantly affect the way we report revenue related to our products. Such changes could have an adverse effect on our reported revenue, net income and earnings per share under U.S. GAAP. For example, recurring activity such as new game launches, our acquisition of games from a third party or periods of significant increased bookings can also result in increases in deferred revenue while we initially defer bookings over the estimated average playing period of payers. For further information regarding our revenue recognition policy, see the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies—Revenue Recognition”.

Given the rapidly evolving social game industry in which we operate, our historical operating results may not be useful in predicting our future operating results. In addition, metrics we have developed or those available from third parties regarding our industry and the performance of our games, including Mobile DAUs, Mobile MAUs, Mobile MUUs, Mobile MUPs and Mobile ABPU, may not be indicative of our future financial performance.

~~(*)~~ Our business will suffer if we are unable to successfully acquire or integrate acquired companies into our business or otherwise manage the growth associated with multiple acquisitions.

We have acquired games, businesses, personnel and technologies in the past, and we intend to continue to evaluate and pursue acquisitions and strategic investments. For example, in the second quarter of 2018, we acquired Gram Games Teknoloji A.S. (“Gram Games”), in early 2019, we acquired Small Giant Games Oy (“Small Giant”), in July 2020, we acquired Peak Oyun Yazılım ve Pazarlama Anonim Şirketi (“Peak”) after having purchased its casual card game division in the fourth quarter of 2017, in October 2020 we acquired Rollic Games Oyun Yazılım ve Pazarlama Anonim Şirketi (“Rollic”), in August 2021 we acquired Chartboost, ~~Inc.~~ and in October 2021 we acquired the game studio Beijing StarLark Technology Co., Ltd. (“StarLark”) along with the Golf Rival franchise. Each of these acquisitions requires unique approaches to integration due to, among other reasons, the structure of the acquisitions, their locations and cultural differences among their teams and ours, and has required, and will continue to require, attention from our management team. If we are unable to obtain the anticipated benefits from these acquisitions and strategic investments, or we

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encounter difficulties in integrating their operations with ours, our financial condition and results of operations could be materially harmed.

Challenges and risks from such investments and acquisitions include:

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negative effects on products and product pipeline from the changes and potential disruption that may follow the acquisition;

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diversion of our management’s attention;

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declining employee morale and retention issues resulting from changes in compensation, or changes in management, reporting relationships, or future prospects;

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the need to integrate the operations, systems, technologies, products and personnel of each acquired company, the inefficiencies and lack of control that may result if such integration is delayed or not implemented, and unforeseen difficulties and expenditures that may arise in connection with integration;

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the difficulty in determining the appropriate purchase price of acquired companies may lead to the overpayment of certain acquisitions and the potential impairment of intangible assets and goodwill acquired in the acquisitions;

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the difficulty in successfully evaluating and utilizing the acquired products, technology or personnel, including performing adequate due diligence while pandemic-related travel restrictions and social distancing requirements prevent in-office and in-person meetings and collaboration;

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the potential incurrence of debt, contingent liabilities, amortization expenses or restructuring charges in connection with any acquisition;

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the need to implement controls, procedures and policies appropriate for a larger, U.S.-based public company at companies that prior to acquisition may not have as robust controls, procedures and policies, particularly, with respect to the effectiveness of cyber and information security practices and incident response plans, compliance with data privacy and protection and other laws and regulations protecting the rights of players and customers, and compliance with U.S.-based economic policies and sanctions which may not have previously been applicable to the acquired company’s operations;

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the difficulty in accurately forecasting and accounting for the financial impact of an acquisition transaction, including accounting charges and integrating and reporting results for acquired companies that have not historically followed U.S. GAAP;

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the fact that we may be required to pay contingent consideration in excess of the initial fair value, and contingent consideration may become payable at a time when we do not have sufficient cash available to pay such consideration;

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under purchase accounting, we may be required to write off deferred revenue which may impair our ability to recognize revenue that would have otherwise been recognizable which may impact our financial performance or that of the acquired company;

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risks associated with our expansion into new international markets and doing business internationally, including those described under the risk factor caption “Our international operations are subject to increased challenges and risks”;

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in the case of foreign acquisitions, the need to integrate operations across different cultures and languages and to address the particular economic, currency, political and regulatory risks associated with specific countries;

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the need to transition operations and players onto our existing or new platforms and the potential loss of, or harm to, our relationships with employees, players and other suppliers as a result of integration of new businesses;

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the implications of our management team balancing levels of oversight over acquired businesses which continue their operations under contingent consideration provisions in acquisition agreements;

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our dependence on the accuracy and completeness of statements and disclosures made or actions taken by the companies we acquire or their representatives, when conducting due diligence and evaluating the results of such due diligence; and

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liability for activities of the acquired company before the acquisition, including intellectual property and other litigation claims or disputes, cyber and information security vulnerabilities, violations of laws, rules and regulations, commercial disputes, tax liabilities and other known and unknown liabilities.

The benefits of an acquisition or investment may also take considerable time to develop, and we cannot be certain that any particular acquisition or investment will produce the intended benefits, which could adversely affect our business, financial condition or results of operations. Our ability to grow through future acquisitions will depend on the availability of suitable acquisition and investment candidates at an acceptable cost, our ability to compete effectively to attract these candidates and the availability of financing to complete larger acquisitions. In addition, depending upon the duration and extent of shelter-in-place, travel and other business restrictions adopted by us and imposed by various governments in response to the COVID-19 pandemic, we have and will continue to encounter new challenges in evaluating future acquisitions and integrating personnel, business practices and company cultures. Acquisitions could result in potential dilutive issuances of equity securities, use of significant cash balances or incurrence of

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debt (and increased interest expense), contingent liabilities or amortization expenses related to intangible assets or write-offs of goodwill and/or intangible assets, which could adversely affect our results of operations and dilute the economic and voting rights of our stockholders. For more information, see Note 8 – “Goodwill and Intangible Assets, Net” in the notes to the consolidated financial statements included herein.

A small number of games have generated a majority of our revenue, and we must continue to launch, innovate and enhance games that players like and attract and retain a significant number of players in order to grow our revenue and sustain our competitive position.

Historically, we have depended on a small number of games for a majority of our revenue and we expect that this dependency will continue for the foreseeable future. Revenue and bookings from many of our games may decline over time after reaching a peak of popularity and player usage. As a result, our business depends on our ability to engage with players by consistently and timely launching new games and enhancing existing games with new content, features and events. We believe that certain games have the potential to become franchises that we plan to invest in and support with new games releases and introduction of new features to existing games. Constant game enhancement requires the investment of significant resources, particularly with older games, and such costs on average have increased.

It is difficult to consistently anticipate player demand on a large scale, particularly in relation to evolving player behavior and preferences in response to the COVID-19 pandemic and as we develop games in new categories or new markets, including international markets. If we do not successfully launch games that attract and retain a significant number of players and extend the life of our existing games, our market share, brand and financial results will be harmed.

We rely on a small portion of our total players for a substantial amount of our revenue and if we fail to grow our player base, or if player engagement declines, revenue, bookings and operating results will be harmed.

Compared to all players who play our games in any period, only a small portion are paying players. For the ~~third~~first quarter of ~~2021~~2022, we had approximately 1.24 million average Mobile MUPs (excluding players of our mobile messenger games (prior to the third quarter of 2021), our hyper-casual games which includes the games acquired from Rollic, Puzzle Combat, Merge Magic!, and games acquired from Gram Games, Small Giant, Peak and ~~Peak~~StarLark), who represented approximately 3.79% of our average Mobile MUUs. In order to sustain and grow our revenue levels, we must attract, retain and increase the number of paying players or more effectively monetize our players through advertising and other strategies. To retain players, we must devote significant resources so that the games they play retain their interest and attract them to our other games. We might not succeed in our efforts to increase the monetization rates of our users, particularly if we are unable to retain our paying players. If we fail to grow or sustain the number of our paying players, if the rates at which we attract and retain paying players declines, (whether due to financial hardship as a result of an economic downturn, such as the disruption caused by the COVID-19 pandemic, or for any other reason), or if the average amount our players pay declines, our business may not grow and our financial results will suffer.

The value of our virtual items is highly dependent on how we manage the economies in our games. If we fail to manage our game economies properly, our business may suffer.

Paying players make purchases in our games because of the perceived value of these virtual items, which is dependent on the relative ease of obtaining an equivalent good by playing our game. The perceived value of these virtual items can be impacted by various actions that we take in the games including offering discounts for virtual items, giving away virtual items in promotions or providing easier non-paid means to secure these goods. Managing game economies is difficult, and relies on our assumptions and judgement. If we fail to manage our virtual economies properly or fail to promptly and successfully respond to any such disruption, our reputation may suffer and our players may be less likely to play our games and to purchase virtual items from us in the future, which would cause our business, financial condition and results of operations to suffer.

Our revenue may be harmed by the proliferation of “cheating” programs and scam offers that seek to exploit our games and players, which may negatively affect game-playing experience and our ability to reliably validate our audience metric reporting and may lead players to stop playing our games.

Unrelated third parties have developed, and may continue to develop, “cheating” programs that enable players to exploit vulnerabilities in our games, play them in an automated way, collude to alter the intended game play or obtain unfair advantages over other players who do play fairly. These programs harm the experience of players who play fairly, may disrupt the virtual economies of our games and reduce the demand for virtual items, disrupting our in-game economy. In addition, unrelated third parties have attempted to scam our players with fake offers for virtual items or other game benefits. We devote significant resources to discover, discourage and disable these cheating and scam programs and activities. If we are unable to do so quickly, our operations may be disrupted, our reputation may be damaged, players may stop playing our games and our ability to reliably validate our audience metrics may be negatively affected. These cheating programs and scam offers result in lost revenue from paying players, disrupt our

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in-game economies, divert time from our personnel, increase costs of developing technological measures to combat these programs and activities, increase our customer service costs needed to respond to dissatisfied players, and may lead to legal claims.

Some of our players may make sales or purchases of virtual items used in our games through unauthorized or fraudulent third-party websites, which may reduce our revenue.

Virtual items in our games have no monetary value outside of our games. Nonetheless, some of our players may make sales and/or purchases of our virtual items, such as virtual coins for our Social Slots games or Zynga Poker virtual poker chips, through unauthorized third-party sellers in exchange for real currency. These unauthorized or fraudulent transactions are usually arranged on third-party websites and the virtual items offered may have been obtained through unauthorized means such as exploiting vulnerabilities in our games, from scamming our players with fake offers for virtual items or other game benefits, or from credit card fraud. We do not generate any revenue from these transactions. These unauthorized purchases and sales from third-party sellers have in the past and could in the future impede our revenue and profit growth by, among other things:

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decreasing revenue from authorized transactions;

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creating downward pressure on the prices we charge players for our virtual items;

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increasing chargebacks from unauthorized credit card transactions;

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causing us to lose revenue from dissatisfied players who stop playing a particular game;

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causing us to lose revenue from players who we take disciplinary action against, including banning certain players who may have previously made purchases within our games;

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increasing costs we incur to develop technological measures to curtail unauthorized transactions;

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resulting in negative publicity or harm our reputation with players and partners; and

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increasing customer support costs to respond to dissatisfied players.

To discourage unauthorized purchases and sales of our virtual items, we state in our terms of service that the buying or selling of virtual items from unauthorized third party sellers may result in bans from our games or legal action. With a community of players in the millions, we periodically encounter such issues and expect to continue to do so. We have banned players as a result of such activities. We have also filed lawsuits against third parties attempting to “sell” virtual items from our games, particularly poker chips from Zynga Poker, outside of our games. We have also employed technological measures to help detect unauthorized transactions and continue to develop additional methods and processes by which we can identify unauthorized transactions and block such transactions. However, there can be no assurance that our efforts to detect, prevent or minimize these unauthorized or fraudulent transactions will be successful and that these actions will not increase over time.

If we do not successfully invest in, establish and maintain awareness of our brand and games, if we incur excessive expenses promoting and maintaining our brand or our games, or if our games contain defects or objectionable content, our business, financial condition, results of operations or reputation could be harmed.

We believe that establishing and maintaining our brand is critical to maintaining and creating favorable relationships with players, platform providers, advertisers and content licensors, as well as competing for key talent. Increasing awareness of our brand and recognition of our games is particularly important in connection with our strategic focus on developing games based on our own intellectual property and successfully cross-promoting our games. In addition, globalizing and extending our brand and recognition of our games requires significant investment and extensive management time to execute successfully. Although we make significant sales and marketing expenditures in connection with the launch of our games, these efforts may not succeed in increasing awareness of our brand or the new games. If we fail to increase and maintain brand awareness and consumer recognition of our games, our potential revenues could be limited, our costs could increase and our business, financial condition, results of operations or reputation could suffer.

In addition, if a game contains objectionable content or the messaging functionality of our games is abused, we could experience damage to our reputation and brand. Despite reasonable precautions, some consumers may be offended by certain game content, the third-party advertisements displayed in our games, or by treatment of other users. If consumers believe that a game we published or third-party advertisement displayed in a game contains objectionable content, it could harm our brand and consumers could refuse to play it and could pressure the platform providers to remove the game from their platforms. For example, we rely on third-party advertising partners to display advertisements within our games, we have experienced (and may experience in the future) instances where offensive or objectionable content has been displayed in our games through our advertising partners. While this may violate the terms of our agreements with these advertising partners, our reputation and player experience may suffer. Furthermore, steps that we may take in response to such instances, such as temporarily or permanently shutting off access of such advertising partner to our network, may negatively impact our revenue in such period.

Similarly, our games may contain errors, bugs, flaws, corrupted data, defects and other vulnerabilities, some of which may only become apparent after their launch, particularly as we launch new games and rapidly release new features to existing games. Any such errors, flaws, defects and vulnerabilities may be exploited by cheating programs and other forms of misappropriation, disrupt our

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operations, adversely affect the game experience of our players, harm our reputation, cause our players to stop playing our games, divert our resources and delay market acceptance of our games, any of which could result in legal liability to us or harm our business, financial condition or results of operations.

If we are able to develop new games and features that achieve success, it is possible that these games and features could divert players of our other games without growing our overall user base, which could harm operating results.

Although it is important to our future success that we develop new games and features that are popular with players, it is possible that new games and features may reduce the amount of time players spend with our other games. In particular, we plan to continue leveraging our existing games to cross-promote new games and features, which may encourage players of existing games to divert some of their playing time and discretionary spending away from our existing games. If new games and game features do not grow our player base, increase the overall amount of time our players spend with our games, or generate sufficient new bookings to offset any declines from our other games, our revenue and bookings could be adversely affected.

We have a history of net losses and our revenue, bookings and operating margins may decline. We also may incur substantial net losses in the future and may not sustain profitability.

The industry in which we operate is highly competitive and rapidly changing, and relies heavily on successful new product launches and continually introducing compelling content, products and services. As such, if we fail to deliver such content, products and services, do not execute our strategy successfully or if our new content launches are delayed, our revenue, bookings and audience numbers may decline, and our operating results will suffer. As of ~~September~~March 3031, ~~2021~~2022, we had an accumulated deficit of $2.34 billion.

In addition, our operating margin may experience downward pressure as a result of increasing competition and the other risks discussed in this report. We expect to continue to expend substantial financial and other resources on game development, our technology stack, game engines, game technology and tools, the expansion of our network, international expansion and marketing. Our operating costs will increase and our operating margins may decline if we do not effectively manage costs, launch new products on schedule that monetize successfully and enhance our franchise games so that these games continue to monetize successfully. In addition, weak economic conditions or other factors could cause our business to further contract, requiring us to implement significant additional cost cutting measures, including a decrease in research and development and sales and marketing, which could harm our long-term prospects.

If our revenues do not increase to offset any additional expenses, if we fail to manage or experience unexpected increases in operating expenses or if we are required to take additional charges related to impairments or restructurings, our financial results and results of operations may suffer.

We rely on assumptions and estimates to calculate certain of our key metrics, and real or perceived inaccuracies in such metrics may harm our reputation and negatively affect our business.

Certain of our key metrics, including Mobile DAUs, Mobile MAUs, Mobile MUUs, Mobile MUPs, and Mobile ABPU are calculated using data tracked by our internal analytics systems based on tracking activity of user accounts. The analytics systems and the resulting data have not been independently verified. While these numbers are based on what we believe to be reasonable calculations for the applicable period of measurement, there are inherent challenges in measuring usage and user engagement across our user base and our recently acquired operations, and factors relating to user activity and systems may impact these numbers. The calculation of our key metrics and examples of how user activity and our systems may impact the calculation of these metrics is described in detail under the heading titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Measures and Metrics.”

Our accuracy in calculating these metrics is further challenged by our focus on mobile gaming. As described under the heading titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Measures and Metrics,” we rely on the accuracy and transparency of data provided by individuals and reported by third parties to calculate our metrics and eliminate duplication of data. For purposes of calculating Mobile MUUs and Mobile MUPs, for certain periods, we are unable to distinguish whether players of certain games are also players of our other games. As a result, we exclude players of these games from our calculation of Mobile MUUs and Mobile MUPs for those periods to avoid potential double counting.

Our advertisers and investors rely on our key metrics as a representation of our performance. We regularly review and may adjust our processes for calculating our internal metrics to improve their accuracy. If we determine that we can no longer calculate any of our key metrics with a sufficient degree of accuracy, and we cannot find an adequate replacement for the metric, our business, financial condition or results of operations may be harmed. In addition, if advertisers, platform partners or investors do not perceive our user metrics to be accurate representations of our user base or user engagement, or if we discover material inaccuracies in our user metrics, our reputation may be harmed and advertisers and platform partners may be less willing to allocate their budgets or resources to our products and services, which could negatively affect our business, financial condition or results of operations.

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Our business and growth may suffer if we fail to attract, retain and motivate key personnel.

Our ability to compete and grow depends in large part on the efforts and talents of our employees and executives. Our success depends in a large part upon the continued service of our senior management team, who are critical to our vision, strategic direction, culture, products and technology, and the continued retention of our entire senior management team is important to the success of our operating plan. We do not have employment agreements, other than offer letters, with our senior management team, and we do not maintain key-man insurance for members of our senior management team. The loss of any member of our senior management team could cause disruption and harm our business, financial condition, results of operations or reputation.

In addition, our ability to execute our strategy depends on our continued ability to identify, hire, develop, motivate and retain highly skilled employees, particularly in the competitive fields of game design, product management, engineering and data science. These employees are in high demand, and we devote significant resources to identifying, recruiting, hiring, training, successfully integrating and retaining them. Interviewing, hiring and integrating new employees while working remotely presents our teams with new challenges. We have continued to experience significant turnover in our headcount, which has placed and will continue to place significant demands on our management and our operational, financial and technological infrastructure. As of ~~September~~March 3031, ~~2021~~2022, approximately 3134% of our employees had been with us for less than one year and approximately 4752% for less than two years. As part of our global remote working plans, throughout the duration of the COVID-19 pandemic, we have devoted, and will continue to devote, increased efforts to maintaining the collaborative culture of Zynga, including through the use of videoconferencing and other online communication and sharing tools, and each of our global studios and to monitoring the health, safety, morale and productivity of our employees, including new employees, as we evaluate the impacts of this changing situation on our business and employees. As we evaluate options for the post-pandemic re-opening of our offices, we face uncertainty as to what our future workplace will look like and our ability to hire, motivate and retain our employees, as we strive to balance the health and safety of our employees with our employees’ preferences for collaboration and flexible work arrangements, while also maintaining efficient work streams, employee morale, and company culture.

We believe that two critical components of our success and our ability to retain our best people are our culture and our competitive compensation practices. Any volatility in our operating results and the trading price of our Class A common stock may cause our employee base to be more vulnerable to be targeted for recruitment by competitors. While we believe we compete favorably, competition for highly skilled employees is intense, particularly in the San Francisco Bay Area, where our headquarters is located. If we are unable to identify, hire and retain our senior management team and our key employees, our business, financial condition or results of operations could be harmed. Moreover, if our team fails to work together effectively to execute our plans and strategies on a timely basis, our business, financial condition or results of operations could be harmed.

We have historically hired a number of key personnel through acquisitions, and as competition with other game companies for attractive target companies with a skilled employee base persists and increases, we may incur significant expenses and difficulty in continuing this practice. The loss of talented employees with experience in the assets we acquire could result in significant disruptions to our business and the integration of acquired assets and businesses. If we do not succeed in recruiting, retaining, and motivating these key employees, we may not achieve the anticipated results of acquisitions.

Our core values of focusing on our players and acting for the long-term may conflict with the short-term expectations of analysts.

We believe surprising and delighting our players is essential to our success and serves the best, long-term interests of Zynga and our stockholders. Therefore, we have made in the past and we may make in the future, significant investments or changes in strategy that we think will benefit us in the long-term, even if our decision has the potential to negatively impact our operating results in the short term. In addition, our decisions may not result in the long-term benefits that we expect, in which case the success of our games, business, financial condition or results of operations could be harmed.

If the use of mobile devices as game platforms and the proliferation of mobile devices generally do not increase, our business could be adversely affected.

The number of people using mobile Internet-enabled devices has increased dramatically over time and we expect that this trend will continue. However, the mobile market, particularly the market for mobile games, may not grow in the way we anticipate. Our future success is substantially dependent upon the continued growth of the market for mobile games. In addition, we do not currently offer our games on all mobile devices. If the mobile devices on which our games are available decline in popularity or become obsolete faster than anticipated, we could experience a decline in revenue and bookings and may not achieve the anticipated return on our development efforts. Any such declines in the growth of the mobile market or in the use of mobile devices for games could harm our business, financial condition or results of operations.

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(*) Our international operations are subject to increased challenges and risks.

Continuing to expand our business to attract players in countries other than the U.S. is a critical element of our business strategy. An important part of targeting international markets is developing offerings that are localized and customized for the players in those markets. We expect to continue to expand our international operations in the future by opening new international studio locations and expanding our offerings in additional countries and languages. Our ability to expand our business and to attract talented employees and players in an increasing number of international markets will require considerable management attention and resources and is subject to the particular challenges of supporting a rapidly growing business in an environment of multiple languages, cultures, customs, legal systems, alternative dispute systems, regulatory systems and commercial infrastructures. We have experienced difficulties in the past and have not been successful in all the countries we have entered. Expanding our international focus may subject us to risks that we have not faced before or increase risks that we currently face, including risks associated with:

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inability to offer certain games in certain foreign countries;

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recruiting and retaining talented and capable management and employees in foreign countries;

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challenges caused by distance, language and cultural differences;

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developing and customizing games and other offerings that appeal to the tastes and preferences of players in international markets;

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competition from local game makers with intellectual property rights and significant market share in those markets and with a better understanding of player preferences;

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compliance with applicable foreign laws and regulations, including privacy laws (for example, the European Union’s General Data Protection Regulation and the California Consumer Privacy Act of 2018) and laws relating to content and consumer protection (for example, the United Kingdom’s Office of Fair Trading’s 2014 principles relating to in-app purchases in free-to-play games that are directed toward children 16 and under);

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utilizing, protecting, defending and enforcing our intellectual property rights;

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negotiating agreements with local distribution platforms that are sufficiently economically beneficial to us and protective of our rights;

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the inability to extend proprietary rights in our brand, content or technology into new jurisdictions;

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implementing alternative payment methods for virtual items in a manner that complies with local laws and practices and protects us from fraud;

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compliance with anti-bribery laws, including the Foreign Corrupt Practices Act;

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credit risk and higher levels of payment fraud;

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currency exchange rate fluctuations;

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protectionist laws and business practices that favor local businesses in some countries;

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double taxation of our international earnings and potentially adverse tax consequences due to changes in the tax laws of the U.S. or the foreign jurisdictions in which we operate;

• political, economic and social instability, including hostilities and acts of war, and their potential impacts to our business and that of our global business partners and supply chains;

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public health crises, such as the COVID-19 pandemic, which can result in varying impacts to our employees, players, vendors and commercial partners internationally;

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higher costs associated with doing business internationally;

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export or import regulations; and

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trade and tariff restrictions.

If we are unable to manage the complexity of our global operations successfully, our business, financial condition and operating results could be adversely affected. Additionally, our ability to successfully gain market acceptance in any particular market is uncertain, and the distraction of our senior management team could harm our business, financial condition or results of operations.

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Any restructuring actions and cost reduction initiatives that we undertake may not deliver the expected results and these actions may adversely affect our business.

We have implemented a number of restructurings in the past in which we implemented certain restructuring actions and cost reduction initiatives to streamline operations and improve cost efficiencies to better align our operating expenses with our revenue, including reducing our headcount, rationalizing our product pipeline, reducing marketing and technology expenditures and consolidating and closing certain facilities. We plan to continue to manage costs to better and more efficiently manage our business. Our restructuring plans and other such efforts could result in disruptions to our operations and adversely affect our business, financial condition or results of operations.

We actively monitor our costs, however, if we do not fully realize or maintain the anticipated benefits of any restructuring actions and cost reduction initiatives, our business, financial condition or results of operations could be adversely affected, and additional restructuring initiatives may be necessary. In addition, we cannot be sure that the cost reduction initiatives will be as successful in reducing our overall expenses as expected or that additional costs will not offset any such reductions. If our operating costs are higher than we expect or if we do not maintain adequate control of our costs and expenses, our operating results will suffer.

In addition, our cost-cutting measures could negatively impact our business, financial condition or results of operations including but not limited to, delaying the introduction of new games, features or events, interrupting live services, impairing our control environment, delaying introduction of new technology, impacting our ability to react nimbly to game or technology issues, or impacting employee retention and morale.

Our investment portfolio may become impaired by deterioration of the financial markets.

Our cash equivalent and investment portfolio is invested with a goal of preserving our access to capital, and generally consists money market funds, corporate debt securities, U.S. government and government agency debt securities, mutual funds, certificates of deposit and time deposits. We follow an established investment policy and set of guidelines to monitor and help mitigate our exposure to interest rate and credit risk. The policy sets forth credit quality standards, permissible allocations of certain sectors and limits our exposure to specific investment types. Volatility in the global financial markets can negatively impact the value of our investments. If financial markets experience volatility, investments in some financial instruments may pose risks arising from market liquidity and credit concerns. In addition, any disruption of the capital markets could cause our other income and expense to vary from expectations. Although we believe our current investment portfolio has a low risk of material impairment, we cannot predict future market conditions, market liquidity or credit availability, and can provide no assurance that our investment portfolio will remain materially unimpaired.

(*) The occurrence of an earthquake, other natural disaster or other significant business interruption at or near any of our facilities could cause damage to our facilities and equipment and interfere with our operations.

Our principal offices are located in the San Francisco Bay Area, an area known for earthquakes, and are thus vulnerable to damage. All of our facilities are also vulnerable to damage from natural or manmade disasters, including power loss, fire, explosions, floods, communications failures, terrorist attacks, acts of war, contagious disease outbreak (such as the COVID-19 pandemic) and similar events. If any disaster were to occur, our ability to operate our business at our facilities could be impaired and we could incur significant losses, recovery from which may require substantial time and expense.

Risks Related to Our Dependence on Third Parties

We rely on third-party platforms such as the Apple App Store and the Google Play Store to distribute our games and collect revenue. If we are unable to maintain a good relationship with such platform providers, if their terms and conditions or pricing changed to our detriment, if we violate, or if a platform provider believes that we have violated, the terms and conditions of its platform, or if any of these platforms loses market share or falls out of favor or is unavailable for a prolonged period of time, our business will suffer.

We derive a significant portion of our bookings from distribution of our games on the Apple App Store and the Google Play Store, and the virtual items we sell in our games are purchased using the payment processing systems of these platform providers. In ~~2020~~2021, we derived 4950% of our revenue and ~~50% of our~~ bookings on Apple platforms and 46% of our revenue and 4645% of our bookings on Google platforms. In response to the ongoing COVID-19 pandemic, we have engaged with our partners at Apple, Google and other platform providers to understand their operations and have evaluated our business disruption plans. While we do not anticipate any interruption in their distribution platforms or ability to accept customer payments, any such disruptions, even temporary, may have material impacts on our business and operations.

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We are subject to the standard policies and terms of service of third-party platforms, which govern the promotion, distribution, content and operation generally of games on the platform. Each platform provider has broad discretion to change and interpret its terms of service and other policies with respect to us and other developers, and those changes may be unfavorable to us. A platform provider may also change its fee structure, add fees associated with access to and use of its platform, alter how we are able to advertise on the platform, change how the personal information of its users is made available to application developers on the platform, limit the use of personal information for advertising purposes, or restrict how players can share information with their friends on the platform or across platforms. For example, in December 2017, Apple revised its App Store Guidelines to require the disclosure of the odds of receiving certain types of virtual items from “loot boxes” (or similar mechanisms that offer a paid license to randomized virtual items) before customers purchase a license for the virtual items, and in May 2019 Google revised its Play Store policies to require similar disclosures. As another example, in April 2021, Apple released iOS version 14.5 which requires its users (and presumably users of future iOS versions), on an app-by-app basis, to explicitly opt-in to the use of identifier-for-advertising, a device identifier assigned by Apple to each of its devices and used by advertisers to attribute app installs to advertising campaigns, target users through user acquisition, and deliver targeted ads. Additionally, in February 2022, Google announced plans to make privacy-focused changes to its Android advertising identifiers after a two-year process, taking into account feedback from developers, regulators and other interested parties. We are continuing to evaluate how these rules or changes may affect our business, operations and financial results.

Furthermore, our social casino games have been noted in purported class-action complaints against our third-party platform providers where we are not the named defendants. For example, in February 2021, plaintiffs filed a purported class-action lawsuit in a California federal court against Apple alleging that Apple violated several states’ gambling laws by allowing the plaintiffs to download and play our social casino games. Similar allegations have been made in suits filed by plaintiffs in several U.S. states against Apple and/or Google in connection with their distribution of social casino games, some of which include a reference to Zynga or its social casino games. These lawsuits, or similar suits in the future, could cause Google, Apple, or other third-party platform providers to deny our social casino games access to their platforms, or the platforms could seek to pass on liability, including defense costs, for these suits to us under the indemnity provisions in our agreements with such platforms, which could have a material adverse effect on our results of operations, cash flows, or financial condition.

In addition, third-party platforms also impose certain file size limitations, which may limit the ability of players to download some of our larger games in over-the-air updates. Aside from these over-the-air file size limitations, a larger game file size could cause players to delete our games once the file size grows beyond the capacity of their devices’ storage limitations or could reduce the number of downloads of these games.

Such terms of use changes may decrease the visibility or availability of our games, limit our distribution capabilities, prevent access to our existing games, reduce the amount of revenue and bookings we may recognize from in-game purchases, increase our costs to operate on these platforms or result in the exclusion or limitation of our games on such platforms. Any such changes could adversely affect our business, financial condition or results of operations.

If we violate, or a platform provider believes we have violated, its terms of service (or if there is any change or deterioration in our relationship with these platform providers), that platform provider could limit or discontinue our access to the platform. A platform provider could also limit or discontinue our access to the platform if it establishes more favorable relationships with one or more of our competitors or it determines that we are a competitor. Any limit or discontinuation of our access to any platform could adversely affect our business, financial condition or results of operations.

We also rely on the continued popularity, customer adoption, and functionality of third-party platforms. In the past, some of these platform providers have been unavailable for short periods of time or experienced issues with their in-app purchasing functionality. If either of these events recurs on a prolonged, or even short-term, basis or other similar issues arise that impact players’ ability to access our games, access social features or purchase a license to virtual items, our business, financial condition, results of operations or reputation may be harmed.

We rely on third-party hosting and cloud computing providers, like Amazon Web Services (“AWS”), to operate certain aspects of our business. A significant portion of our game traffic is hosted by a single vendor, and any failure, disruption or significant interruption in our network or hosting and cloud services could adversely impact our operations and harm our business.

Our technology infrastructure is critical to the performance of our games and to player satisfaction, as well as our corporate functions. Our games and company systems run on a complex distributed system, or what is commonly known as cloud computing. We own, operate and maintain elements of this system, but significant elements of this system are operated by third-parties that we do not control and which would require significant time and expense to replace. We expect this dependence on third-parties to continue. We have suffered interruptions in service in the past, including when releasing new software versions or bug fixes, and if any such interruption were significant and/or prolonged it could adversely affect our business, financial condition, results of operations or reputation.

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In particular, a significant portion, if not almost all, of our game traffic, data storage, data processing and other computing services and systems is hosted by AWS. AWS provides us with computing and storage capacity pursuant to an agreement that continues until terminated by either party. The agreement requires AWS to provide us their standard computing and storage capacity and related support in exchange for timely payment by us. We have experienced, and may in the future experience, disruptions, outages and other performance problems due to a variety of factors, including infrastructure changes, human or software errors and capacity constraints. If a particular game is unavailable when players attempt to access it or navigation through a game is slower than they expect, players may stop playing the game and may be less likely to return to the game as often, if at all.

Any failure, disruption or interference with our use of hosted cloud computing services and systems provided by third-parties, like AWS, could adversely impact our business, financial condition or results of operations. In response to the ongoing COVID-19 pandemic, we have engaged with our partners at AWS to understand their operations and have evaluated our business disruption plans. In addition, since many of the technical specialists responsible for managing disruptions to our technology infrastructure are working from home in accordance with shelter-in-place orders issued due to the COVID-19 pandemic, the time required to remedy any interruption may increase. To the extent we do not effectively respond to any such interruptions, upgrade our systems as needed and continually develop our technology and network architecture to accommodate traffic, our business, financial condition or results of operations could be adversely affected. In addition, we do not maintain insurance policies covering losses relating to our systems and we do not have business interruption insurance. Furthermore, our disaster recovery systems and those of third-parties with which we do business may not function as intended or may fail to adequately protect our critical business information in the event of a significant business interruption, which may cause interruption in service of our games, security breaches or the loss of data or functionality, leading to a negative effect on our business, financial condition or results of operations.

~~(*)~~ We derive a significant portion of our revenues from advertisements and offers that are incorporated into our free-to-play games through relationships with third parties. If we are unable to continue to compete for these advertisements and offers, or if any events occur that negatively impact our relationships with advertisers, our advertising revenues and operating results would be negatively impacted.

We derive a significant portion of our revenues though advertisements and offers we serve to players. We need to maintain good relationships with advertisers to provide us with a sufficient inventory of advertisements and offers. Online advertising, including through mobile games and other mobile applications, is an intensely competitive industry. Many large companies, such as Amazon, ~~Facebook~~Google and ~~Google~~Meta Platforms, invest significantly in data analytics to make their websites and platforms more attractive to advertisers. In order for our advertising business to continue to succeed, we need to continue to demonstrate the reach of our player network and success of our advertising partners. If our relationship with any advertising partners terminates for any reason, or if the commercial terms of our relationships are changed or do not continue to be renewed on favorable terms, we would need to qualify new advertising partners, which could negatively impact our revenues, at least in the short term. Furthermore, our Chartboost subsidiary derives its revenue from business clients, many of which are mobile game publishers, who use Chartboost’s programmatic mobile advertising and monetization platform. Such clients often engage with several mobile advertising platforms and networks concurrently, thus Chartboost’s business faces significant competition.

In addition, internet-connected devices and operating systems controlled by third parties increasingly contain features that allow device users to disable functionality that allows for the delivery of advertising on their devices. Device and browser manufacturers may include or expand these features as part of their standard device specifications. For example, when Apple announced that UDID, a standard device identifier used in some applications, was being superseded and would no longer be supported, application developers were required to update their apps to utilize alternative device identifiers such as universally unique identifier, or, more recently, identifier-for-advertising, which simplifies the process for Apple users to opt out of behavioral targeting. In June 2020, Apple announced further changes, requiring its users with iOS 14 (and presumably future iOS versions) to request a user’s permission to track them or to access their mobile device’s identifier for advertising ~~(IDFA)~~. Those changes, known as Apple’s AppTracking Transparency framework, went into effect in late April 2021, with the release of iOS 14.5. If users do not elect participate in functionality that supports the delivery of targeted advertising on their devices, our ability to deliver effective advertising campaigns on behalf of our advertisers could suffer, which could cause our business, financial condition, or results of operations to suffer.

Finally, the revenues that we derive from advertisements and offers is subject both to seasonality, as companies’ advertising budgets are generally highest during the fourth quarter and decline significantly in the first quarter of the following year, which negatively impacts our revenues in the first quarter, and to the financial health of advertisers, who, as they experience downturns or uncertainty in their own business operations for various reasons, such as the economic effects resulting from the COVID-19 pandemic, may decrease their advertising spending.

Our ability to acquire and maintain licenses to intellectual property may affect our revenue and profitability. Competition for these licenses may make them more expensive and increase our costs.

While most of the intellectual property we use in our games is created by us, we also acquire rights to third-party intellectual property. For example, we use licensed intellectual property as creative assets in games such as Game of Thrones™ Slots Casino,

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Harry Potter™: Puzzles & Spells, Hit It Rich! Slots, Wizard of Oz Slots and Wonka’s World of Candy, and we are developing new games using licensed intellectual property such as Star Wars™.

Proprietary licenses typically limit our use of intellectual property to specific uses and for specific time periods, require time and attention of licensors in providing guidance and related approvals, and include other contractual obligations with which we must comply. We have and may continue to experience delays in working with licensors and their proprietary content as we partner with them to develop new games and features. While these delays have not been material to date, it is possible that the COVID-19 pandemic may divert executive attention and other resources from us or our licensing partners and presen

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