Zynga Annual Report 2018

Plain-text annual report

UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549 FORM 10-K ☒☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2018OR☐☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For 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 ofIncorporation or Organization) (I.R.S. EmployerIdentification Number) 699 Eighth StreetSan Francisco, CA(Address of principal executive offices) 94103(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: Name of each exchange on which registered:Class A Common Stock, par value $0.00000625 per share The Nasdaq Global Select Market Securities registered pursuant to Section 12(g) of the Act:None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No ☒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 preceding12 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 ofthis 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to thebest of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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 to not use the extended transition period for complying with any new or reviewed financialaccounting 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 ☒The aggregate market value of the voting stock held by non-affiliates of the registrant on June 30, 2018, based upon the closing price of $4.07 of the registrant’s Class A CommonStock as reported on the NASDAQ Global Select Market, was approximately $3.1 billion, which excludes 87.1 million shares of the registrant’s common stock held on June 30, 2018by then current executive officers, directors, and stockholders that the registrant has concluded are affiliates of the registrant.As of January 31, 2019, there were 925,645,927 shares of the registrant’s Class A common stock outstanding.DOCUMENTS INCORPORATED BY REFERENCEPortions of the registrant’s Proxy Statement for the 2019 Annual Meeting of Stockholders are incorporated herein by reference in Part III of this Annual Report on Form 10-K to theextent stated herein. The proxy statement will be filed with the Securities and Exchange Commission within 120 days of the registrant’s fiscal year ended December 31, 2018. Zynga Inc.Form 10-KFor the Fiscal Year Ended December 31, 2018 Page PART I Item 1.Business2Item 1A.Risk Factors6Item 1B.Unresolved Staff Comments23Item 2.Properties23Item 3.Legal Proceedings24Item 4.Mine Safety Disclosures24 PART II Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities25Item 6.Selected Consolidated Financial and Other Data27Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations30Item 7A.Quantitative and Qualitative Disclosures about Market Risk52Item 8.Financial Statements and Supplementary Data53Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure95Item 9A.Controls and Procedures95Item 9B.Other Information95 PART III Item 10.Directors, Executive Officers and Corporate Governance96Item 11.Executive Compensation96Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters96Item 13.Certain Relationships and Related Transactions, and Director Independence96Item 14.Principal Accounting Fees and Services96 PART IV Item 15.Exhibits, Financial Statement Schedules97 Signatures100 Zynga, the Zynga logo and other trademarks or service marks of Zynga appearing in this report are the property of Zynga. Trade names, trademarksand service marks of other companies appearing in this report are the property of their respective holders.References in this report to “DAUs” mean daily active users of our games, “MAUs” mean monthly active users of our games, “MUUs” mean monthlyunique users of our games, “ABPU” means average daily bookings per average DAU and “MUPs” mean monthly unique payers in our games. Unlessotherwise indicated, these metrics are based on internally-derived measurements across all platforms on which our games are played. For further informationabout DAUs, MAUs, ABPU, MUUs, and MUPs as measured by us, see the section titled “Management’s Discussion and Analysis of Financial Condition andResults of Operations—Key Metrics.” CAUTIONARY NOTE ABOUT FORWARD-LOOKING STATEMENTSThis Annual Report on Form 10-K contains forward looking statements reflecting our current expectations that involve risks and uncertainties. Theseforward-looking statements include, but are not limited to, statements related to industry prospects, our future economic performance including anticipatedrevenues and expenditures, results of operations or financial position, capital expenditures and other financial items, our business plans and objectives,including our growth strategies, intended product releases and areas of investment and focus, including our investments in new technologies and features,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 believemay 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, includingthose described in “Part I. Item 1A. Risk Factors” of this Annual Report on Form 10-K. Moreover, we operate in a very competitive and rapidly changingenvironment 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 ourbusiness 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 causeactual 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 Annual Report on Form 10-K may not occur and actual results could differ materially andadversely 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 shouldnot be considered as an indication of future performance. Given these risks and uncertainties, readers are cautioned not to place undue reliance on suchforward-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 actualresults or to changes in our expectations. 1PART IITEM 1. BUSINESSOverviewZynga Inc. (“Zynga” or “we” or the “Company”) is a leading provider of social game services. We develop, market and operate social games as liveservices played on mobile platforms such as Apple’s iOS operating system (“iOS”) and Google’s Android operating system (“Android”) and on socialnetworking sites such as Facebook. Generally, all of our games are free to play, and we generate revenue through the sale of in-game virtual items (“onlinegame revenue”) and advertising services (“advertising revenue”).We are a pioneer and innovator of social games and a leader in making “play” a core activity on mobile devices and social networking sites. Webelieve our leadership position in social games is the result of our significant investment in our people, content, brand, technology and infrastructure. Ourleadership position in social games is defined by the following: •Established Portfolio of Social Games. We operate a number of popular social games including CSR Racing 2, FarmVille, Merge Dragons!,Words With Friends and Zynga Poker, as well as our Social Slots portfolio of games. Further, in January 2019, we expanded our portfolio ofsocial games with Empires & Puzzles, through our acquisition of Small Giant Games Oy. •Engaged and Global Community of Players. According to our internal analytics system, in 2018, we had 88 million monthly active users(“MAUs”), of which 88% were mobile MAUs, and 23 million daily active users (“DAUs”), of which 91% were mobile DAUs. •Scalable Technology and Data. We leverage our technology to increase player engagement, cross-promote our portfolio of games, continuallyenhance existing games, launch new games and build the Zynga brand. We believe our scale results in network effects that deliver compellingvalue to our players, and we are committed to making significant investments to grow our community of players, their engagement andmonetization over time. We believe that combining data analytics with creative game design enables us to create a superior player experience.Consistent with our free-to-play business model, a small portion of our players have historically been payers. Because the opportunity for socialinteractions increases as the number of players increases, we believe that maintaining and growing our overall number of players, including the number ofplayers 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 topurchase virtual items will continue to constitute a small portion of our overall players.Our top three online game revenue-generating games historically have contributed a significant portion of our revenue, though the games thatrepresent our top three online game revenue-generating games vary over time. Our top three online game revenue-generating games accounted for 45%, 45%and 44% of our online game revenue in 2018, 2017 and 2016, respectively. In 2018, our top three online game revenue-generating games were Zynga Poker,CSR Racing 2 and Hit It Rich! Slots. With respect to advertising and other revenue, Words with Friends generated a substantial portion of our advertising andother revenue in 2018, 2017 and 2016. Our operations are headquartered in San Francisco, California, and we have several operating locations in the U.S. as well as various internationaloffice locations in North America, Asia and Europe. We were originally organized in April 2007 and completed our initial public offering in December 2011.Our Class A common stock is listed on the NASDAQ Global Select Market under the symbol “ZNGA.”Our Mission & StrengthsOur mission is to connect the world through games. We pursue that mission in the following ways: •A galvanizing company vision. We believe that our vision for social gaming distinguishes us from others in the market. Zynga was founded withthe simple premise that it is more fun to play games with other people and that social gaming is the best path to the mass market. Our approach isto build games around social features and systems to deliver a higher quality player experience with increased levels of engagement, organicacquisition and long-term retention. •Proven brands in popular genres. We have a portfolio of established brands such as CSR Racing 2, Empires & Puzzles, FarmVille, Hit it Rich!Slots, Merge Dragons!, Words With Friends and Zynga Poker in the categories of Action Strategy, Casual, Invest Express and Social Casino. Webelieve that mobile gaming is the fastest growing platform in gaming and we are committed to leveraging our experience in live services to growour existing portfolio of games and introduce new intellectual property in these categories. •Talented teams and strong analytics. We have passionate teams of people focused on increasing the effectiveness and predictability of our livegame services and new game development. Our teams balance the art and science of game making by combining creative innovation with aplayer-centric, data driven approach to surprise and delight players.2Our Leading Portfolio of Social GamesOur strategy is focused on growing, creating and acquiring games that we believe will stand the test of time and have the potential to engage playersfor years as enduring entertainment brands. Our portfolio includes: •CSR Racing 2 – a visually stunning, fast-paced racing game allowing players to customize their collection of supercars and race against theirfriends. •Empires & Puzzles – blends approachable match-3 battles with deeper gameplay elements including hero collection, base building and socialalliances. •FarmVille – our FarmVille games deliver players an experience where they can invest in a world all their own and express themselves bybuilding, expanding and nurturing their own virtual farm. •Merge Dragons! – a puzzle adventure game where our players can match and merge everything to produce artifacts and skills in furtherance ofhealing a magical land, harnessing the power of dragons and building their own camp to grow dragons. •Social Slots – our portfolio of slots games deliver players authentic, Vegas-style mobile gameplay with a diverse mix of popular entertainmentbrands. •Words With Friends – features friendly competition and allows our players to quickly connect with their friends and family, while alsoproviding the opportunity to build relationships throughout the game experience. •Zynga Poker – allows our players to experience the thrill of the win as they compete against friends and family in one of their favorite casinocard games.Our NetworkWe believe it is more fun for players to engage in our games with their friends and family. Players also progress faster in our games by connecting withtheir friends and other players in our network to instantly get what they need to complete quests, obtain virtual items and enhance their experience. We aspireto leverage our existing and new games to bring the best social playing experiences to our audience. Our network enables users to discover new games, findand connect with new friends, and challenge, cooperate and compete with their friends, all of which drive higher user engagement for games on our network.Our RevenuesWe generate revenue from the following services:Virtual Items and Advertisement-Free VersionsOur primary revenue source is the sale of virtual currency that players use to buy in-game virtual items. Virtual currency can also be earned for free bythe player through game play or by accepting promotional offers from our advertising partners. We also generate revenue when players purchaseadvertisement-free versions of our mobile games.Advertising and LicensingOur advertising services and licensing offer creative ways for marketers and advertisers to reach and engage with our players while allowing continuedoperation of a free-to-play business model. Our advertising and licensing offerings include: •Mobile Ads in our mobile games that include banner and interstitial advertisements; •Display Ads in our online web games that include banner advertisements; •Engagement Ads and Offers in which players can answer certain questions, watch-to-earn engagements or sign up for third party services toreceive virtual currency and in-game bonuses; •Branded Virtual Items and Sponsorships that integrate relevant advertising and messaging within game play; •Licensing our brands.The goal of our advertisement offerings are to enhance the player experience while delivering real value to advertisers. 3Marketing and DistributionWe acquire our players through unpaid channels by cross-promoting new games to our existing audience and through paid advertising channels. Wehave been able to build a large community of players through the viral and sharing features provided by social networks, the social innovations in our gamesand the network effects of our games. We also advertise our games within other mobile applications, on social networks such as Facebook via various in-appadvertising partners and through other advertising partners such as Google. In 2018, 2017 and 2016 we spent $157.7 million, $147.2 million and $132.5million, respectively, on these player acquisition costs.Agreements with Apple, Google and FacebookOur revenue depends on our continued ability to publish our games on mobile platforms, primarily iOS and Android, and on social networking sites,primarily Facebook. In 2018, we derived 51% of our revenue and bookings from Apple, 38% of our revenue and 39% of our bookings from Google and 9% ofour revenue and 8% of our bookings from Facebook. In 2018, an increasing number of our players played our games on mobile platforms.Our use of mobile platforms and data derived from mobile platforms is governed by the standard terms of service of the mobile platforms, primarilyApple and Google. Our use of the Facebook platform and data derived from Facebook is also governed by Facebook’s standard terms of service except forcertain limited addenda. Any of these operators could unilaterally alter their terms of service in a manner that could harm our business.Research and DevelopmentWe believe continued investment in enhancing existing games and developing new games, and in software development tools and code modification,is important to attaining our strategic objectives. Our research and development expenses were $270.3 million, $256.0 million and $320.3 million in 2018,2017 and 2016, respectively, which included stock-based compensation expense of $42.2 million, $42.2 million and $84.2 million, respectively, for researchand development personnel.Technology and ToolsWe have invested extensively in developing our proprietary technology stack, which has the ability to handle sudden bursts of activity for millions ofplayers over a short period of time with high levels of performance and reliability. Our proprietary technology stack includes cloud computing management,a shared code base, network and cross-promotional features and proprietary data analytics. Our technology stack also supports the growth of our 2D and 3Dgame engines across our mobile games in addition to supporting high-level security and anti-fraud infrastructure. We are also investing in machine learning.We believe that investing in technology and tools can create competitive advantages as well as extend our technology leadership. We will continue toinnovate and optimize across our technology and tools to deliver cost-effective, high performance and highly available social games.Intellectual PropertyOur business is significantly based on the creation, acquisition, use and protection of intellectual property. Some of this intellectual property is in theform of software code, patented technology and trade secrets that we use to develop our games and to enable them to run properly on multiple platforms.Other intellectual property we create includes product and feature names and audio-visual elements, including graphics, music, story lines and interfacedesign.While most of the intellectual property we use is created by us, we have also acquired rights to proprietary intellectual property. We have alsoobtained rights to use intellectual property through licenses and service agreements with third parties. These licenses typically limit our use of intellectualproperty to specific uses and for specific time periods.We protect our intellectual property rights by relying on federal, state and common law protections, as well as contractual restrictions. We activelyseek patent protection covering our inventions and we acquire patents we believe may be useful or relevant to our business. We control access to ourproprietary technology by entering into confidentiality and invention assignment agreements with our employees and contractors, and confidentialityagreements with third parties. We also actively engage in monitoring and enforcement activities with respect to infringing uses of our trademarks, copyrightsand domain names by third parties.In addition to these contractual arrangements, we also rely on a combination of trade secrets, copyrights, trademarks, trade dress, domain names andpatents to protect our games and other intellectual property. We typically own the copyrights to the software code to our content, as well as the trademarks forthe brands or titles under which our games are marketed. We pursue the registration of our domain names, copyrights, trademarks, patents, and service marksin the U.S. and, for some, in locations outside the U.S. Our registered trademarks in the U.S. include “Zynga” and the names of our games, among others.4CompetitionWe face significant competition in all aspects of our business. Specifically, we compete for the leisure time, attention and discretionary spending ofour players with other social game developers on the basis of a number of factors, including quality of player experience, brand awareness and reputation andaccess to distribution channels.We believe we compete favorably on these factors. However, our industry remains highly competitive and is evolving rapidly. Other developers ofsocial games could develop more compelling content that competes with our social games and adversely affects our ability to attract and retain players andtheir entertainment time. These competitors, including companies of which we may not be currently aware, may take advantage of social networks, access to alarge user base and their network effects to grow rapidly and virally.Our competitors include: •Developers for Mobile and Web Games: We face competition from a number of competitors who develop mobile and web games. Thesecompetitors, some of which have significant financial, technical and other resources, greater brand recognition and longer operating histories,may create games that appeal to our players. The mobile game sector specifically is characterized by frequent product introductions, rapidlyemerging mobile platforms, new technologies and new mobile application storefronts. Some of these competitors include Activision Blizzard(the parent company of King Digital), Aristocrat, DoubleU, Electronic Arts (EA Mobile), Epic Games, Glu Mobile, Jam City, Machine Zone,Netmarble (the parent company of Kabam), NetEase (NetEase Games), Niantic, Peak Games, Playtika, SciGames Interactive, Supercell, Take-TwoInteractive Software, Vivendi (the parent company of Gameloft) and others. Because our games are free to play, we compete primarily on the basisof player experience rather than price. We also expect new competitors to enter the market and existing competitors to allocate more resources todevelop and market competing games and applications. •Other Game Developers: Our players may also play other games on personal computers and consoles, some of which include social features thatcompete with our social games and have community functions where game developers can engage with their players. Some of these competitorsinclude Activision Blizzard, Electronic Arts, Epic Games, Nintendo, Riot Games, SEGA, Sony, Take-Two Interactive and Ubisoft. •Other Forms of Media and Entertainment: We compete more broadly for the leisure time and attention of our players with providers of otherforms of Internet and mobile entertainment, including social networking, online casual entertainment and music. To the extent existing orpotential players choose to read, watch or listen to online content or streaming video or radio, play interactive video games at home or on theircomputer or mobile devices rather than play social games, these content services pose a competitive threat.Government RegulationWe are subject to various federal, state and international laws and regulations that affect companies conducting business on the Internet and mobileplatforms, including those relating to privacy, use and protection of player and employee personal information and data (including the collection of datafrom minors), the Internet, behavioral tracking, mobile applications, content, advertising and marketing activities (including sweepstakes, contests andgiveaways), and anti-corruption. Additional laws in all of these areas are likely to be passed in the future, which could result in significant limitations on orchanges to the ways in which we can collect, use, host, store or transmit the personal information and data of our customers or employees, communicate withour players, and deliver products and services, and may significantly increase our compliance costs. As our business expands to include new uses orcollection of data that are subject to privacy or security regulations, our compliance requirements and costs will increase and we may be subject to increasedregulatory scrutiny.Some of our games and features are based upon traditional casino games, such as slots and poker. We have structured and operate these games andfeatures with gambling laws in mind and believe that these games and features do not constitute gambling. Our social casino games are offered forentertainment purposes only and do not offer an opportunity to win real money.SeasonalityApproximately 26% of our revenue was derived from the “advertising and other” category in 2018. Advertising budgets are generally highest duringthe fourth quarter and decline significantly in the first quarter of the following year, which affects the revenues we derive from advertisements in our games.Additionally, we generally experience increases in game downloads and resulting online game revenues in the fourth quarter and first quarter correspondingto increases in smartphone and tablet purchases during the holiday shopping season.5EmployeesOur future success depends upon the continued service of our key technical and management personnel and upon our ability to continue to attract andretain qualified employees, particularly our senior management team and highly skilled game designers, product managers and engineers. We currently havefavorable employee relations, but the competition for technical personnel is intense, and the loss of key employees or the inability to hire such employeeswhen needed could have a material adverse impact on our business and financial condition. As of December 31, 2018, we had 1,777 full-time employees.Financial Information about Segments and Geographic Areas We have one operating segment with one business activity, developing and monetizing social games. Financial information about our one segmentand geographic areas is incorporated into this section by reference to our consolidated financial statements including Note 2 —“Revenue from Contractswith Customers” and Note 5 —“Property and Equipment, Net” in the notes to the consolidated financial statements.Available InformationOur website is located at www.zynga.com and our investor relations website is located at http://investor.zynga.com. We make available (free of chargeand available for download) on our investor relations website our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form8-K, proxy statements and other Securities and Exchange Commission (“SEC”) filings, and any amendments to those reports and any other filings that we filewith or furnish to the SEC as soon as reasonably practicable after they are filed.We post an audio version of our earnings calls and may webcast certain events we participate in or host with members of the investment community onour investor relations website. Additionally, we provide notifications of news or announcements regarding our financial performance, including SEC filings,investor events, press and earnings releases as part of our investor relations website. Investors and others can receive notifications of new information postedon our investor relations website in real time by signing up for email alerts and RSS feeds. Further corporate governance information, including our certificateof incorporation, bylaws, governance guidelines, board committee charters and committee memberships, and code of conduct, is also available on ourinvestor relations website under the heading “Corporate Governance.” We use these channels as well as social media to communicate information about ourcompany, our services and other issues. It is possible that the information we post on social media could be deemed to be material information. Therefore, weencourage investors, the media, and others interested in our company to review the information we post on the social media channels listed on our investorrelations website. The contents of our websites are not incorporated by reference into this Annual Report on Form 10-K or in any other report or document wefile with the SEC, and any references to our websites are intended to be inactive textual references only. ITEM 1A. RISK FACTORSWe have identified the following risks and uncertainties that may have a material adverse effect on our business, financial condition, results ofoperations 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 arenot material may also significantly affect our business, financial condition, results of operations or reputation. Our business could be harmed by any of theserisks. 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 assessingthese risks, you should also refer to the other information contained in this Annual Report on Form 10-K, including our consolidated financial statements andrelated notes.Risks Related to Our Business and IndustryOur business will suffer if we are unable to entertain our players, develop new games, improve the experience of our existing games, and successfullymonetize our games.Our business depends on developing, publishing and continuing to service “free-to-play” games that consumers will download and spend time andmoney playing. We are primarily focused on mobile gaming, offering our games on mobile devices, including smartphones and tablets on Apple’s iOS andGoogle’s Android operating systems, and on social networking platforms such as Facebook. We have devoted and we expect to continue to devotesubstantial resources to the research, development, analytics and marketing of our games. Our development and marketing efforts are focused on bothimproving the experience of our existing games (frequently through new content and feature releases for our live services) and developing new games. Wegenerate revenue primarily through the sale of in-game virtual items and advertising. For games distributed through third-party platforms, we are required toshare a portion of our revenues from in-game sales with the platform providers. Due to our focus on mobile gaming, these costs are expected to remain asignificant operating expense. In order to remain profitable, we need to generate sufficient bookings and revenues from our existing and new game offeringsto offset our ongoing development, marketing and operating costs.6Successfully monetizing “free-to-play” games is difficult, and requires that we deliver valuable and entertaining player experiences that a sufficientnumber of players will pay for or we are able to otherwise sufficiently monetize our games (for example, by serving in-game advertising). The success of ourgames depends, in part, on unpredictable and volatile factors beyond our control including consumer preferences, competing games, new mobile platformsand 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 andeffective manner, our ability to grow revenue and our 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, ourability to successfully develop games for mobile platforms and their ability to achieve commercial success will depend on our ability to: •effectively market our games to existing and new players; •achieve benefits from our player acquisition costs; •achieve viral organic growth and gain customer interest in our games through free or more efficient channels; •adapt to changing player preferences; •adapt to new technologies and feature sets for mobile and other devices (for example, in 2017 we incurred expenses related to upgrading gamesto support Apple’s iPhoneX and releasing new features in CSR Racing 2 using Apple’s ARKit platform); •expand and enhance games after their initial release; •attract, retain and motivate talented and experienced game designers, product managers and engineers; •partner with mobile platforms and obtain featuring opportunities; •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; •minimize launch delays and cost overruns on the development of new games and features; •achieve and maintain successful customer engagement and effectively monetize our games; •maintain a quality social game experience and retain our players; •develop games that can build upon or become franchise games; •compete successfully against a large and growing number of existing market participants; •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; •minimize and quickly resolve bugs or outages; and •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 launchnew games and features in accordance with our operating plan. If we do not succeed in doing so, our business, financial condition, results of operations orreputation will suffer.Our industry is intensely competitive and subject to rapid changes. If consumers prefer our competitors’ products or services over our own, our operatingresults could suffer.Competition in the gaming industry, especially the mobile gaming segment, is intense and subject to rapid changes, including changes from evolvingconsumer preferences and emerging technologies. Many new games are introduced in each major industry segment (mobile, web, PC, and console), but only arelatively small number of titles account for a significant portion of total revenue in each segment. Our competitors that develop mobile and web games varyin size and include companies such as Activision Blizzard (the parent company of King Digital), Aristocrat, DoubleU, Electronic Arts (EA Mobile), EpicGames, Glu Mobile, Jam City, Machine Zone, Netmarble (the parent company of Kabam), NetEase (NetEase Games), Niantic, Peak Games, Playtika, SciGamesInteractive, Supercell, Take-Two Interactive Software, Vivendi (the parent company of Gameloft) and others. In addition, online game developers anddistributors who are primarily focused on specific international markets, such as Giant Interactive and Tencent in Asia, and high-profile companies withsignificant online presences that to date have not actively focused on social games, such as Facebook, Apple, Google, Amazon and Microsoft, may decide todevelop social games. Some of these current and potential competitors have significant resources for developing or acquiring additional games, may be ableto 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 affectedby changes in consumer preferences, regulations or other developments that may impact our industry.7As there are relatively low barriers to entry to develop a mobile or online game, we expect new game competitors to enter the market and existingcompetitors to allocate more resources to develop and market competing games and applications. We also compete or will compete with a vast number ofsmall companies and individuals who are able to create and launch games and other content for devices and platforms using relatively limited resources andwith relatively limited start-up time or expertise. The proliferation of titles in these open developer channels makes it difficult for us to differentiate ourselvesfrom other developers and to compete for players without substantially increasing our marketing expenses and development costs. As an entertainmentcompany, we also face competition for the leisure time, attention and discretionary spending of our players from other non-gaming activities, such as socialmedia and messaging applications, personal computer and console games, video streaming services, television, movies, sports and the Internet. Increasingcompetition 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.We rely on third-party platforms such as the Apple App Store, the Google Play Store and Facebook to distribute our games and collect revenue. If we areunable 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 aplatform 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 offavor 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, the Google Play Store, and Facebook and thevirtual items we sell in our games are purchased using the payment processing systems of these platform providers. Additionally, we have historicallyacquired a significant number of our players through Facebook. In 2018, we derived 51% of our revenue and bookings on Apple platforms, 38% of ourrevenue and 39% of our bookings on Google platforms and 9% of our revenue and 8% of our bookings on Facebook platforms.We are subject to the standard policies and terms of service of third-party platforms, which govern the promotion, distribution, content and operationgenerally of games on the platform. Each platform provider has broad discretion to change and interpret its terms of service and other policies with respect tous and other developers, and those changes may be unfavorable to us. For example, in 2018 our Zynga Poker audience was impacted by platform changesmade by Facebook which impacted the players’ ability to access and log into the game. A platform provider may also change its fee structure, add feesassociated 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 madeavailable to application developers on the platform, limit the use of personal information for advertising purposes, or restrict how players can shareinformation with their friends on the platform or across platforms. For example, in December 2017, Apple revised its App Store Guidelines to require thedisclosure of the odds of receiving certain types of virtual items from “loot boxes” (or similar mechanisms that offer a paid license to randomized virtualitems) before customers purchase a license for the virtual items. We are continuing to evaluate how Apple will interpret this revision, whether Google,Facebook and other platform providers adopt similar rules, and how this rule may affect our business, operations and financial results.In addition, third-party platforms also impose certain file size limitations, which may limit the ability of players to download some of our larger gamesin 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 sizegrows 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 existinggames, reduce the amount of bookings and revenue we may recognize from in-game purchases, increase our costs to operate on these platforms or result in theexclusion 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 withthese platform providers), that platform provider could limit or discontinue our access to the platform. A platform provider could also limit or discontinueour 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. Anylimit 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 providershave been unavailable for short periods of time or experienced issues with their in-app purchasing functionality. If either of these events recurs on aprolonged, 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 tovirtual items, our business, financial condition, results of operations or reputation may be harmed.8We rely on third-party hosting and cloud computing providers, like Amazon Web Services (“AWS”), to operate certain aspects of our business. Asignificant portion of our game traffic is hosted by a single vendor, and any failure, disruption or significant interruption in our network or hosting andcloud 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 andcompany systems run on a complex distributed system, or what is commonly known as cloud computing. We own, operate and maintain elements of thissystem, but significant elements of this system are operated by third-parties that we do not control and which would require significant time and expense toreplace. We expect this dependence on third-parties to continue. We have suffered interruptions in service in the past, including when releasing new softwareversions or bug fixes, and if any such interruption were significant and/or prolonged it could adversely affect our business, financial condition, results ofoperations or reputation.In particular, a significant portion, if not almost all, of our game traffic, data storage, data processing and other computing services and systems ishosted by AWS. AWS provides us with computing and storage capacity pursuant to an agreement that continues until terminated by either party. Theagreement requires AWS to provide us their standard computing and storage capacity and related support in exchange for timely payment by us. We haveexperienced, and may in the future experience, disruptions, outages and other performance problems due to a variety of factors, including infrastructurechanges, human or software errors and capacity constraints. If a particular game is unavailable when players attempt to access it or navigation through a gameis 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, couldadversely impact our business, financial condition or results of operations. To the extent we do not effectively respond to any such interruptions, upgrade oursystems as needed and continually develop our technology and network architecture to accommodate traffic, our business, financial condition or results ofoperations could be adversely affected. In addition, we do not maintain insurance policies covering losses relating to our systems and we do not havebusiness interruption insurance. Furthermore, our disaster recovery systems and those of third-parties with which we do business may not function as intendedor may fail to adequately protect our critical business information in the event of a significant business interruption, which may cause interruption in serviceof 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.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 orinvestors.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 areoutside of our control. Factors that may contribute to the variability of our operating results include the risk factors listed in these “Risk Factors” and thefactors discussed in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Factors Affecting OurPerformance.”In particular, it is difficult to predict if, or when, bookings from one of our games will begin to decline, the decay rate for any particular game (i.e., thespeed at which the popularity and player usage for a game declines) and the commercial success of our new games and features. The success of our businessdepends on our ability to consistently and timely launch new games and features that achieve significant popularity and have the potential to becomefranchise 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 mayrequire longer development schedules or soft launch periods to meet our quality standards and our players’ expectations. If decay rates are higher thanexpected in a particular quarterly period and/or we experience delays in the launch of new games that we expect to offset decay rates of other games and/ornew games do not monetize well, we may not meet our expectations or the expectations of securities analysts or investors for a given quarter.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 assumptionsand 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 ofvirtual items sold, the amount of revenue that we recognize in any particular period may fluctuate significantly. In addition, changes in the policies ofFacebook, Apple, Google or other third party platforms or accounting policies promulgated by the SEC and national accounting standards bodies affectingsoftware and virtual items revenue recognition could further significantly affect the way we report revenue related to our products. Such changes could havean 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 initiallydefer 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”.9Given the rapidly evolving social game industry in which we operate, our historical operating results may not be useful in predicting our futureoperating results. In addition, metrics we have developed or those available from third parties regarding our industry and the performance of our games,including DAUs, MAUs, MUUs, MUPs and 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 growthassociated with multiple acquisitions.We have acquired games, businesses, personnel and technologies in the past, and we intend to continue to evaluate and pursue acquisitions andstrategic investments. For example, in the fourth quarter of 2017, we acquired the casual card game division of Peak Games, in the second quarter of 2018, weacquired Gram Games and in early 2019, we acquired a controlling interest in Small Giant Games. Each of these acquisitions require unique approaches tointegration due to, among other reasons, the structure of the acquisitions, their locations and cultural differences among their teams and ours, and hasrequired, and will continue to require, attention from our management team. If we are unable to obtain the anticipated benefits from these acquisitions andstrategic investments, or we encounter difficulties in integrating their operations with ours, our financial condition and results of operations could bematerially harmed.Challenges and risks from such investments and acquisitions include: •negative effects on products and product pipeline from the changes and potential disruption that may follow the acquisition; •diversion of our management’s attention; •declining employee morale and retention issues resulting from changes in compensation, or changes in management, reporting relationships, orfuture prospects; •the need to integrate the operations, systems, technologies, products and personnel of each acquired company, the inefficiencies and lack ofcontrol that may result if such integration is delayed or not implemented, and unforeseen difficulties and expenditures that may arise inconnection with integration; •the difficulty in determining the appropriate purchase price of acquired companies may lead to the overpayment from certain acquisitions andthe potential impairment of intangible assets and goodwill acquired in the acquisitions; •the difficulty in successfully evaluating and utilizing the acquired products, technology or personnel; •the potential incurrence of debt, contingent liabilities, amortization expenses or restructuring charges in connection with any acquisition; •the need to implement controls, procedures and policies appropriate for a larger public company at companies that prior to acquisition may nothave as robust controls, procedures and policies; •the difficulty in accurately forecasting and accounting for the financial impact of an acquisition transaction, including accounting charges andintegrating and reporting results for acquired companies that have not historically followed U.S. GAAP; •the fact that we may be required to pay contingent consideration in excess of the initial fair value, and contingent consideration may becomepayable at a time when we do not have sufficient cash available to pay such consideration; •under purchase accounting, we may be required to write off deferred revenue which may impair our ability to recognize revenue that would haveotherwise been recognizable which may impact our financial performance or that of the acquired company; •risks associated with our expansion into new international markets and doing business internationally, including those described under the riskfactor caption “Our international operations are subject to increased challenges and risks”; •in the case of foreign acquisitions, the need to integrate operations across different cultures and languages and to address the particulareconomic, currency, political and regulatory risks associated with specific countries; •the need to transition operations and players onto our existing or new platforms and the potential loss of, or harm to, our relationships withemployees, players and other suppliers as a result of integration of new businesses; •the implications of our management team balancing levels of oversight over acquired businesses which continue their operations under earnoutprovisions in acquisition agreements;10 •our dependence on the accuracy and completeness of statements and disclosures made or actions taken by the companies we acquire or theirrepresentatives, when conducting due diligence and evaluating the results of such due diligence; and •liability for activities of the acquired company before the acquisition, including intellectual property and other litigation claims or disputes,information security vulnerabilities, violations of laws, rules and regulations, commercial disputes, tax liabilities and other known and unknownliabilities.The benefits of an acquisition or investment may also take considerable time to develop, and we cannot be certain that any particular acquisition orinvestment will produce the intended benefits, which could adversely affect our business, financial condition or results of operations. Our ability to growthrough future acquisitions will depend on the availability of suitable acquisition and investment candidates at an acceptable cost, our ability to competeeffectively to attract these candidates and the availability of financing to complete larger acquisitions. Acquisitions could result in potential dilutiveissuances of equity securities, use of significant cash balances or incurrence of debt (and increased interest expense), contingent liabilities or amortizationexpenses related to intangible assets or write-offs of goodwill and/or intangible assets, which could adversely affect our results of operations and dilute theeconomic and voting rights of our stockholders. For more information, see Note 7 – “Goodwill and Other Intangible Assets, Net” in the notes to theconsolidated 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 andattract 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 theforeseeable future. Bookings and revenue from many of our games may decline over time after reaching a peak of popularity and player usage. As a result, ourbusiness 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(such as Words With Friends 2 and CSR Racing 2) and introduction of new features to existing games (such as new events within Zynga Poker, MergeDragons! and Empires & Puzzles). Constant game enhancement requires the investment of significant resources, particularly with older games, and such costson average have increased.It is difficult to consistently anticipate player demand on a large scale, particularly as we develop games in new categories or new markets, includinginternational markets and mobile platforms. If we do not successfully launch games that attract and retain a significant number of players and extend the lifeof our existing games, our market share, brand and financial results will be harmed.We rely on a small portion of our total players for nearly all of our revenue and if we fail to grow our player base, or if player engagement continues todecline, bookings, revenue and operating results will be harmed.Compared to all players who play our games in any period, only a small portion are paying players. In the fourth quarter of 2018, we hadapproximately 1.1 million average MUPs (excluding payers of Solitaire, our Facebook Instant Games, casual card games acquired in December 2017 andgames acquired as part of our Gram Games acquisition), who represented approximately 2.2% of our average Monthly Unique Users. In order to sustain andgrow our revenue levels, we must attract, retain and increase the number of paying players or more effectively monetize our players through advertising andother 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 growor sustain the number of our paying players, if the rates at which we attract and retain paying players declines or if the average amount our players paydeclines, 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, ourbusiness may suffer.Paying players purchase a license to virtual items in our games because of the perceived value of these goods, which is dependent on the relative easeof 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 thegames 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 promptlyand 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 itemsfrom us in the future, which would cause our business, financial condition and results of operations to suffer.11Our revenue may be harmed by the proliferation of “cheating” programs and scam offers that seek to exploit our games and players, which may negativelyaffect 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 programsharm 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 devotesignificant resources to discover, discourage and disable these cheating and scam programs and activities. If we are unable to do so quickly, our operationsmay be disrupted, our reputation may be damaged, players may stop playing our games and our ability to reliably validate our audience metrics may benegatively affected. These cheating programs and scam offers result in lost revenue from paying players, disrupt our in-game economies, divert time from ourpersonnel, increase costs of developing technological measures to combat these programs and activities, increase our customer service costs needed torespond 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 mayreduce 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 ourvirtual items, such as virtual coins for our Social Slots franchise games or Zynga Poker virtual poker chips, through unauthorized third-party sellers inexchange for real currency. These unauthorized or fraudulent transactions are usually arranged on third-party websites and the virtual items offered may havebeen obtained through unauthorized means such as exploiting vulnerabilities in our games, from scamming our players with fake offers for virtual items orother 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: •decreasing revenue from authorized transactions; •creating downward pressure on the prices we charge players for our virtual currency and virtual items; •increasing chargebacks from unauthorized credit card transactions; •causing us to lose revenue from dissatisfied players who stop playing a particular game; •causing us to lose revenue from players who we take disciplinary action against, including banning certain players who may have previouslymade purchases within our games; •increasing costs we incur to develop technological measures to curtail unauthorized transactions; •resulting in negative publicity or harm our reputation with players and partners; and •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 currency andvirtual items from unauthorized third party sellers may result in bans from our games or legal action. With a community of players in the millions, weperiodically 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 againstthird parties attempting to “sell” virtual items from our games, particularly poker chips from Zynga Poker, outside of our games. We have also employedtechnological measures to help detect unauthorized transactions and continue to develop additional methods and processes by which we can identifyunauthorized transactions and block such transactions. However, there can be no assurance that our efforts to prevent or minimize these unauthorized orfraudulent transactions will be successful and that these actions will not increase over time.We are subject to laws and regulations concerning privacy, information security, data protection, consumer protection and protection of minors, and theselaws and regulations are continually evolving. Our actual or perceived failure to comply with these laws and regulations could harm our business.We receive, store and process personal information and other player data, and we enable our players to share their personal information with each otherand with third parties, including on the Internet and mobile platforms. There are numerous federal, state and local laws around the world regarding privacyand the storing, sharing, use, processing, disclosure and protection of personal information and other player data on the Internet and mobile platforms, thescope of which are changing, subject to differing interpretations, and may be inconsistent between countries or conflict with other rules.12Various government and consumer agencies have called for new regulation and changes in industry practices and are continuing to review the needfor greater regulation for the collection of information concerning consumer behavior on the Internet, including regulation aimed at restricting certaintargeted advertising practices. For example, the European Union’s General Data Protection Regulation (“GDPR”), which became effective in May 2018,creates new individual privacy rights and imposes worldwide obligations on companies processing personal data of European Union users, which has createda greater compliance burden for us and other companies with European users, and subjects violators to substantial monetary penalties. Another example is theState of California’s passage of the California Consumer Protection Act of 2018 (“CCPA”), which will become effective in 2020 and will create new privacyrights for consumers residing in the state. There is also increased attention being given to the collection of data from minors. For instance, the Children’sOnline Privacy Protection Act (“COPPA”) requires companies to obtain parental consent before collecting personal information from children under the ageof 13. Compliance with GDPR, CCPA, COPPA and similar legal requirements has required us to devote significant operational resources and incur significantexpenses.All of our games are subject to our privacy policy and our terms of service located in application storefronts, within our games and on our corporatewebsite. We generally comply with industry standards and are subject to the terms of our privacy-related obligations to players and third parties. We strive tocomply with all applicable laws, policies, legal obligations and certain industry codes of conduct relating to privacy and data protection, to the extentreasonably attainable. However, it is possible that these obligations may be interpreted and applied in a manner that is inconsistent from one jurisdiction toanother and may conflict with other rules or our practices. For example, foreign laws and regulations are often more restrictive than those in the U.S. Inparticular, the European Union and its member states traditionally have taken broader views regarding what data types are subject to data protection, andhave imposed legal obligations on companies in this regard, as is the case with GDPR. It is also possible that new laws, policies, legal obligations or industrycodes of conduct may be passed, or existing laws, policies, legal obligations or industry codes of conduct may be interpreted in such a way that could preventus from being able to offer services to citizens of a certain jurisdiction or may make it costlier or more difficult for us to do so. Any failure or perceived failureby us to comply with our privacy policy and terms of service, our privacy-related obligations to players or other third parties, or our privacy-related legalobligations, or any compromise of security that results in the unauthorized release or transfer of personally identifiable information or other player data, mayresult in governmental enforcement actions, litigation or public statements against us by consumer advocacy groups or others and could cause our players tolose trust in us, which could have an adverse effect on our business, financial condition or results of operations. Additionally, if third parties we work with,such as players, vendors or developers violate applicable laws or our policies, such violations may also put our players’ information at risk and could in turnhave an adverse effect on our business, financial condition or results of operations.Cybersecurity attacks, including breaches, computer viruses and computer hacking attacks could harm our business, financial condition, results ofoperations or reputation.Cybersecurity attacks, including breaches, computer malware and computer hacking have become more prevalent in our industry. Any cybersecuritybreach caused by hacking, which involves efforts to gain unauthorized access to information or systems, or to cause intentional malfunctions or loss orcorruption of data, software, hardware or other computer equipment, or the inadvertent transmission of computer viruses could adversely affect our business,financial condition, results of operations or reputation. We have experienced and will continue to experience hacking attacks of varying degrees from time totime, including denial-of-service attacks. Because of our prominence in the social game industry, we believe we are a particularly attractive target for hackers.In addition, we store sensitive information, including personal information about our employees, and our games involve the storage and transmissionof players’ personal information on equipment, networks and corporate systems run by us or managed by third-parties including Facebook, Apple, Microsoft,Amazon, and Google. We are subject to a number of laws, rules and regulations requiring us to provide notification to players, investors, regulators and otheraffected parties in the event of a security breach of certain personal data, or requiring the adoption of minimum information security standards that are oftenvaguely defined and difficult to practically implement.. The costs of compliance with these laws have increased and may increase in the future. Our corporatesystems, third-party systems and security measures may be breached due to the actions of outside parties, employee error, malfeasance, a combination ofthese, or otherwise, and, as a result, an unauthorized party may obtain access to our data, our employees’ data, our players’ data or any third party data we maypossess. Any such security breach could require us to comply with various breach notification laws and may expose us to litigation, remediation andinvestigation costs, increased costs for security measures, loss of revenue, damage to our reputation and potential liability.If we do not successfully invest in, establish and maintain awareness of our brand and games, if we incur excessive expenses promoting and maintainingour brand, or our games or if our games contain defects or objectionable content, our business, financial condition, results of operations or reputationcould 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 particularlyimportant in connection with our strategic focus on developing games based on our own13intellectual property and successfully cross-promoting our games. In addition, globalizing and extending our brand and recognition of our games requiressignificant investment and extensive management time to execute successfully. Although we make significant sales and marketing expenditures inconnection 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 andmaintain 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 ourreputation and brand. Despite reasonable precautions, some consumers may be offended by certain of our game content, the third-party advertisementsdisplayed in certain of our games, or by treatment of other users. If consumers believe that a game we published or third-party advertisement displayed in agame contains objectionable content, it could harm our brand and consumers could refuse to play it and could pressure the platform providers to remove thegame from their platforms. For example, we rely on third-party advertising partners to display ads within our games, we have experienced (and mayexperience in the future) instances where offensive or objectionable content has been displayed in our games through our advertising partners. While thismay violate the terms of our agreements with these advertising partners, our reputation and player experience may suffer. Furthermore, steps that we may takein response to such instances, such as temporarily or permanently shutting off access of such advertising partner to our network, may negatively impact ourrevenue in such period. Similarly, our games may contain errors, bugs, flaws, corrupted data, defects and other vulnerabilities, some of which may only become apparent aftertheir launch, particularly as we launch new games and rapidly release new features to existing games under tight time constraints. Any such errors, flaws,defects and vulnerabilities may be exploited by cheating programs and other forms of misappropriation, disrupt our operations, adversely affect the gameexperience 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 gameswithout 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 andfeatures 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 fromour 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, orgenerate sufficient new bookings to offset any declines from our other games, our bookings and revenue could be adversely affected.We derive a significant portion of our revenues from advertisements and offers that are incorporated into our free-to-play games through relationshipswith third parties. If we are unable to continue to compete for these advertisements and offers, or if any events occur that negatively impact ourrelationships 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 withadvertisers to provide us with a sufficient inventory of advertisements and offers. Online advertising, including through mobile games and other mobileapplications, is an intensely competitive industry. Many large companies, such as Amazon, Facebook and Google, invest significantly in data analytics tomake their websites and platforms more attractive to advertisers. In order for our advertising business to continue to succeed, we need to continue todemonstrate the reach of our player network and success of our advertising partners. If our relationship with any advertising partners terminates for anyreason, 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 newadvertising partners, which could negatively impact our revenues, at least in the short term.In addition, internet-connected devices and operating systems controlled by third parties increasingly contain features that allow device users todisable functionality that allows for the delivery of advertising on their devices. Device and browser manufacturers may include or expand these features aspart of their standard device specifications. For example, when Apple announced that UDID, a standard device identifier used in some applications, was beingsuperseded and would no longer be supported, application developers were required to update their apps to utilize alternative device identifiers such asuniversally unique identifier, or, more recently, identifier-for-advertising, which simplify the process for Apple users to opt out of behavioral targeting. Ifusers elect to utilize the opt-out mechanisms in greater numbers, our ability to deliver effective advertising campaigns on behalf of our advertisers wouldsuffer, which could cause our business, financial condition, or results of operations to suffer. Finally, the revenues that we derive from advertisements andoffers is subject to seasonality, as companies’ advertising budgets are generally highest during the fourth quarter and decline significantly in the first quarterof the following year, which negatively impacts our revenues in the first quarter.14We 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 andmay not achieve or sustain profitability.The industry in which we operate is highly competitive and rapidly changing, and relies heavily on successful new product launches and continuallyintroducing compelling content, products and services. As such, if we fail to deliver such content, products and services, do not execute our strategysuccessfully or if our new content launches are delayed, our revenue, bookings and audience numbers may decline, and our operating results will suffer. As ofDecember 31, 2018, we had an accumulated deficit of $1.8 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 andtools, the expansion of our network, international expansion and marketing. Our operating costs will increase and our operating margins may decline if we donot effectively manage costs, launch new products on schedule that monetize successfully and enhance our franchise games so that these games continue tomonetize successfully. In addition, weak economic conditions or other factors could cause our business to further contract, requiring us to implementsignificant additional cost cutting measures, including a decrease in research and development and sales and marketing, which could harm our long-termprospects.If our revenues do not increase to offset any additional expenses, if we fail to manage or experience unexpected increases in operating expenses or ifwe 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 reputationand negatively affect our business.The numbers of our DAUs, MAUs, MUUs, MUPs, and ABPU are calculated using metrics tracked by our internal analytics systems based on trackingactivity of user accounts. The analytics systems and the resulting data have not been independently verified. While these numbers are based on what webelieve to be reasonable calculations for the applicable period of measurement, there are inherent challenges in measuring usage and user engagement acrossour user base and our recently acquired operations, and factors relating to user activity and systems may impact these numbers. The calculation of thesemetrics and examples of how user activity and our systems may impact the calculation of the 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’sDiscussion and Analysis of Financial Condition and Results of Operations—Key Measures and Metrics,” we rely on the accuracy and transparency of dataprovided by individuals and reported by third parties to calculate our metrics and eliminate duplication of data. For purposes of calculating MUUs andMUPs, 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 ofthese games from our calculation of MUUs and 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 forcalculating 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 ofaccuracy, and we cannot find an adequate replacement for the metric, our business, financial condition or results of operations may be harmed. In addition, ifadvertisers, platform partners or investors do not perceive our user metrics to be accurate representations of our user base or user engagement, or if we discovermaterial inaccuracies in our user metrics, our reputation may be harmed and advertisers and platform partners may be less willing to allocate their budgets orresources to our products and services, which could negatively affect our business, financial condition or results of operations.Any restructuring actions and cost reduction initiatives that we undertake may not deliver the expected results and these actions may adversely affect ourbusiness.We have implemented a number of restructurings during the last several years in which we implemented certain restructuring actions and costreduction initiatives to streamline operations and improve cost efficiencies to better align our operating expenses with our revenue, including reducing ourheadcount, rationalizing our product pipeline, reducing marketing and technology expenditures and consolidating and closing certain facilities. We plan tocontinue to manage costs to better and more efficiently manage our business. Our restructuring plans and other such efforts could result in disruptions to ouroperations and adversely affect our business, financial condition or results of operations. For more information, see Note 11 – “Restructuring” in the notes tothe consolidated financial statements included herein.15We actively monitor our costs, however, if we do not fully realize or maintain the anticipated benefits of any restructuring actions and cost reductioninitiatives, our business, financial condition or results of operations could be adversely affected, and additional restructuring initiatives may be necessary. Inaddition, we cannot be sure that the cost reduction initiatives will be as successful in reducing our overall expenses as expected or that additional costs willnot 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, ouroperating 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 newtechnology, impacting our ability to react nimbly to game or technology issues, or impacting employee retention and morale.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 partupon the continued service of our senior management team. We have seen significant changes in our management team in recent years, including theappointment of Frank Gibeau as our Chief Executive Officer, the appointment of Mark Pincus as our non-Executive Chairman and the appointments of ourChief Financial Officer, Chief Operating Officer, President of Publishing, Chief People Officer and Chief Legal Officer. Mr. Pincus and Mr. Gibeau are bothcritical to our vision, strategic direction, culture, products and technology, and the continued retention of our entire senior management team is important tothe success of our operating plan. We do not have employment agreements, other than offer letters, with our senior management team, and we do not maintainkey-man insurance for members of our senior management team. The loss of any member of our senior management team could cause disruption and harm ourbusiness, 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 skilledemployees, particularly in the competitive fields of game design, product management and engineering. These employees are in high demand, and we devotesignificant resources to identifying, recruiting, hiring, training, successfully integrating and retaining them. We have continued to experience significantturnover in our headcount, which has placed and will continue to place significant demands on our management and our operational, financial andtechnological infrastructure. As of December 31, 2018, approximately 32% of our employees had been with us for less than one year and approximately 47%for less than two years.We believe that two critical components of our success and our ability to retain our best people are our culture and our competitive compensationpractices. As we operate as a public company, we may find it difficult to maintain our entrepreneurial, execution-focused culture. In addition, recent volatilityin 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 recruitmentby competitors. Competition for highly skilled employees is intense, particularly in the San Francisco Bay Area, where our headquarters is located. If we areunable to identify, hire and retain our senior management team and our key employees, our business, financial condition or results of operations could beharmed. Moreover, if our team fails to work together effectively to execute our plans and strategies on a timely basis, our business, financial condition orresults 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 targetcompanies with a skilled employee base persists and increases, we may incur significant expenses and difficulty in continuing this practice. In addition,volatility in our operating results and the trading price of our Class A common stock may negatively impact our perceived reputation and make it moredifficult and more expensive to successfully retain employees through acquisitions. The loss of talented employees with experience in the assets we acquirecould result in significant disruptions to our business and the integration of acquired assets and businesses. If we do not succeed in recruiting, retaining, andmotivating 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.16If 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 dependentupon 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 onwhich our games are available decline in popularity or become obsolete faster than anticipated, we could experience a decline in bookings and revenue andmay 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 forgames could harm our business, financial condition or results of operations. Our ability to acquire and maintain licenses to intellectual property may affect our revenue and profitability. Competition for these licenses may makethem 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 Wonka’s World of Candy, Hit It Rich! Slots, Wizard of Oz Slots and CSR Racing 2,and we are developing new games using licensed intellectual property for Game of Thrones™, Harry Potter™ and Star Wars™.Proprietary licenses typically limit our use of intellectual property to specific uses and for specific time periods, and include other contractualobligations with which we must comply. Competition for these licenses is intense, and often results in increased advances, minimum payment guarantees androyalties that we must pay to the licensor. If we are unable to obtain and remain in compliance with the terms of these licenses or obtain additional licenseson reasonable economic terms, our revenue and profitability may be adversely impacted. In addition, use of these intellectual properties generally requiresthat we pay a royalty to the licensor, which decreases our profitability. If the mix of player purchases shifts towards games in which we use licensedintellectual properties increases, our overall margins may be reduced.In addition, many of our games are built on proprietary source code of third parties, such as Unity. If we are unable to renew licenses to proprietarysource code underlying our games, or the terms and conditions of these licenses change at the time of renewal our business, financial condition or results ofoperations could be negatively impacted. We rely on third parties, including Unity, to maintain versions of their proprietary engines that allow us to ship ourgames on multiple platforms. If a third party from whom we license source code discontinues support for one or more of these platforms, our business,financial condition or results of operations could be negatively impacted.Failure to protect or enforce our intellectual property rights or the costs involved in such enforcement could harm our business, financial condition orresults of operations.We regard the protection of our trade secrets, copyrights, trademarks, service marks, trade dress, domain names, patents, and other product rights ascritical to our success. We strive to protect our intellectual property rights by relying on federal, state and common law rights, as well as contractualrestrictions and business practices. We enter into confidentiality and invention assignment agreements with our employees and contractors andconfidentiality agreements with parties with whom we conduct business in order to limit access to, and disclosure and use of, our proprietary information.However, these contractual arrangements and business practices may not prevent the misappropriation of our proprietary information or deter independentdevelopment of similar technologies by others.We pursue the registration of our copyrights, trademarks, service marks, domain names, and patents in the U.S. and in certain locations outside the U.S.This process can be expensive and time-consuming, may not always be successful depending on local laws or other circumstances, and we also may choosenot to pursue registrations in every location depending on the nature of the project to which the intellectual property rights pertain. We may, over time,increase our investments in protecting our creative works.Litigation may be necessary to enforce our intellectual property rights, protect our trade secrets or determine the validity and scope of proprietaryrights claimed by others. For example, we have brought actions to protect our “Zynga Poker,” “Ville,” and “With Friends” franchises against third-party usesof those intellectual property assets and brands. Any litigation of this nature, regardless of outcome or merit, could result in substantial costs, adversepublicity, and diversion of management and technical resources, any of which could adversely affect our business, financial condition or results ofoperations. If we fail to maintain, protect and enhance our intellectual property rights, our business, financial condition or results of operations may beharmed.17Our web-based games rely on Adobe Flash, and our business and operating results could be harmed if web browsers cease to support Adobe Flash and wecannot find substitute software for our web-based games.Our web-based games currently rely on Adobe Flash, a multimedia and software platform used to show items such as videos, graphics, games andanimations on websites. In July 2017, Adobe announced that it will stop updating and distributing the Adobe Flash technology at the end of 2020. Manyproviders of web-browsers have also communicated roadmaps for phasing out and removing Adobe Flash from their respective web-browsers by 2020. Weare continuing to evaluate solutions to provide uninterrupted access to our web games. If we are unable to implement these solutions in time, or measuresthat we take disrupt our game experience, these games may become unavailable or their audiences may further decline, which would harm our business,financial condition and results of operations.We are, and may in the future be, subject to intellectual property disputes, which are costly to defend and could require us to pay significant damages andcould limit our ability to use certain technologies in the future.From time to time, we have faced, and we may face in the future, allegations that we have infringed the trademarks, copyrights, patents and otherintellectual property rights of third parties, including from our competitors, non-practicing entities and former employers of our personnel. Intellectualproperty litigation may be protracted and expensive, and the results are difficult to predict. As the result of any court judgment or settlement, we may beobligated to cancel the launch of a new game, stop offering a game or certain features of a game in a particular geographic region or worldwide, pay royaltiesor significant settlement costs, purchase licenses or modify our games and features, or develop substitutes.In addition, we use open source software in our game development and expect to continue to use open source software in the future. From time to time,we may face claims from companies that incorporate open source software into their products, claiming ownership of, or demanding release of, the sourcecode, the open source software and/or derivative works that were developed using such software, or otherwise seeking to enforce the terms of the applicableopen source license. These claims could also result in litigation, require us to purchase a costly license or require us to devote additional research anddevelopment resources to change our games, any of which would have a negative effect on our business, financial condition or results of operations.We are involved in legal proceedings that may result in adverse outcomes.We are involved in claims, suits, government investigations, and proceedings arising in the ordinary course of our business, including actions withrespect to intellectual property claims, privacy, data protection or law enforcement matters, tax matters, labor and employment claims, commercial andacquisition-related claims, as well as stockholder derivative actions, class action lawsuits, and other matters. Such claims, suits, government investigations,and proceedings are inherently uncertain and their results cannot be predicted with certainty. Regardless of their outcomes, such legal proceedings can havean adverse impact on us because of legal costs, diversion of management and other personnel, and other factors. In addition, it is possible that a resolution ofone or more such proceedings could result in liability, penalties, or sanctions, as well as judgments, consent decrees, or orders preventing us from offeringcertain features, functionalities, products, or services, or requiring a change in our business practices, products or technologies, which could in the futurematerially and adversely affect our business, financial condition or results of operations. See the section titled “Legal Matters” included in Note 16 –“Commitments and Contingencies” in the notes to the consolidated financial statements included herein.Our business is subject to a variety of U.S. and foreign laws, many of which are unsettled and still developing and which could subject us to claims orotherwise harm our business.We are subject to a variety of laws in the U.S. and abroad that affect our business, including state and federal laws regarding consumer protection,electronic marketing, protection of minors, data protection, competition, taxation, intellectual property, export and national security, that are continuouslyevolving and developing. The scope and interpretation of the laws that are or may be applicable to us are often uncertain and may be conflicting, particularlylaws outside the U.S. There is a risk that these laws may be interpreted in a manner that is not consistent with our current practices, and could have an adverseeffect on our business. It is also likely that as our business grows and evolves and our games are played in a greater number of countries, we will becomesubject to laws and regulations in additional jurisdictions or other jurisdictions may claim that we are required to comply with their laws and regulations.We are potentially subject to a number of foreign and domestic laws and regulations that affect the offering of certain types of content, such as thatwhich depicts violence, many of which are ambiguous, still evolving and could be interpreted in ways that could harm our business or expose us to liability.In addition, there are ongoing academic, political and regulatory discussions in the U.S., Europe, Australia and other jurisdictions regarding whether socialcasino applications should be subject to a higher level or different type of regulation than other social game applications to protect consumers, in particularminors and persons susceptible to addiction to social casino games, and, if so, what this regulation should include. For example, a court has recentlydetermined that a class-action plaintiff was able to state a claim that an online social casino game operated by Big Fish Games, Inc. violated a specific anti-gambling law in Washington State. We disagree with this ruling and are continuing to monitor this case. If new social casino regulations are18imposed, or other regulations are interpreted to apply to our social casino games, certain of (or all of) our casino-themed games may become subject to therules and regulations and expose us to civil and criminal penalties if we do not comply. Additionally, “loot box” game mechanics have been the subject ofincreased public discussion – for example, Belgium and the Netherlands have recommended enforcement actions against certain companies and the U.S.Federal Trade Commission (FTC) has recently announced that it will be holding a public workshop on loot boxes later this year. Mechanics in certain of ourgames, such as Empires & Puzzles, CSR2 and Dawn of Titans, may be deemed as “loot boxes”. New regulation by the FTC, U.S. states or other internationaljurisdictions, which may vary significantly across jurisdictions and which we may be required to comply with, could require that these game mechanics bemodified or removed from games, increase the costs of operating our games, impact player engagement and monetization or otherwise harm our businessperformance. It is difficult to predict how existing or new laws may be applied to these or similar game mechanics. If we are not able to comply with theselaws or regulations or if we become liable under these laws or regulations, we could be directly harmed, and we may be forced to implement new measures toreduce our exposure to this liability. This may require us to expend substantial resources or to modify our games, which would harm our business, financialcondition and results of operations. In addition, the increased attention focused upon liability issues as a result of lawsuits and legislative proposals couldharm our reputation or otherwise impact the growth of our business. Any costs incurred as a result of this potential liability could harm our business, financialcondition or results of operations. It is possible that a number of laws and regulations may be adopted or construed to apply to us in the U.S. and elsewhere that could restrict the onlineand mobile industries, including player privacy, advertising, taxation, content suitability, copyright, distribution and antitrust. Furthermore, the growth anddevelopment of electronic commerce and virtual items may prompt calls for more stringent consumer protection laws that may impose additional burdens oncompanies such as ours conducting business through the Internet and mobile devices. We anticipate that scrutiny and regulation of our industry will increaseand we will be required to devote legal and other resources to addressing such regulation. For example, existing laws or new laws regarding the marketing ofin-app purchases, labeling of free-to-play games, regulation of currency and banking institutions unclaimed property and money transmission may beinterpreted to cover our games and the virtual currency, goods or payments that we receive. If that were to occur we may be required to seek licenses,authorizations or approvals from relevant regulators, the granting of which may be dependent on us meeting certain capital and other requirements and wemay be subject to additional regulation and oversight, all of which could significantly increase our operating costs. Changes in current laws or regulations orthe imposition of new laws and regulations in the U.S. or elsewhere regarding these activities may lessen the growth of social game services and impair ourbusiness, financial condition or results of operations.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 oftargeting international markets is developing offerings that are localized and customized for the players in those markets. We expect to continue to expandour international operations in the future by opening new international studio locations and expanding our offerings in new languages. Our ability to expandour business and to attract talented employees and players in an increasing number of international markets will require considerable management attentionand 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 beensuccessful 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 thatwe currently face, including risks associated with: •inability to offer certain games in certain foreign countries; •recruiting and retaining talented and capable management and employees in foreign countries; •challenges caused by distance, language and cultural differences; •developing and customizing games and other offerings that appeal to the tastes and preferences of players in international markets; •competition from local game makers with intellectual property rights and significant market share in those markets and with a betterunderstanding of player preferences; •utilizing, protecting, defending and enforcing our intellectual property rights; •negotiating agreements with local distribution platforms that are sufficiently economically beneficial to us and protective of our rights; •the inability to extend proprietary rights in our brand, content or technology into new jurisdictions; •implementing alternative payment methods for virtual items in a manner that complies with local laws and practices and protects us from fraud; •compliance with applicable foreign laws and regulations, including privacy laws and laws relating to content and consumer protection (forexample, the United Kingdom’s Office of Fair Trading’s 2014 principles relating to in-app purchases in free-to-play games that are directedtoward children 16 and under);19 •compliance with anti-bribery laws, including the Foreign Corrupt Practices Act; •credit risk and higher levels of payment fraud; •currency exchange rate fluctuations; •protectionist laws and business practices that favor local businesses in some countries; •double taxation of our international earnings and potentially adverse tax consequences due to changes in the tax laws of the U.S. or the foreignjurisdictions in which we operate; •political, economic and social instability; •higher costs associated with doing business internationally; •export or import regulations; and •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 beadversely affected. Additionally, our ability to successfully gain market acceptance in any particular market is uncertain, and the distraction of our seniormanagement team could harm our business, financial condition or results of operations.The vote by the United Kingdom to exit from the European Union could harm our business, financial condition or results of operations.On March 29, 2017, the United Kingdom triggered Article 50 of the Treaty on European Union by notifying the European Council of its intention towithdraw from the European Union (commonly referred to as the “Brexit”). Negotiations have commenced to determine the future terms of the UnitedKingdom’s relationship with the European Union, including the terms of trade between the U.K. and the European Union. The effects of Brexit will dependon any agreements the United Kingdom makes to retain access to European Union markets either during a transitional period or more permanently. Brexitcould lead to legal uncertainty and potentially divergent national laws and regulations as the United Kingdom determines which European Union laws toreplace or replicate.The announcement of Brexit caused (and the actual exit of the United Kingdom from the European Union is expected to cause future) significantvolatility in global stock markets, which could cause our stock price to be subject to wide fluctuations, and significant fluctuations in foreign currencyexchange rates, which will affect our financial results as we report in U.S. dollars and may affect our ability to attract and retain employees in the UnitedKingdom. The announcement of Brexit also created (and the actual exit of the United Kingdom from the European Union may create future) global economicuncertainty, which may cause our players to reduce the amount of money they spend on our games. The actual exit of the United Kingdom from theEuropean Union could cause disruptions to and create uncertainty surrounding our business, including affecting our NaturalMotion operations andrelationships with existing and future players, suppliers and employees. Any of these effects of Brexit, and others we cannot anticipate, could harm ourbusiness, financial condition or results of operations.Companies and governmental agencies may restrict access to Facebook, our website, mobile applications or the Internet generally, which could lead tothe loss or slower growth of our player base.Our players generally need to access the Internet and in particular platforms such as Facebook, Apple, Google and our website to play our games.Companies and governmental agencies could block access to Facebook, our website, mobile applications or the Internet generally for a number of reasonssuch as security or confidentiality concerns or regulatory reasons, or they may adopt policies that prohibit employees from accessing Facebook, Apple,Google and our website or other social platforms. If companies or governmental entities block or limit such or otherwise adopt policies restricting playersfrom playing our games, our business could be negatively impacted and could lead to the loss or slower growth of our player base.Changes in tax laws or tax rulings could materially affect our effective tax rates, financial position and results of operations.The tax regimes we are subject to or operate under are unsettled and may be subject to significant change. Changes in tax laws or tax rulings, orchanges in interpretations of existing laws, could cause us to be subject to additional income-based taxes and non-income taxes (such as payroll, sales, use,value-added, net worth, property, and goods and services taxes), which in turn could materially affect our financial position and results of operations. InDecember 2017, the U.S. federal government enacted the Tax Cuts and Jobs Act (“2017 Tax Act”). The 2017 Tax Act significantly changed the existing U.S.corporate income tax laws by, among other things, lowering the corporate tax rate, implementing a partially territorial tax system, and imposing a one-timedeemed repatriation toll tax on cumulative undistributed foreign earnings. In addition, many countries in the European Union, as well as a number of othercountries and organizations such as the Organization for Economic Cooperation and Development, have recently proposed or recommended changes toexisting tax laws or have enacted new laws that could impact our tax obligations. Any significant changes to20our future effective tax rate may result in a material adverse effect on our business, financial condition, results of operations, or cash flows. For moreinformation, see Note 8 – “Income Taxes” in the notes to the consolidated financial statements included herein.We may have exposure to greater than anticipated tax liabilities.Our income tax obligations are based in part on our corporate operating structure and intercompany arrangements, including the manner in which wedevelop, value, manage, and use our intellectual property and the valuation of our intercompany transactions. The tax laws applicable to our business,including the laws of the U.S. and other jurisdictions, are subject to interpretation and certain jurisdictions are aggressively interpreting their laws in newways in an effort to raise additional tax revenue. Our existing corporate structure and intercompany arrangements have been implemented in a manner webelieve is in compliance with current prevailing tax laws. However, the taxing authorities of the jurisdictions in which we operate may challenge ourmethodologies for valuing developed technology or intercompany arrangements, which could impact our worldwide effective tax rate and harm our financialposition and results of operations. In addition, changes to our corporate structure and intercompany agreements, including through acquisitions, couldimpact our worldwide effective tax rate and harm our financial position and results of operation. As a result of recent changes in tax laws, we are exploringcertain changes to our international tax structure, although there can be no guarantee that any modified structure will achieve our intended goals.We may require additional capital to meet our financial obligations and support business growth, and this capital might not be available on acceptableterms or at all.We intend to continue to make significant investments to support our business growth and may require additional funds to respond to businesschallenges, including the need to develop new games and features or enhance our existing games, improve our operating infrastructure or acquirecomplementary businesses, personnel and technologies. Accordingly, we may need to engage in equity or debt financings to secure additional funds. If weraise additional funds through future issuances of equity or convertible debt securities, our existing stockholders could suffer significant dilution, and anynew equity securities we issue could have rights, preferences and privileges superior to those of holders of our Class A common stock. Any debt financingthat we secure in the future could involve restrictive covenants relating to our capital raising activities and other financial and operational matters, whichmay make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions. In December 2018, weentered into a credit agreement for a three-year revolving credit facility, and we must adhere to financial covenants therein. We may not be able to obtainadditional financing on terms favorable to us, if at all. If we are unable to obtain adequate financing or financing on terms satisfactory to us when we requireit, our ability to continue to support our business growth and to respond to business challenges could be significantly impaired, and our business, financialcondition or results of operations may be harmed.We own our corporate headquarters located in San Francisco, California. The occurrence of an earthquake or other natural disaster at or near any of ourfacilities could cause damage to our facilities and equipment, which could require us to curtail or cease operations.Our principal offices are located in the San Francisco Bay Area, an area known for earthquakes, and are thus vulnerable to damage. We own ourcorporate headquarters and lease certain office space to commercial tenants. All of our facilities are also vulnerable to damage from natural or manmadedisasters, including power loss, fire, explosions, floods, communications failures, terrorist attacks and similar events. If any disaster were to occur, our abilityto operate our business at our facilities could be impaired, we could incur significant losses, recovery from which may require substantial time and expense.Risks Related to Our Class A Common StockOur share price has been and will likely continue to be volatile.The trading price of our Class A common stock has been, and is likely to continue to be, highly volatile and could be subject to wide fluctuations inresponse to various factors, some of which are beyond our control. During the 2018 fiscal year, the trading price of our Class A common stock ranged from alow of $3.20 per share to a high of $4.57 per share. In addition to the factors discussed in these “Risk Factors” and elsewhere in this filing, factors that maycause volatility in our share price include: •changes in projected operational and financial results; •issuance of new or updated research or reports by securities analysts; •market rumors or press reports; •announcements related to our share repurchase program; •our announcement of significant transactions;21 •actions instituted by activist shareholders or others; •the use by investors or analysts of third-party data (such as AppData, App Annie, comScore, and Sensor Tower) regarding our business andoperating metrics which may not reflect our actual performance or financial results; •fluctuations in the valuation of companies perceived by investors to be comparable to us; •the activities, public announcements and financial performance of our commercial partners, such as Apple, Amazon, Facebook and Google; •fluctuations in the trading volume of our shares, or the size of our public float relative to the total number of shares of our Class A common stockthat are issued and outstanding; •share price and volume fluctuations attributable to inconsistent trading volume levels of our shares; and •general economic and market conditions.Furthermore, the stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices ofequity securities of many companies. These fluctuations often have been unrelated or disproportionate to the operating performance of those companies.These broad market and industry fluctuations, as well as general economic, political and market conditions such as recessions, interest rate changes orinternational currency fluctuations, may negatively impact the market price of our Class A common stock. In the past, companies that have experiencedvolatility in the market price of their stock have been subject to securities class action litigation. We have been the target of this type of litigation asdescribed in the section titled “Legal Matters” included in Note 16 —“Commitments and Contingencies” in the notes to the consolidated financialstatements included herein. Securities litigation against us could result in substantial costs and divert our management’s attention from other businessconcerns, which could harm our business.In addition, in November 2016, the 2016 Share Repurchase Program was authorized for up to $200.0 million of our outstanding Class A commonstock. In the second quarter of 2018, we completed all purchases under the 2016 Share Repurchase Program. In April 2018, our Board of Directors authorizeda share repurchase program allowing us to repurchase up to an additional $200.0 million of our outstanding shares of Class A common stock (the “2018 ShareRepurchase Program”).The timing and amount of any stock repurchases will be determined based on market conditions, share price and other factors. The2018 Share Repurchase 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 will be funded from existing cash on hand or other sources offinancing as the Company may determine to be appropriate. Share repurchases under these authorizations may be made through a variety of methods, whichmay include open market purchases, privately negotiated transactions, block trades, accelerated share repurchase transactions, purchases through 10b5-1plans or by any combination of such methods. Repurchases of our Class A common stock in the open market could result in increased volatility in our stockprice. There is no guarantee that we will make any share repurchases under the 2018 Share Repurchase Program or otherwise in the future.Certain provisions in our charter documents and under Delaware law could limit attempts by our stockholders to replace or remove our Board of Directorsor current management and limit the market price of our Class A common stock.Provisions in our certificate of incorporation and bylaws may have the effect of delaying or preventing changes in our Board of Directors ormanagement. Our certificate of incorporation and bylaws include provisions that: •establish an advance notice procedure for stockholder proposals to be brought before an annual meeting, including proposed nominations ofpersons for election to our Board of Directors; •prohibit cumulative voting in the election of directors; •authorize “blank check” preferred stock that our board of directors could issue; and •limit the ability of stockholders to call a special stockholder meeting and to act by written consent.These provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficultfor stockholders to replace members of our Board of Directors, which is responsible for appointing the members of our management. In addition, because weare incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which generally prohibits aDelaware corporation from engaging in any of a broad range of business combinations with any “interested” stockholder for a period of three years followingthe date on which the stockholder became an “interested” stockholder.Our Class A common stock price may be volatile due to third-party data regarding our games.Third parties, such as AppData, App Annie, comScore, and Sensor Tower publish daily data about us and other social game companies with respect toDAUs and MAUs, monthly revenue, top game charts, time spent per user and other information concerning social game usage. These metrics can be volatile,particularly for specific games, and in many cases do not accurately reflect the actual22levels of usage of our games across all platforms and may not correlate to our bookings or revenue from the sale of virtual items. There is a possibility thatthird parties could change their methodologies for calculating these metrics in the future. To the extent that securities analysts or investors base their views ofour business or prospects on such third-party data, the price of our Class A common stock may be volatile and may not reflect the performance of ourbusiness.If securities or industry analysts do not publish research about our business, or publish negative reports about our business, our share price and tradingvolume could decline.The trading market for our Class A common stock, to some extent, depends on the research and reports that securities or industry analysts publishabout our business. We do not have any control over these analysts. If one or more of the analysts who cover us downgrade our shares or lower their opinionof our shares, our share price would likely decline. If one or more of these analysts cease coverage of our company or fail to regularly publish reports on us,we could lose visibility in the financial markets, which could cause our share price or trading volume to decline.If we are unable to implement and maintain effective internal control over financial reporting in the future, the accuracy and timeliness of our financialreporting may be adversely affected.If we are unable to maintain adequate internal controls for financial reporting in the future, or if our auditors are unable to express an opinion as to theeffectiveness of our internal controls as required pursuant to the Sarbanes-Oxley Act, investor confidence in the accuracy of our financial reports may beimpacted or the market price of our Class A common stock could be negatively impacted.The requirements of being a public company may strain our resources, divert management’s attention and affect our ability to attract and retain qualifiedBoard members.We are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the Sarbanes-Oxley Act, theDodd-Frank Act, the listing requirements of the NASDAQ Global Select Market and other applicable securities rules and regulations. Compliance with theserules and regulations has increased and will continue to increase our legal and financial compliance costs, make some activities more difficult, time-consuming or costly and increase demand on our systems and resources. The Exchange Act requires, among other things, that we file annual, quarterly andcurrent reports with respect to our business and operating results.As a result of disclosure of information in our public filings with the SEC as required of a public company, our business and financial condition havebecome more visible, which we believe may result in threatened or actual litigation, including by competitors and other third parties. If such claims aresuccessful, our business, financial condition or results of operations could be harmed, and even if the claims do not result in litigation or are resolved in ourfavor, these claims, and the time and resources necessary to resolve them, could divert the resources of our management and harm our business, financialcondition or results of operations.We have no plans to pay dividends for the foreseeable future.We have never declared or paid any cash dividends on our common stock and do not have any plans to pay cash dividends in the foreseeable future.Any determination to pay dividends in the future will be at the discretion of our Board of Directors. Accordingly, investors must rely on sales of their Class Acommon stock after price appreciation, which may never occur, as the only way to realize any future gains on their investments. ITEM 1B. UNRESOLVED STAFF COMMENTSNone. ITEM 2. PROPERTIESWe own our San Francisco, California corporate headquarters, an office building of approximately 686,000 square feet. We use approximately318,000 square feet for our operations and lease most of the remainder to third-party tenants under leases that range in terms from month-to-month to termsthrough 2031. Our corporate headquarters currently accommodates our principal executive, development, engineering, marketing, business development,human resources, finance, legal, information technology and administrative activities. We are actively evaluating the potential sale and leaseback of thisoffice building. If favorable offers are received and we determine to proceed with the transaction, it is possible that such transaction could take place as earlyas the second quarter of 2019.23We lease additional domestic office space in San Francisco, California; Santa Clara, California; Carlsbad, California; Culver City, California; Eugene,Oregon; Austin, Texas; Chicago, Illinois; and New York, New York. We lease offices for our foreign operations in Toronto, Canada; Victoria, Canada;Bangalore, India; Dublin, Ireland; Helsinki, Finland; Istanbul, Turkey; Brighton, England; and London, England. These additional domestic andinternational facilities total approximately 196,000 square feet, excluding properties for which we cannot reliably estimate square footage. The excludedproperties include shared corporate office spaces whereby rent is determined based on the number of individuals utilizing the space over a specified period oftime.We believe that our existing facilities are sufficient for our current needs. We believe that suitable additional or substitute space will be available asneeded to accommodate changes in our operations. ITEM 3. LEGAL PROCEEDINGSFor a description of our material legal proceedings, see the section titled “Legal Matters’ included in Note 16 —“Commitments and Contingencies” inthe notes to the consolidated financial statements, which is incorporated by reference herein. ITEM 4. MINE SAFETY DISCLOSURESNot applicable. 24PART II ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITYSECURITIESOur Class A common stock has been listed on the NASDAQ Global Select Market under the symbol “ZNGA” since December 16, 2011. Prior to thattime, there was no public market for our stock. Further, in May 2018, all of our outstanding shares of Class B and Class C common stock were converted intoshares of Class A common stock on a one-for-one basis. Holders of RecordMany of our shares of Class A common stock are held by brokers and other institutions on behalf of our stockholders and accordingly, we are unableto estimate the total number of stockholders represented by these record holders. Excluding such brokers and institutions, as of January 31, 2019, there wereapproximately 594 stockholders of record of our Class A common stock and the closing price of our Class A common stock was $4.48 per share as reportedon the NASDAQ Global Select Market.Dividend PolicyWe have never declared or paid any cash dividend on our Class A common stock. We intend to retain any future earnings and do not expect to paydividends in the foreseeable future.Issuer Purchases of Equity SecuritiesIn November 2016, we authorized the 2016 Share Repurchase Program. During 2016, we repurchased 12.3 million shares of our Class A common stockunder the 2016 Share Repurchase Program at a weighted average price of $2.76 per share for a total of $34.2 million. During 2017, we repurchased 36.3million shares of our Class A common stock under the 2016 Share Repurchase Program at a weighted average price of $2.78 per share for a total of $101.0million. During 2018, we completed the 2016 Share Repurchase Program by repurchasing 18.2 million shares of our Class A common stock at a weightedaverage price of $3.59 per share for a total of $65.4 million.In April 2018, a new share repurchase program was authorized for up to $200.0 million of our outstanding Class A common stock. During 2018, werepurchased 7.1 million shares of our Class A common stock under the 2018 Share Repurchase Program at a weighted average price of $3.71 per share for atotal of $26.2 million.Repurchases of our Class A common stock during the fourth quarter of 2018, all of which were made pursuant to the 2018 Share Repurchase Program,were as follows: Period Total Number ofShares Purchased Average Price Paidper Share Total Number of SharesPurchased as Part ofPublicly AnnouncedPrograms Maximum Dollar ValueThat May Yet BePurchased Under theProgram October 1 - October 31, 2018 4,808,030 $3.69 4,808,030 $173,847,972 November 1 - November 30, 2018 — $— — $173,847,972 December 1 - December 31, 2018 — $— — $173,847,972 Total 4,808,030 $3.69 4,808,030 25Stock Performance GraphThe following graph compares the cumulative total stockholder return for our Class A common stock, the Standard and Poor’s 500 Stock Index (the“S&P 500 Index”) and the NASDAQ Composite Index. The measurement points in the graph below are December 16, 2011 (the first trading day of our ClassA common stock on the NASDAQ Global Select Market) and the last trading day of each fiscal year-end through December 31, 2018 . The graph assumes that$100 was invested on December 16, 2011 in our Class A common stock, the S&P 500 Index and the NASDAQ Composite Index. As we have not paid anydividends, our cumulative total return calculation is based solely upon stock price appreciation and not upon reinvestment of any dividends. The stock priceperformance on the following graph is not necessarily indicative of future stock price performance. The information furnished under the heading “Stock Performance Graph”, including the performance graph, shall not be deemed “filed” for purposesof Section 18 of the Exchange Act or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference into any other filingunder the Securities Act of 1933, as amended or the Exchange Act, except as expressly set forth by specific reference in such a filing. 26 ITEM 6. SELECTED CONSOLIDATED FINANCIAL AND OTHER DATAThe following selected consolidated financial and other data should be read in conjunction with “Management’s Discussion and Analysis of FinancialCondition and Results of Operations” and our audited consolidated financial statements and related notes, which are included elsewhere in this AnnualReport on Form 10-K. The consolidated statements of operations data for the years ended December 31, 2018, 2017 and 2016 as well as the consolidatedbalance sheet data as of December 31, 2018 and 2017 are derived from the audited consolidated financial statements that are included in Item 8 – FinancialStatements and Supplementary Data in this Annual Report on Form 10-K. The consolidated statement of operations data for the years ended December 31,2015 and 2014 as well as the consolidated balance sheet data as of December 31, 2016, 2015 and 2014, are derived from audited consolidated financialstatements that are not included in this Annual Report on Form 10-K. Our historical results are not necessarily indicative of the results to be expected in thefuture. Year Ended December 31, 2018 2017 2016 2015 2014 (in thousands, except per share, user and ABPU data) Consolidated Statements of Operations Data: Revenue(1): Online game $670,877 $665,593 $547,291 $590,755 $537,619 Advertising and other 236,331 195,797 194,129 173,962 152,791 Total revenue 907,208 861,390 741,420 764,717 690,410 Costs and expenses: Cost of revenue 304,658 258,971 238,546 235,985 213,570 Research and development 270,323 256,012 320,300 361,931 396,553 Sales and marketing 226,524 212,030 183,637 169,573 157,364 General and administrative 98,941 108,653 92,509 143,284 167,664 Impairment of intangible assets — — 20,677 — — Total costs and expenses 900,446 835,666 855,669 910,773 935,151 Income (loss) from operations 6,762 25,724 (114,249) (146,056) (244,741)Interest income 6,549 5,309 3,057 2,568 3,266 Other income (expense), net 13,152 6,550 6,461 13,306 8,248 Income (loss) before income taxes 26,463 37,583 (104,731) (130,182) (233,227)Provision for (benefit from) income taxes 11,006 10,944 3,442 (8,672) (7,327)Net income (loss) $15,457 $26,639 $(108,173) $(121,510) $(225,900)Net income (loss) per share attributable to common stockholders Basic $0.02 $0.03 $(0.12) $(0.13) $(0.26)Diluted $0.02 $0.03 $(0.12) $(0.13) $(0.26)Weighted average common shares used to compute net income (loss) per share attributable to common stockholders: Basic 862,460 869,067 878,827 913,511 874,509 Diluted 889,584 897,165 878,827 913,511 874,509 Other Non-GAAP Financial and Operational Data: Bookings(2) $969,542 $853,809 $754,533 $699,955 $694,300 Other Non-GAAP Financial and Operational Data - Revised(7): Average DAUs (in millions)(3) 23 21 19 21 26 Average MAUs (in millions)(4) 88 80 64 81 110 Average MUUs (in millions)(5) 51 52 55 57 70 ABPU(6) $0.114 $0.111 $0.111 $0.093 $0.074 Other Non-GAAP Financial and Operational Data - As Reported: Average DAUs (in millions)(3) N/A N/A N/A N/A 27 Average MAUs (in millions)(4) N/A N/A N/A N/A 118 Average MUUs (in millions)(5) N/A N/A N/A N/A 81 ABPU(6) N/A N/A N/A N/A $0.071 (1)Prior period revenue amounts have not been retrospectively adjusted to reflect the adoption of ASC 606.(2)See the section titled “Non-GAAP Financial Measures” below for how we define and calculate bookings, a reconciliation between bookings and revenue – the most directlycomparable U.S. GAAP financial measure – and a discussion about the limitation of bookings. (3)DAUs are the number of individuals who played one of our games during a particular day, as recorded by our internal analytics systems. Average DAUs is the average of theDAUs for each day during the period reported. See the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Metrics—Key Operating Metrics” for more information on how we define and estimate DAUs, as well as the related table footnotes for discussion on the limitations of our estimates.(4)MAUs are the number of individuals who played a particular game during a 30-day-period, as recorded by our internal analytics systems. Average MAUs is the average of theMAUs at each month-end during the period reported. See the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—KeyMetrics—Key Operating Metrics” for more information on how we define and estimate MAUs, as well as the related table footnotes for discussion on the limitations of ourestimates.27(5)MUUs are the number of unique individuals who played any of our games on a particular platform during a 30-day period, as estimated by our internal analytics systems.Average MUUs is the average of the MUUs at each month-end during the period reported. We are unable to distinguish whether players of certain games are also players ofother Zynga games. As a result of this, we exclude players of these games from our calculation of the applicable key operating metric to avoid potential double counting. Seethe section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Metrics—Key Operating Metrics” for more information onhow we define and estimate MUUs, as well as the related table footnotes for discussion on the limitations of our estimates.(6)ABPU is defined as our total bookings in a given period, divided by the number of days in that period, divided by the average DAUs during the period. See the section titled“Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Metrics—Key Operating Metrics” for more information on how we define andestimate ABPU.(7)In the first quarter of 2015, the Company modified its calculation to take into account our business’ transition to mobile and updates to our operating metrics which utilizeadditional third party data to help us identify whether a player that logged in under two or more accounts is the same individual. As a result of these changes, we revised thedefinitions for DAUs, MAUs and MUUs in the first quarter of 2015. Additionally, in the third quarter of 2015, the company made a subsequent modification to its calculationof MUUs to further reduce duplication of users of both web and mobile platforms. For comparative purposes, the above key operating metrics have been revised to reflect theCompany’s current definitions and calculations for all periods presented.Stock-based compensation expense included in the consolidated statements of operations data above was as follows (in thousands): Year Ended December 31, 2018 2017 2016 2015 2014 Cost of revenue $1,584 $1,838 $3,720 $4,547 $4,623 Research and development 42,151 42,176 84,236 94,548 83,673 Sales and marketing 8,495 7,281 7,254 7,501 5,927 General and administrative 16,009 13,220 12,251 24,979 35,010 Total stock-based compensation $68,239 $64,515 $107,461 $131,575 $129,233 As of December 31, 2018 2017 2016 2015 2014 Consolidated Balance Sheets Data: Cash, cash equivalents and short-term investments $581,222 $681,376 $852,467 $987,250 $1,147,909 Property and equipment, net 266,557 266,589 269,439 273,221 297,919 Working capital(1) 267,443 548,239 721,836 876,084 713,901 Total assets 2,146,703 1,979,333 1,905,849 2,124,630 2,348,793 Current and non-current deferred revenue 192,885 134,575 142,156 129,043 193,805 Current debt 100,000 — — — — Total stockholders’ equity 1,596,610 1,641,240 1,580,664 1,786,901 1,895,692 (1)Working capital is defined as total current assets less total current liabilities.Non-GAAP Financial MeasuresBookingsTo provide investors with additional information about our financial results, we disclose bookings within this Annual Report on Form 10-K, a non-GAAP financial measure. We have provided below a reconciliation between bookings and revenue, the most directly comparable U.S. GAAP financialmeasure.Bookings is a non-GAAP financial measure that is equal to revenue recognized plus or minus the change in deferred revenue during the period. Werecord the sale of virtual items as deferred revenue and then recognize that revenue over the estimated average playing period of payers or as the virtual itemsare consumed. Advertising sales consisting of certain branded virtual items and sponsorships are also initially recorded to deferred revenue and thenrecognized 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. For additional discussion of the estimated average life of durable virtual items, see the section titled“Management’s Discussion and Analysis of Financial Condition and Results of Operations—Revenue Recognition” elsewhere in this Annual Report onForm 10-K.We use bookings as one measure to evaluate the results of our operations, generate future operating plans and assess the performance of our company.While we believe that this non-GAAP financial measure is useful in evaluating our business, this information should be considered as supplemental in natureand 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, othercompanies, including companies in our industry, may calculate bookings differently or not at all, which reduces its usefulness as a comparative measure.28The following table is a reconciliation of revenue to bookings for each of the periods presented (in thousands): Year Ended December 31, 2018 2017 2016 2015 2014 Reconciliation of Revenue to Bookings: Revenue(1) $907,208 $861,390 $741,420 $764,717 $690,410 Change in deferred revenue(1) 62,334 (7,581) 13,113 (64,762) 3,890 Bookings $969,542 $853,809 $754,533 $699,955 $694,300 (1)Prior period revenue and deferred revenue amounts have not been retrospectively adjusted to reflect the adoption of ASC 606.Limitations of BookingsKey limitations of bookings are: •bookings do not reflect that we defer and recognize online game revenue and revenue from certain advertising transactions over the estimatedaverage playing period of payers, the average life of branded virtual items, the term of the advertising arrangement or as virtual items areconsumed; and •other companies, including companies in our industry, may calculate bookings differently or not at all, which reduces its usefulness as acomparative 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. 29ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSYou should read the following discussion of our financial condition and results of operations in conjunction with the consolidated financialstatements and the related notes included elsewhere in this Annual Report on Form 10-K. The following discussion contains forward-looking statementsthat reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors thatcould cause or contribute to these differences include those discussed below and elsewhere in this Annual Report on Form 10-K, particularly in “SpecialNote Regarding Forward-Looking Statements” and “Risk Factors.” The forward-looking statements included in this Annual Report on Form 10-K are madeonly as of the date hereof.OverviewWe are a leading provider of social game services with approximately 88 million average MAUs during 2018. We develop, market and operate socialgames as live services played on mobile platforms, such as iOS and Android, and social networking sites such as Facebook. Generally, all of our games arefree 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 are a pioneer and innovator of social games and a leader in making “play” a core activity on mobile devices and social networking sites. Ourobjective 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. Because the opportunity for socialinteractions increases as the number of players increases, we believe that maintaining and growing our overall number of players, including the number ofplayers 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 topurchase 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 thatrepresent our top three online game revenue-generating games vary over time. Our top three online game revenue-generating games accounted for 45%, 45%and 44% of our online game revenue in 2018, 2017 and 2016, respectively. In 2018, our top three online game revenue-generating games were Zynga Poker,CSR Racing 2 and Hit It Rich! Slots. With respect to advertising and other revenue, our Words with Friends games generated a substantial portion of ouradvertising and other revenue in 2018, 2017 and 2016. Small Giant Games AcquisitionOn December 20, 2018, the Company executed a Share Sale and Purchase Agreement (the “Agreement”) with the shareholders and option holders ofSmall Giant Games Oy (“Small Giant”), a Finnish company, pursuant to which, effective January 1, 2019, Zynga (i) acquired 80% of all issued andoutstanding share capital (including all rights to acquire share capital) of Small Giant in exchange for consideration of $594.5 million of which (a) $333.6million was paid in cash, (b) $30.0 million was deposited into an escrow account for a period of 18 months as security for general representations andwarranties and (c) the remaining $230.9 million was satisfied by the issue of 63,794,746 shares of Zynga Class A common stock, based on the average closingprice of Zynga’s Class A common stock during the 30 trading days immediately preceding the date of the Agreement, and (ii) will acquire the remaining 20%of the Small Giant shares ratably for additional cash consideration during each of the three years following the closing (the “Step-In Period”), payableannually based upon the achievement of specified profitability metrics by Small Giant, with no maximum limit as to the cash consideration achievable.Following the end of the Step-In Period, Small Giant will be a direct, wholly-owned subsidiary of Zynga. Our interest in Small Giant will be consolidated intoour financial information beginning in 2019.As discussed below under “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Factors Affecting OurPerformance” and “Critical Accounting Policies—Revenue Recognition” mobile online game revenue is recognized ratably over the estimated averageplaying period of payers while platform fees are expensed as incurred. Accordingly, bookings from Small Giant’s Empires & Puzzles will initially be deferredand recognized into revenue ratably over the estimated average playing period of payers – which we expect will result in a significant increase in deferredrevenue in 2019.How We Generate RevenueWe 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 itemsand advertising services. Revenue growth will continue to depend largely on our ability to attract and retain players and more effectively monetize our playerbase 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 andexpansion into new markets and distribution platforms.30Online game. We provide our players with the opportunity to purchase virtual items that enhance their game-playing experience. We believe playerschoose 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 addedconvenience, the ability to personalize their own game boards, the satisfaction of leveling up, and the opportunity for sharing creative expressions. Webelieve players are more likely to purchase virtual items when they are connected to and playing with their friends, whether those friends play for free or alsopurchase virtual items. Players may also elect to pay a one-time download fee to obtain certain mobile games free of third-party advertisements.In 2018, our business continued generating a higher percentage of revenue and bookings through mobile platforms than through the Facebookplatform. In 2018, we estimate that 51%, 38% and 9% of our revenue and 51%, 39% and 8% of our bookings were generated on Apple, Google and Facebookplatforms, respectively, while in 2017, we estimate that 51%, 33% and 12% of our revenue and 51%, 34% and 11% of our bookings were generated on Apple,Google and Facebook platforms, respectively. This information is estimated because certain payment methods we accept and certain advertising networks donot allow us to determine the platform used.On platforms other than Facebook, players purchase our virtual items through various widely accepted payment methods offered in the games,including Apple iTunes accounts, Google Play accounts, PayPal and credit cards. For all payment transactions in our games under Facebook’s local currency-based payments program, Facebook remits to us an amount equal to 70% of the price we requested to be charged to our player.In addition, we also incur licensing fees related to the use of intellectual property within our games and our operating margins can be affected by themix of player purchases from games in which we own the intellectual property as compared to games in which we license certain intellectual properties. Forexample, we use licensed intellectual property as creative assets in games such as Wonka’s World of Candy, Hit It Rich! Slots, Wizard of Oz Slots and CSRRacing 2, and we are developing new games using licensed intellectual property for Game of Thrones™, Harry Potter™ and Star Wars™. While overallbookings within these games will benefit our revenue, a shift in the mix of our revenue towards such games using licensed intellectual property coulddecrease our operating margins.Advertising and other. Advertising revenue primarily includes mobile and display ads, engagement ads and offers and branded virtual items andsponsorships. Other revenue primarily consists of royalties received from the licensing of our brands.Key MetricsWe regularly review a number of metrics, including the following key financial and operating metrics, to evaluate our business, measure ourperformance, identify trends in our business, prepare financial projections and make strategic decisions.Key Financial MetricsRevenue and Bookings. Bookings is a non-GAAP financial measure that is equal to revenue recognized plus or minus the change in deferred revenueduring the period. We record the sale of virtual items as deferred revenue and then recognize that revenue over the estimated average playing period of payersor as the virtual items are consumed. Advertising sales consisting of certain branded virtual items and sponsorships are also initially recorded to deferredrevenue and then recognized ratably over the estimated life of the branded virtual item, similar to online game revenue, or over the term of the advertisingarrangement, 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 usefulindicator of the sales activity in a given period. Over the long-term, the factors impacting our revenue and bookings are the same. However, in the short term,there are 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, but this information should be considered as supplemental in nature and is notintended to be considered in isolation of, as a substitute for, or as superior to, revenue recognized in accordance with U.S. GAAP. In addition, othercompanies, including companies in our industry, may calculate bookings differently or not at all, which reduces its usefulness as a comparative measure.31Key Operating MetricsWe manage our business by tracking several operating metrics: “DAUs,” which measure daily active users of our games, “MAUs,” which measuremonthly active users of our games, “MUUs,” which measure monthly unique users of our games, “MUPs,” which measure monthly unique payers in ourgames, and “ABPU,” which measures our average daily bookings per average DAU, each of which is recorded by our internal analytics systems. The numbersfor these operating metrics are calculated using internal company data based on tracking of user account activity. We also use information provided by thirdparties, including third party network logins provided by platform providers, to help us track whether a player logged in under two or more different useraccounts is the same individual. We believe that the amounts are reasonable estimates of our user base for the applicable period of measurement; however,factors relating to user activity and systems may impact these numbers.DAUs. We define DAUs as the number of individuals who played one of our games during a particular day. Under this metric, an individual who playstwo different games on the same day is counted as two DAUs. We use information provided by third parties to help us identify individuals who play the samegame to reduce this duplication. However, because we do not always have the third party network login data to link an individual who has played undermultiple user accounts, a player may be counted as multiple DAUs. Average DAUs for a particular period is the average of the DAUs for each day during thatperiod. We use DAUs as a measure of audience engagement.MAUs. We define MAUs as the number of individuals who played one of our games in the 30-day period ending with the measurement date. Underthis metric, an individual who plays two different games in the same 30-day period is counted as two MAUs. We use information provided by third parties tohelp us identify individuals who play the same game to reduce this duplication. However, because we do not always have the third party network login datato link an individual who has played under multiple user accounts, a player may be counted as multiple MAUs. Average MAUs for a particular period is theaverage of the MAUs at each month-end during that period. We use MAUs as a measure of total game audience size.MUUs. We define MUUs as the number of individuals who played one or more of our games, which we were able to verify were played by the sameindividual in the 30-day period ending with the measurement date. An individual who plays more than one of our games in a given 30-day period would becounted as a single MUU to the extent we can verify that the games were played by the same individual. However, because we do not always have the thirdparty network login data necessary to link an individual who has paid under multiple user accounts in a given 30-day period, an individual may be countedas multiple MUUs. Because many of our players play more than one game in a given 30-day period, MUUs are always equal to or lower than MAUs in anygiven time period. Average MUUs for a particular period is the average of the MUUs at each month end during that period. We use MUUs as a measure oftotal audience reach across our network of games.MUPs. We define MUPs as the number of individuals who made a payment at least once during the applicable 30-day period through a paymentmethod for which we can quantify the number of individuals, including payers from certain mobile games. MUPs does not include individuals who usecertain payment methods for which we cannot quantify the number of unique payers. However, because we do not always have the third party network logindata 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 maybe counted as multiple MUPs. MUPs are presented as an average of the three months in the applicable quarter. We use MUPs as a measure of the number ofindividuals who made payments across our network of games during a 30-day period.ABPU. We define ABPU as our total bookings in a given period, divided by the number of days in that period, divided by the average DAUs duringthe period. We believe that ABPU provides useful information to investors and others in understanding and evaluating our results in the same manner asmanagement. We use ABPU as a measure of overall monetization across all of our players through the sale of virtual items and advertising.Our business model for our social games is designed so that, as there are more players that play our games, social interactions increase and the morevaluable our games and our business become. All engaged players of our games help drive our bookings and, consequently, both online game revenue andadvertising revenue. Virtual items are purchased by players who are socializing with, competing against or collaborating with other players, most of whom donot buy virtual items. Accordingly, we primarily focus on bookings, DAUs, MAUs, MUUs, MUPs and ABPU, which together we believe best reflect keyaudience metrics. 32The table below shows average DAUs, MAUs, MUUs, MUPs and ABPU for the last eight quarters: For the Three Months Ended Dec 31,2018 Sep 30,2018 Jun 30,2018 Mar 31,2018 Dec 31,2017 Sep 30,2017 Jun 30,2017 Mar 31,2017 (users and payers in millions) Average DAUs(1) 22 22 23 25 22 21 21 21 Average MAUs(1) 85 87 88 94 86 80 80 72 Average MUUs(2) 49 52 53 51 49 51 52 56 Average MUPs(2) 1.1 1.0 1.1 1.2 1.2 1.2 1.2 1.3 ABPU $0.130 $0.121 $0.110 $0.096 $0.113 $0.113 $0.109 $0.107 (1)We do not have the third party network login data to link an individual who has played under multiple user accounts and accordingly, actual DAU and MAU may be lowerthan reported due to the potential duplication of these individuals. Specifically, for the fourth and third quarters of 2018, DAUs and MAUs incrementally include Solitaire, ourFacebook Instant Games, the casual card games acquired in December 2017 and games acquired from Gram Games in May 2018; for the second quarter of 2018, DAUs andMAUs incrementally include Daily Celebrity Crossword, Solitaire, our Facebook Instant Games, the casual card games acquired in December 2017 and games acquired fromGram Games in May 2018; for the first quarter of 2018 and fourth quarter of 2017, DAUs and MAUs incrementally include Daily Celebrity Crossword, Solitaire, ourFacebook Instant Games and the casual card games acquired in December 2017; for the third, second and first quarters of 2017, DAUs and MAUs incrementally include DailyCelebrity Crossword, Solitaire and our Facebook Instant Games. Further, Zynga Poker web DAUs and MAUs reported for the fourth quarter of 2018 – which are a component of total company DAUs and MAUs – represent the average ofplayer activity for October and November only. We have excluded December due to an increased volume of apparent player activity that we were unable to reliably validateand de-duplicate. These challenges are particularly present in our web-based games, which are becoming an increasingly smaller portion of our overall operations and financialresults, as these games are more susceptible than mobile platforms from attempts to replicate legitimate player activity. (2)Games referenced in footnote (1) are excluded from MUUs and MUPs to avoid potential double counting as our systems are unable to distinguish whether a player of thesegames is also a player of the Company’s other games during the applicable time periods. Further, for the fourth quarter of 2018, MUUs reported represent the average ofplayer activity for October and November only. We have excluded December from our fourth quarter 2018 reporting due to the reasons discussed in footnote (1), as we areunable to reliably validate and de-duplicate Zynga Poker web players for this period. 2018 Audience Activity Average DAUs and MAUs increased sequentially in the first quarter of 2018 primarily due to the contribution from the casual card games acquired inDecember 2017. Average DAUs decreased in the second quarter of 2018, primarily from Words with Friends, Solitaire and Zynga Poker, offset by thecontribution from Merge Dragons!, which was acquired from Gram Games in May 2018, while average MAUs decreased primarily from our Facebook InstantGames, Solitaire, Words with Friends, our CSR Racing games and our casual card games, offset by the contribution from Merge Dragons!. Average DAUsdecreased in the third quarter of 2018, primarily from Zynga Poker and Words with Friends, offset by the contribution from Merge Dragons!, while averageMAUs decreased primarily from our Facebook Instant Games, Solitaire and Words with Friends, offset by the contribution from Merge Dragons!. AverageDAUs were flat in the fourth quarter, while average MAUs decreased from Merge Dragons!, Words with Friends and Solitaire, offset by the contribution fromnew Facebook Instant Games and Wonka's World of Candy, which launched during the fourth quarter. Average MUUs increased sequentially in the first quarter of 2018 primarily from an increase in users from Words With Friends, while average MUUsincreased in the second quarter of 2018 primarily from an increase in users from Zynga Poker. Average MUUs were relatively flat during the third quarter of2018. Average MUUs decreased during the fourth quarter of 2018 primarily due to a decline in users from Words With Friends and Zynga Poker. AverageMUPs were relatively consistent throughout 2018. Fluctuations in ABPU are a function of changes in bookings and average DAUs, relative to one another. For example, ABPU increased during thefourth quarter of 2018 as bookings increased faster than average DAUs. 2017 Audience Activity During the second quarter of 2017, average DAUs were flat sequentially, while average MAUs increased due to the contribution from our FacebookInstant Games, in addition to strong performance from Solitaire and Words With Friends. Average DAUs and MAUs were flat in the third quarter of 2017.Average DAUs and MAUs increased in the fourth quarter of 2017 primarily due to the contribution from the casual card games acquired in December 2017, inaddition to strong performance from Words With Friends. Average MUUs decreased sequentially in the second, third and fourth quarters of 2017, primarily driven by a decline in users from FarmVille 2 andour Social Slots games. Average MUPs were relatively consistent throughout 2017. 33Other MetricsAlthough our management primarily focuses on the operating metrics above, we also monitor periodic trends in our paying players of our games. Thetable below shows average monthly unique payer bookings, average MUPs and unique payer bookings per unique payer for the last eight quarters: For the Three Months Ended Dec 31,2018 Sep 30,2018 Jun 30,2018 Mar 31,2018 Dec 31,2017 Sep 30,2017 Jun 30,2017 Mar 31,2017 Average monthly unique payer bookings (in millions)(1) $50 $50 $52 $52 $52 $55 $54 $54 Average MUPs (in millions)(2) 1.1 1.0 1.1 1.2 1.2 1.2 1.2 1.3 Monthly unique payer bookings per MUP(3) $47 $48 $48 $45 $45 $46 $45 $42 (1)Average monthly unique payer bookings represent the monthly average amount of bookings for the applicable quarter that we received through payment methods for whichwe can quantify the number of unique payers and excludes bookings from certain payment methods for which we cannot quantify the number of unique payers and bookingsfrom advertising. For the third and fourth quarters of 2018, bookings from Solitaire, our Facebook Instant Games, the casual card games acquired in December 2017 andgames acquired from Gram Games in May 2018 are excluded; for the second quarter of 2018, bookings from Daily Celebrity Crossword, Solitaire, our Facebook InstantGames, the casual card games acquired in December 2017 and games acquired from Gram Games in May 2018 are excluded; for the first quarter of 2018 and fourth quarterof 2017, bookings from Daily Celebrity Crossword, Solitaire, our Facebook Instant Games and the casual card games acquired in December 2017 are excluded; for the third,second and first quarters of 2017, bookings from Daily Celebrity Crossword, Solitaire and our Facebook Instant Games are excluded.(2)For the third and fourth quarters of 2018, MUPs from Solitaire, our Facebook Instant Games, the casual card games acquired in December 2017 and games acquired fromGram Games in May 2018 are excluded; for the second quarter of 2018, MUPs from Daily Celebrity Crossword, Solitaire, our Facebook Instant Games, the casual card gamesacquired in December 2017 and games acquired from Gram Games in May 2018 are excluded; for the first quarter of 2018 and fourth quarter of 2017, MUPs from DailyCelebrity Crossword, Solitaire, our Facebook Instant Games and the casual card games acquired in December 2017 are excluded; for the third, second and first quarters of2017, MUPs from Daily Celebrity Crossword, Solitaire and our Facebook Instant Games are excluded. Further, for the fourth quarter of 2018, MUPs reported represent theaverage of player activity for October and November only. We have excluded December from our fourth quarter 2018 reporting due to the reasons discussed previously in theKey Operating Metrics section, as we are unable to reliably validate and de-duplicate Zynga Poker web players for this period. (3)Monthly unique payer bookings per MUP is calculated by dividing average monthly unique payer bookings by average MUPs. Average monthly unique payer bookings were flat sequentially in the first and second quarters of 2018, while average monthly unique payer bookingsdecreased in the third quarter of 2018, primarily driven by a decline in unique payer bookings from FarmVille 2, Zynga Poker, Dawn of Titans and Hit ItRich!. Average monthly unique payer bookings were flat in the fourth quarter of 2018. Average monthly unique payer bookings were relatively flat sequentially in the second and third quarters of 2017, while average monthly uniquepayer bookings decreased in the fourth quarter of 2017 due to a decline in unique payer bookings from existing web and mobile games, such as Wizard of Oz:Magic Match and Zynga Poker. Fluctuations in monthly unique payer bookings per MUP are a function of the changes in average monthly unique payer bookings per MUP relativeto average MUPs. For example, monthly unique payer bookings per MUP decreased during the fourth quarter of 2018 as average MUPs increased, whileaverage monthly unique payer bookings were relatively flat. Although we monitor our unique payer metrics, we focus on monetization, including in-game advertising, of all of our players and not just those whoare payers. Accordingly, we strive to enhance content and our players’ game experience to increase our bookings and ABPU, which is a measure of overallmonetization across all of our players through the sale of virtual items and advertising. Future growth in audience and engagement will depend on our abilityto retain current players, attract new players, launch new games and expand into new markets and distribution platforms, and the success of our network. Ouroperating metrics may not correlate directly to quarterly revenue or bookings trends in the short term.2018 Highlights •Mobile Growth. During 2018, we delivered a 10% increase in mobile revenue year over year, primarily driven by the revenue and bookingscontributions from Words with Friends, the casual card games acquired in December 2017 and the games acquired from Gram Games in May2018 – primarily Merge Dragons!. •Gram Games Acquisition. We acquired a 100% equity interest in Gram Games, a mobile game developer of hyper-casual and puzzle games, toexpand our portfolio of casual games for total purchase consideration of $299.4 million. •Small Giant Games Acquisition. On December 20, 2018, the Company executed an agreement with the shareholders and option holders of theSmall Giant Games Oy, creators of Empire & Puzzles, to acquire effective January 1, 2019, 80% of all its issued and outstanding share capital.34 •Game Launch. In November 2018, we launched Wonka’s World of Candy worldwide on mobile platforms. •Share Repurchase Programs. During 2018, we repurchased 7.1 million shares for our Class A common stock under the 2018 Share RepurchaseProgram at a weighted average price of $3.71 per share for a total of $26.2 million and 18.2 million shares of our Class A common stock under the2016 Share Repurchase Program at a weighted average price of $3.59 per share for a total of $65.4 million. •Common Stock Share Conversion. On May 2, 2018, our founder, Mark Pincus, elected to convert certain outstanding shares of Class B commonstock and all outstanding shares of Class C common stock controlled by Mr. Pincus and an affiliated investment entity into an equivalentnumber of shares of Class A common stock. Following the conversion, each remaining outstanding share of Class B common stock automaticallyconverted into one share of Class A common stock. Each Zynga stockholder now has one vote per share, establishing voting rights parity on allmatters subject to stockholder vote. •Credit Facility. We executed a credit facility agreement in December 2018 which provides the Company a $200.0 million revolving line ofcredit over a three-year term. Additionally, we also drew a $100.0 million loan against the revolving line of credit. Factors Affecting Our PerformancePlatform agreements. Our games are primarily distributed, marketed and promoted through third parties, primarily Apple’s App Store, the Google PlayStore and Facebook. Virtual items for our games are purchased through the payment processing systems of these platform providers. We generate a significantportion of our revenue, bookings and players through the Apple, Google and Facebook platforms and expect to continue to do so for the foreseeable future aswe launch more games for mobile devices. Apple, Google and Facebook generally have the discretion to set the amounts of their platform fees and changetheir 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 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.Launch of new games and release of enhancements. Our revenue and bookings results have been driven by the launch of new mobile games and therelease of fresh content and new features in existing games. Our future success depends on our ability to innovate and provide fresh content to keep ourexisting players engaged, while also engaging new and lapsed players, and launch and monetize new titles on various platforms. Although the amount ofrevenue 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 andbookings to be correlated to our success in releasing engaging content and features for our existing games and the success and timely launch of our newgames. Further, revenue and bookings from many of our games may decline over time after reaching a peak of popularity and player usage. We often refer tothe speed of this decline as the decay rate of a game. As a result of this decline in the revenue and bookings of our games, our business depends on our abilityto consistently release fresh content for our existing games and launch new games that achieve significant popularity and have the potential to becomefranchise games.Game monetization. We generate most of our bookings and revenue from the sale of virtual items in our games. The degree to which our playerschoose 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 ofvirtual items and advertising. In addition, mobile players have historically monetized at a lower level than web. The percentage of paying players mayincrease or decrease based on a number of factors, including growth in mobile games as a percentage of total game audience, localization of content ininternational 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 toinvest in a significant amount of engineering and creative resources. These expenditures generally occur in advance of the launch of a new game or therelease 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. Inaddition, as discussed below, we recognize online game revenue over the average playing period of payers, which generally results in expenses exceedingrevenue 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. Theseexpenditures generally relate to the promotion of new game launches and ongoing performance-based programs to drive new player acquisition and lapsedplayer reactivation. Over time, these acquisition and retention-related programs may become either less effective or costlier, negatively impacting ouroperating results. Additionally, as our player base becomes more heavily concentrated on mobile platforms, our ability to drive traffic to our games throughunpaid channels may become diminished, and the overall cost of marketing our games may increase.35New market development. We are investing in new distribution channels, mobile platforms and international markets to expand our reach and growour business. For example, we have continued to hire additional employees and acquire companies with experience developing mobile applications. Ourability to be successful will depend on our ability to develop a successful mobile network, obtain new players and retain existing players on new and existingsocial 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 theassociated 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 talentto our current business needs. We are continually reviewing our hiring and retention programs against best practices and for optimal efficiencies. In additionto employee attrition, we have also implemented, and continue to implement, certain cost reduction initiatives to better align our operating expenses withour revenue, including reducing or redeploying our headcount, hiring in lower cost geographies, and consolidating certain facilities.Tax Cuts and Jobs ActOn December 22, 2017, the 2017 Tax Act was enacted into law. Beginning January 1, 2018, the 2017 Tax Act reduced the U.S. federal corporate taxrate from 35% to 21%, requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax-deferred,created new taxes on certain foreign sourced earnings, repealed the Alternative Minimum Tax (“AMT”), and expanded the number of individuals whosecompensation is subject to a $1.0 million cap on deductibility, amongst other minor changes.In January 2018, the SEC staff issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (“SAB118”) to provide guidance for companies that did not have sufficient time to complete the accounting for the income tax effects of the 2017 Tax Act duringthe fourth quarter of 2017 (i.e., the period of enactment). Specifically, SAB 118 states that companies that did not complete accounting for the effects of the2017 Tax Act in the period of enactment may report provisional amounts based on reasonable estimates for items for which the accounting is incomplete.Those provisional amounts are then subject to adjustment during a measurement period that began in December 2017 and ends when a company hasobtained, prepared and analyzed the information needed to complete the accounting requirements under ASC 740 Income Taxes. This measurement periodshould not extend beyond one year from the enactment date. Furthermore, SAB 118 states that if a company cannot make a reasonable estimate for an incometax effect, it should not account for that effect until it can make such an estimate.In certain cases, as described below, we made a reasonable estimate of the effects on our existing deferred tax balances and refundable AMT credit andrecorded provisional amounts during the fourth quarter 2017. In other cases, we were not able to make a reasonable estimate during the period of enactmentand continued to account for those items based on our existing accounting under ASC 740 Income Taxes and the provisions of the tax laws that were in effectimmediately prior to enactment, in accordance with SAB 118. During the fourth quarter of 2018, the one-year provisional period lapsed and accordingly, theCompany completed its accounting for the income tax effects of the 2017 Tax Act. The various income tax effects are reflected below, by period.2017 Tax Act Effects: Year Ended December 31, 2017We recognized a provisional tax benefit of $5.0 million during the fourth quarter of 2017 as a result of the 2017 Tax Act’s enactment, which wasincluded as a component of the provision for income tax in the consolidated statement of operations during 2017. The components of the provisional taxbenefit recognized during 2017 included:Deferred tax assets and liabilities. Certain deferred tax assets and liabilities were re-measured based on the rates at which they are expected to reversein the future, which is generally 21%. The related provisional income tax benefit recorded to the consolidated statement of operations for the year endedDecember 31, 2017, net of valuation allowance, was $2.4 million.AMT credit. As part of the 2017 Tax Act, the corporate AMT was repealed. AMT credits generated by the Company in previous years are refundable intax years beginning after 2017 and before 2022 with any remaining credits being fully refundable in 2022. The related provisional income tax benefitrecorded to the consolidated statement of operations for the year ended December 31, 2017 for the AMT credit refund was $2.6 million. The receivable for therefundable AMT credit was recorded to non-current other assets within the consolidated balance sheet.Officer compensation. As noted above, the 2017 Tax Act expanded the number of individuals whose compensation is subject to a $1.0 million cap ondeductibility and required companies to include performance-based compensation (such as bonuses) in the calculation. As a result, the Company recorded aprovisional amount to reduce the future tax benefit related to officers’ stock-based compensation for the year ended December 31, 2017. However, there wasno net impact to the provision for income tax as the provisional amount was offset by an equal reduction in the Company's deferred tax asset valuationallowance. Refer to discussion below on the reversal of this provisional amount during the year ended December 31, 2018.36One-time transitional tax. As part of the 2017 Tax Act, total foreign earnings and profits (“E&P”) after 1986, that were previously deferred from U.S.federal taxation, are subject to a one-time tax on the mandatory deemed repatriation of foreign earnings. The Company’s provisional analysis of the one-timetransition tax resulted in no additional taxes being owed due to the overall accumulated E&P deficit.2017 Tax Act Effects: Year Ended December 31, 2018During 2018, no further adjustments were made to the provisional amounts previously recorded during the fourth quarter of 2017, except the officercompensation matter discussed below. However, we did recognize $3.9 million of tax expense during the fourth quarter of 2018 as a result of the 2017 TaxAct’s enactment, which is included as a component of the provision for income tax in the consolidated statement of operations. The components of the taxexpense recognized during 2018 included:Base Erosion and Anti-Abuse Tax (“BEAT”). During the fourth quarter of 2018, the United States Treasury proposed regulations concerning the typesof related party payments subject to BEAT. Further, the guidance clarified that for a company utilizing net operating losses, the starting point for calculating“modified taxable income” for BEAT is zero. As a result of the proposed regulations, the Company recorded $3.9 million tax expense to the consolidatedstatement of operations for the year ended December 31, 2018.Global Intangible Low-Taxed Income (“GILTI”). With respect to the GILTI provisions, companies may make an accounting policy election to either(i) account for GILTI as a component of tax expense in the period in which the entity is subject to the rules or (ii) account for GILTI in the entity’smeasurement of deferred taxes. The Company elected to account for the GILTI provisions as a component of tax expense in the period in which the entity issubject to the rules. The Company did not incur any GILTI related tax expense in 2018 due to cumulative net losses in its foreign jurisdictions.Officer compensation. The Internal Revenue Service (“IRS”) issued guidance to clarify the application of the 2017 Tax Act, which expanded thedefinition of a “covered employee” subject to annual tax-deductible compensation limits to include an entity’s Chief Financial Officer (“CFO”). The IRSguidance clarified that compensatory contracts (e.g., ZSU or stock option grants) in effect prior to the enactment of the 2017 Tax Act were eligible to begrandfathered into the pre-2017 Tax Act rules and are therefore not subject to certain limitations. All of our current stock compensation awards vesting to theCFO were granted prior to the enactment date, and thus, will be treated under the pre-2017 Tax Act rules. As a result, the Company recorded a reversal of theprovisional amount originally recorded during the fourth quarter of 2017. However, there was no net impact to the provision for income tax as the amountwas offset by an equal addition to the Company's deferred tax asset valuation allowance. Deferred Tax Asset Valuation AllowanceAs of December 31, 2018, the measurement of our deferred tax assets is reduced by a $206.0 million valuation allowance. In evaluating themeasurement of our deferred tax assets, we consider, amongst other factors, the Company's ability to generate future taxable income. The Company’s recenttrend in positive operating results, including nearing a cumulative U.S. profit over the trailing three years, provides additional positive evidence inevaluating the continued need for, and amount of, a valuation allowance and could result in the reversal of a significant amount of the valuation allowance infuture periods. Specifically, if we conclude in future periods that there is sufficient positive evidence to release the valuation allowance associated with thecarryforward of our federal net operating losses and federal research and development credits, we could recognize a significant income tax benefit in theperiod such conclusion is made.37Results of OperationsRevenue Year Ended December 31, 2017 to 2018 2016 to 2017 2018 2017(1) 2016(1) % Change % Change Online game: Mobile $590,436 $564,629 $413,919 5% 36%Web 80,441 100,964 133,372 (20)% (24)%Online game total $670,877 $665,593 $547,291 1% 22%Advertising and other: Mobile 225,085 174,867 160,452 29% 9%Web 9,001 14,961 30,637 (40)% (51)%Other 2,245 5,969 3,040 (62)% 96%Advertising and other total $236,331 $195,797 $194,129 21% 1%Total revenue $907,208 $861,390 $741,420 5% 16% (1)Amounts have not been retrospectively adjusted to reflect the adoption of ASC Topic 606.2018 Compared to 2017. Total revenue increased $45.8 million in 2018 as compared to 2017 while bookings increased $115.7 million in 2018 ascompared to 2017. Average DAUs increased from 21 million in 2017 to 23 million in 2018, ABPU increased from $0.111 in 2017 to $0.114 in 2018 andaverage MUPs decreased from 1.2 million in 2017 to 1.1 million in 2018.Mobile online game revenue increased $25.8 million in 2018 compared to the prior year, while web online game revenue decreased $20.5 millionover the same period, resulting in a net online game revenue increase of $5.3 million.The increase in mobile online game revenue of $25.8 million was primarily attributable to increases in mobile revenue from our casual card games andMerge Dragons! in the amounts of $33.5 million and $21.7 million, respectively, as these games were acquired in December 2017 and May 2018,respectively. These increases were offset by a decrease in mobile online game revenue from our older mobile games, namely Black Diamond Slots, Empiresand Allies 2, FarmVille: Tropic Escape, Dawn of Titans, The Wizard of Oz: Magic Match, and Willy Wonka and the Chocolate Factory Slots in the amountsof $8.5 million, $5.5 million, $5.3 million, $5.0 million, $4.2 million, and $3.9 million, respectively, due to the overall decline in bookings and audiencemetrics in these games. All other mobile games accounted for the remaining net increase of $3.0 million in mobile online game revenue. The decrease in webonline game revenue of $20.5 million was primarily attributable to decreases in revenue from FarmVille 2 and Zynga Poker in the amounts of $16.0 millionand $6.0 million, respectively, generally due to the overall decline in bookings and audience metrics in these games. This decrease was offset by an increasein revenue from Hit It Rich! Slots in the amount of $2.1 million as a result of strong bookings performance in this game. All other web games accounted forthe remaining decrease of $0.6 million in web online game revenue.During the year ended December 31, 2018, we recognized $0.9 million of online game revenue and income from operations from games that havebeen discontinued as there is no further performance obligation, which did not impact our reported earnings per share. Further, there were no changes in ourestimated average playing period of payers that required adjusting the recognition period of deferred revenue generated in prior periods.During the year ended December 31, 2017, we recognized $1.3 million of online game revenue and income from operations from changes in ourestimated average playing period of payers, which was the result of adjusting the remaining recognition period of deferred revenue generated in prior periodsat the time of a change in estimate. This change in estimates did not impact our reported earnings per share. Further, there were no discontinued games thatrequired adjusting the recognition period of deferred revenue generated in prior periods for the year ended December 31, 2017.In the year ended December 31, 2018, Zynga Poker (mobile and web), CSR Racing 2 (mobile) and Hit It Rich! Slots (mobile and web) were our toponline revenue-generating games and comprised 21%, 14% and 10%, respectively, of our online game revenue for the period. In the year ended December 31,2017, Zynga Poker (mobile and web) and CSR Racing 2 (mobile) were our top revenue-generating games and comprised 22% and 14%, respectively, of ouronline game revenue for the period. No other game generated more than 10% of online game revenue during either of these periods.Consumable virtual items accounted for 43% and 44% of online game revenue in the years ended December 31, 2018 and 2017, respectively. Durablevirtual items accounted for 57% and 56% of online game revenue in the years ended December 31, 2018 and 2017, respectively. The estimated weightedaverage life of durable virtual items was nine months for the year ended December 31, 2018 compared to eight months in the same period of the prioryear.38Mobile advertising revenue increased $50.2 million in 2018 compared to the prior year, while web advertising revenue decreased $6.0 million andother revenue decreased $3.7 million over the same period, resulting in a net advertising and other revenue increase of $40.5 million.The increase in mobile advertising revenue of $50.2 million was primarily due to an increase in mobile in-game display ads of $34.3 million,primarily driven by ad inventory optimizations in our Words with Friends games, mobile in-game display ad revenue from our casual card games acquired inDecember 2017 and the acquisition of Gram Games in May 2018, as well as a higher average price per advertising unit due to a shift in our product mixture.The increase in mobile advertising revenue was also attributed to an increase in mobile in-game offers, engagement ads, and mobile other revenue of $15.4million due to strategic brand engagement partnerships and an increase of $0.7 million in mobile in-game sponsorships. The increases in mobile advertisingrevenue were partially offset by a decrease of $0.2 million in mobile licensing revenue. The decrease in web advertising revenue of $6.0 million wasprimarily due to a decrease in web in-game display ads, consistent with the continual decline of our web games. The decrease in other revenue of $3.7 millionwas primarily due to the termination of third party licensing agreements through our NaturalMotion subsidiary as well as a decrease in other licensingrevenue. International revenue as a percentage of total revenue was 35% and 34%, respectively, for the years ended December 31, 2018 and 2017. 2017 Compared to 2016. Total revenue increased $120.0 million in 2017 as compared to 2016, while bookings increased $99.3 million in 2017 ascompared to 2016. Average DAUs increased from 19 million in 2016 to 21 million in 2017, ABPU was flat at $0.111 in 2016 and 2017 and average MUPsincreased from 1.1 million in 2016 to 1.2 million in 2017.Mobile online game revenue increased $150.7 million in 2018 as compared to the prior year, while web online game revenue decreased $32.4 millionover the same period, resulting in a net online game revenue increase of $118.3 million.The increase in mobile online game revenue of $150.7 million was primarily attributable to an increase in revenue from CSR Racing 2, Zynga Poker,The Wizard of Oz: Magic Match, Dawn of Titans and FarmVille: Tropic Escape in the amounts of $72.7 million, $47.2 million, $35.1 million, $31.2 millionand $22.3 million, respectively. The increase in Zynga Poker was due to growth in bookings and audience metrics in this game, while mobile online gamerevenue increased for The Wizard of Oz: Magic Match, CSR Racing 2, FarmVille: Tropic Escape and Dawn of Titans as these games were launched in May2016, June 2016, August 2016 and December 2016, respectively. These increases were offset by a decrease in mobile online game revenue from Empires andAllies 2, Wizard of Oz Slots, FarmVille 2: Country Escape and FarmVille: Harvest Swap in the amounts of $29.2 million, $11.7 million, 9.4 million and 8.2million, respectively, due to the overall decline in bookings and audience metrics in these games. All other mobile games accounted for the remaining netincrease of $0.7 million. The decrease in web online game revenue of $32.4 million was primarily attributable to a decrease in revenue from FarmVille 2,Zynga Poker and Hit It Rich! Slots in the amounts of $15.3 million, $6.2 million and $3.9 million, respectively, due to the overall decline in bookings andaudience metrics in these games. All other web games accounted for the remaining decrease of $7.0 million.During the year ended December 31, 2017, we recognized $1.3 million of online game revenue and income from operations from changes in ourestimated average playing period of payers, which was the result of adjusting the remaining recognition period of deferred revenue generated in prior periodsat the time of a change in estimate. This change in estimates did not impact our reported earnings per share. Further, there were no discontinued games thatrequired adjusting the recognition period of deferred revenue generated in prior periods for the year ended December 31, 2017.During the year ended December 31, 2016, changes in our estimated average playing period of payers resulted in a decrease in online game revenueand income from operations of $0.1 million. Further, we recognized $4.0 million of online game revenue and income from operations from games that hadbeen discontinued as there is no further service obligation. These changes in estimates did not impact our reported earnings per share for the year endedDecember 31, 2016.In the year ended December 31, 2017, Zynga Poker (mobile and web) and CSR Racing 2 (mobile) were our top revenue-generating games andcomprised 22% and 14%, respectively, of our online game revenue for the period. In the year ended December 31, 2016, Zynga Poker (mobile and web),Wizard of Oz Slots (mobile and web), Hit It Rich! Slots (mobile and web) and FarmVille 2 (web) were our top online game revenue-generating games andcomprised 19%, 13%, 12% and 11%, respectively, of our online game revenue for the period. No other game generated more than 10% of online gamerevenue during either of these periods.Consumable virtual items accounted for 44% and 48% of online game revenue in 2017 and 2016, respectively. Durable virtual items accounted for56% and 52% 2017 and 2016, respectively. The estimated weighted average life of durable virtual items was eight months in 2017 compared to nine monthsin 2016.39Mobile advertising revenue increased $14.4 million and other revenue increased $2.9 million in 2018 compared to the prior year, while webadvertising revenue decreased $15.6 million over the same period, resulting in a net advertising and other increase of $1.7 million. The increase in mobile advertising revenue of $14.4 million was primarily due to an increase in mobile in-game display ads of $14.9 million,primarily driven by a one-time benefit from an advertising network deal in the fourth quarter of 2017 for Words With Friends. The increase in mobileadvertising revenue was further supplemented an increase in mobile advertising revenue from the card games acquired during the first quarter of 2017. Theincrease in other revenue of $2.9 million was primarily due to an increase in licensing revenue. The decrease in web advertising revenue of $15.6 million wasprimarily due to a decrease in web in-game display ads of $15.0 million and a decrease in web in-game offers, engagement ads, and other revenue of $0.6million, which are both consistent with the continual decline in our web games.International revenue as a percentage of total revenue was 34% and 32% in 2017 and 2016, respectively.Cost of revenue Year Ended December 31, 2017 to 2018 2016 to 2017 2018 2017 2016 % Change % Change (in thousands) Cost of revenue $304,658 $258,971 $238,546 18% 9% 2018 Compared to 2017. Cost of revenue increased $45.7 million in 2018 as compared to 2017. The increase was primarily attributable to a $27.6million increase in payment processing fees from bookings generated from mobile payment processors and $15.2 million increase in intangible assetamortization driven by our acquisitions in December 2017 and May 2018. 2017 Compared to 2016. Cost of revenue increased $20.4 million in 2017 as compared to 2016. The increase was primarily attributable to a $36.8million increase in payment processing fees from bookings generated from mobile payment processors, offset by a $12.6 million decrease in amortization ofintangibles for intangibles that were fully amortized in the first quarter of 2017 and impairment charges taken in 2016 related to intangibles acquired as partof the Rising Tide acquisition, as well as a $5.3 million decrease in hosting costs due to data center migration.Research and development Year Ended December 31, 2017 to 2018 2016 to 2017 2018 2017 2016 % Change % Change (in thousands) Research and development $270,323 $256,012 $320,300 6% (20)% 2018 Compared to 2017. Research and development expenses increased $14.3 million in 2018 as compared to 2017. The increase was primarilyattributable to a $5.5 million increase in the fair value of the contingent consideration liability related to our Gram Games acquisition, $3.4 million increasein consulting expenses and $3.3 million increase in headcount-related expenses. 2017 Compared to 2016. Research and development expenses decreased $64.3 million in 2017 as compared to 2016. The decrease was primarilyattributable to a $42.1 million decrease in stock-based compensation expense, $21.0 million decrease in headcount-related expenses, and $9.1 milliondecrease in third-party consulting expenses. During 2017, we also recorded a benefit of $0.9 million to adjust the fair value of the contingent considerationliabilities for Zindagi and PuzzleSocial and during 2016, we recorded a benefit of $9.4 million to adjust the fair value of the contingent considerationliabilities related to the Rising Tide and Zindagi acquisitions.Sales and marketing Year Ended December 31, 2017 to 2018 2016 to 2017 2018 2017 2016 % Change % Change (in thousands) Sales and marketing $226,524 $212,030 $183,637 7% 15% 402018 Compared to 2017. Sales and marketing expenses increased $14.5 million in 2018 as compared to 2017. The increase was primarily attributableto a $10.5 million increase in player acquisition costs, mainly for Merge Dragons!, which was acquired in May 2018, and Wonka’s World of Candy, whichwas launched in November 2018, $3.9 million increase in headcount-related expenses and $1.2 million increase in stock-based compensation expense. Weanticipate that sales and marketing will continue to increase in 2019 due to a full year of player acquisition costs related to Merge Dragons!, Empires &Puzzles and Wonka’s World of Candy, and other new game releases planned for 2019. 2017 Compared to 2016. Sales and marketing expenses increased $28.4 million in 2017 as compared to 2016. The increase was primarily attributableto a $14.7 million increase in player acquisition costs for Zynga Poker, CSR Racing 2 and Solitaire, $6.8 million increase in headcount-related expenses and$4.6 million increase in other marketing costs, primarily related to the launch of Words With Friends 2 in 2017.General and administrative Year Ended December 31, 2017 to 2018 2016 to 2017 2018 2017 2016 % Change % Change (in thousands) General and administrative $98,941 $108,653 $92,509 (9)% 17% 2018 Compared to 2017. General and administrative expenses decreased $9.7 million in 2018 as compared to 2017. The decrease was primarilyattributable to an $11.9 million settlement in the prior year for the Zindagi legal matter and $7.7 million decrease in legal costs. These decreases werepartially offset by a $3.0 million increase in headcount-related expenses, a $2.8 million increase in stock-based compensation expense and $2.8 millionincrease in overhead costs from changes in headcount. 2017 Compared to 2016. General and administrative expenses increased $16.1 million in 2017 as compared to 2016. The increase was primarilyattributable to an $11.9 million settlement of the Zindagi legal matter, $9.1 million increase in legal costs primarily from ongoing legal matters and $2.7million increase in acquisition related costs, primarily related to the Harpan and Peak casual card game division acquisitions, offset by a $4.5 millionreduction in headcount-related expenses.Impairment of intangible assetsIn the third quarter of 2016, we recorded $20.7 million of impairment on intangible assets. Our updated financial forecast as of September 30, 2016,indicated a reduction of future undiscounted cash flows for certain games associated with developed technology previously acquired from Rising Tide andZindagi. As a result, we performed an impairment analysis and determined the estimated fair values of Rising Tide’s and Zindagi’s intangible assets to be$18.2 million and $2.5 million lower, respectively, than their carrying values as of September 30, 2016. There were no impairment charges recorded during2018 or 2017.Interest income Year Ended December 31, 2017 to 2018 2016 to 2017 2018 2017 2016 % Change % Change (in thousands) Interest income $6,549 $5,309 $3,057 23% 74% 2018 Compared to 2017. Interest income increased $1.2 million in 2018 as compared to 2017. The increase was primarily attributable to a higher rateof return driven by an increase in market interest rates and a full period of being invested in short-term investments during 2018. 2017 Compared to 2016. Interest income increased $2.3 million in 2017 as compared to 2016. The increase was primarily attributable to the mix ofinvestments during 2017, driven by our investment in short-term securities during the third and fourth quarters of 2017.Other income (expense), net Year Ended December 31, 2017 to 2018 2016 to 2017 2018 2017 2016 % Change % Change (in thousands) Other income (expense), net $13,152 $6,550 $6,461 101% 1% 412018 Compared to 2017. Other income, net increased $6.6 million in 2018 as compared to 2017. The increase was primarily attributable to an increasein net rental income, driven by a significant lease for which rental income began to be recognized in September 2017. 2017 Compared to 2016. Other income, net increased $0.1 million in 2017 as compared to 2016. Provision for (benefit from) income taxes Year Ended December 31, 2017 to 2018 2016 to 2017 2018 2017 2016 % Change % Change (in thousands) Provision for (benefit from) income taxes $11,006 $10,944 $3,442 1% 218% 2018 Compared to 2017. The provision for income taxes increased less than $0.1 million in 2018 as compared to 2017. The increase was due to thebenefit recognized in 2017 from enactment of the 2017 Tax Act, tax expense recognized during the fourth quarter of 2018 related to the BEAT provisions ofthe 2017 Tax Act and an increase from the changes in our jurisdictional mix of earnings, offset by the benefit generated from the post-acquisition statutoryoperating losses from Gram Games. 2017 Compared to 2016. The provision for income taxes increased by $7.5 million in 2017 as compared to 2016. The increase was primarilyattributable to a $7.6 million increase in net tax expense related to changes in the jurisdictional mix of earnings. The $5.0 million benefit recognized in2017 from enactment of the 2017 Tax Act is offset by a $4.0 million release of our U.S. valuation allowance related to the acquisition of PuzzleSocial in2016.Quarterly Results of Operations DataThe following tables set forth our unaudited quarterly consolidated statements of operations for each of the eight quarters ended December 31, 2018.We also present other financial and operations data and a reconciliation of revenue to bookings for the same periods. We have prepared the quarterlyconsolidated statements of operations data on a basis consistent with the audited consolidated financial statements included in this Annual Report on Form10-K. In the opinion of management, the financial information reflects all adjustments, consisting only of normal recurring adjustments that we considernecessary for a fair presentation of this data. This information should be read in conjunction with the audited consolidated financial statements and relatednotes included in Item 8 – Financial Statements and Supplementary Data in this Annual Report on Form 10-K. The results of historical periods are notnecessarily indicative of the results of operations for a full year or any future period. For the Three Months Ended Dec 31,2018 Sep 30,2018 Jun 30,2018 Mar 31,2018 Dec 31,2017 Sep 30,2017 Jun 30,2017 Mar 31,2017 (in thousands, except per share data) Consolidated Statements of Operations Data: Online game(1) $176,928 $167,716 $164,680 $161,553 $173,114 $175,253 $163,745 $153,481 Advertising and other(1) 71,760 65,527 52,365 46,679 60,166 49,342 45,486 40,803 Total revenue(1) 248,688 233,243 217,045 208,232 233,280 224,595 209,231 194,284 Costs and expenses: Cost of revenue 82,842 78,592 74,182 69,042 64,015 65,907 64,172 64,877 Research and development 70,983 71,124 67,391 60,825 61,229 60,966 64,615 69,202 Sales and marketing 67,178 55,613 52,878 50,855 60,265 53,944 51,201 46,620 General and administrative 26,964 23,144 25,580 23,253 38,711 23,826 23,551 22,565 Total costs and expenses 247,967 228,473 220,031 203,975 224,220 204,643 203,539 203,264 Income (loss) from operations 721 4,770 (2,986) 4,257 9,060 19,952 5,692 (8,980)Net income (loss) $559 $10,200 $(911) $5,609 $12,929 $18,091 $5,093 $(9,474)Net income (loss) per share - basic $0.00 $0.01 $(0.00) $0.01 $0.01 $0.02 $0.01 $(0.01)Net income (loss) per share - diluted $0.00 $0.01 $(0.00) $0.01 $0.01 $0.02 $0.01 $(0.01) (1)2017 revenue amounts have not been retrospectively adjusted to reflect the adoption of ASC 606.42 For the Three Months Ended Dec 31,2018 Sep 30,2018 Jun 30,2018 Mar 31,2018 Dec 31,2017 Sep 30,2017 Jun 30,2017 Mar 31,2017 (dollars in thousands) Other Non-GAAP Financial and Operational Data: Bookings $267,266 $248,875 $233,929 $219,472 $223,786 $213,487 $209,178 $207,358 For the Three Months Ended Dec 31,2018 Sep 30,2018 Jun 30,2018 Mar 31,2018 Dec 31,2017 Sep 30,2017 Jun 30,2017 Mar 31,2017 (in thousands) Reconciliation of Revenue to Bookings: Revenue(1) $248,688 $233,243 $217,045 $208,232 $233,280 $224,595 $209,231 $194,284 Change in deferred revenue(1) 18,578 15,632 16,884 11,240 (9,494) (11,108) (53) 13,074 Bookings $267,266 $248,875 $233,929 $219,472 $223,786 $213,487 $209,178 $207,358 (1)2017 revenue and change in deferred revenue amounts have not been retrospectively adjusted to reflect the adoption of ASC 606.Liquidity and Capital Resources Year Ended December 31, 2018 2017 2016 (in thousands) Consolidated Statements of Cash Flows Data: Acquisition of property and equipment $(11,469) $(9,971) $(10,313)Depreciation and amortization 42,057 30,294 41,770 Cash flows provided by (used in) operating activities 168,240 94,375 60,030 Cash flows provided by (used in) investing activities 18,981 (431,281) 207,028 Cash flows provided by (used in) financing activities (8,308) (123,078) (145,212) Our principal liquidity requirements are our lease, licensing and marketing commitments, hosting commitments, capital expenditure needs, includingstrategic purchases and acquisitions, contingent consideration payments and any share repurchase activity we choose to effect. We expect to finance ouroperations through cash provided by operating activities and cash on hand. However, we cannot be certain that these sources will be sufficient to finance ouroperations, share repurchase activity or future growth through acquisitions, thus we may seek additional financing in the future. As of December 31, 2018 andDecember 31, 2017, we had cash and cash equivalents of $545.0 million and $372.9 million, respectively, which generally consisted of cash, money marketfunds and corporate debt securities. In 2018 and 2017, we made capital expenditures of $11.5 million and $10.0 million, respectively, which includedhardware and software to support business operations, as well as building improvements to our San Francisco headquarters.Credit Facility and Covenant DiscussionIn December 2018, the Company entered into a credit agreement (“the Credit Agreement”) with Bank of America, N.A. that provides for a three-yearrevolving credit facility (“the Credit Facility”) in an aggregate principal amount of up to $200.0 million and is secured by a blanket lien on the Company’sassets, excluding the Company’s San Francisco corporate headquarters. The Credit Facility will reduce to $150.0 million upon the earlier of (i) a sale of theCompany’s corporate headquarters or (ii) the first anniversary of the closing date, unless, within 90 days after such anniversary, the Company mortgages itscorporate headquarters as collateral to secure the Credit Facility. The Company may borrow, repay and re-borrow funds under the Credit Agreement until thethird anniversary of the closing date, at which time the Credit Facility will terminate, and all outstanding revolving loans, together with all accrued andunpaid interest, must be repaid. Finally, the Company may use the proceeds of future borrowings under the Credit Facility for general corporate purposes.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% to1.00%, determined based on the Company’s consolidated leverage ratio for the four most recent fiscal quarters (“the Consolidated Leverage Ratio”) or (ii) theLIBOR 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’sConsolidated Leverage Ratio (“LIBOR Loan”). The base rate is defined as the highest of (i) the federal funds rate, plus 0.50%, (ii) Bank of America, N.A.’sprime rate and (iii) the LIBOR rate for a431-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% to0.35%, determined based on the Company’s Consolidated Leverage Ratio.On December 28, 2018, the Company drew against the Credit Facility for a $100.0 million LIBOR Loan, with a three-month interest period at aninterest rate of 4.31%. The Company has an additional $100.0 million of borrowing capacity remaining under the Credit Facility as of December 31, 2018.The Credit Agreement also requires compliance with certain covenants, all of which the Company was in compliance with as of December 31, 2018.Specifically, we are subject to the following financial covenants (certain terms used and described below are as defined and described in the CreditAgreement, attached as an exhibit to this report): •Consolidated Interest Coverage Ratio: Commencing as of the quarter ended March 31, 2019, the Company is obligated to maintain aconsolidated interest coverage ratio of at least 4.00 to 1.00 as of the end of each fiscal quarter. The consolidated interest coverage ratio ismeasured by dividing (a) our consolidated EBITDA for the applicable measurement period by (b) the cash portion of our consolidated interestcharges for the applicable measurement period. •Consolidated Leverage Ratio: Commencing as of the quarter ended March 31, 2019, the Company is obligated to maintain a consolidatedleverage ratio of at least 2.50 to 1.00 as of the end of each fiscal quarter. The consolidated leverage ratio is measured by dividing (a) ourconsolidated funded indebtedness as of the relevant fiscal quarter end by (b) our consolidated EBITDA for the applicable measurement period. •Liquidity Covenant: Throughout the term of the Credit Facility, the Company is obligated to maintain liquidity of no less than $200.0 million.Share RepurchasesIn November 2016, we authorized the 2016 Share Repurchase Program. During 2016, we repurchased 12.3 million shares of our Class A common stockunder the 2016 Share Repurchase Program at a weighted average price of $2.76 per share for a total of $34.2 million. During 2017, we repurchased 36.3million shares of our Class A common stock under the 2016 Share Repurchase Program at a weighted average price of $2.78 per share for a total of $101.0million. During 2018, we repurchased 18.2 million shares of our Class A common stock under the 2016 Share Repurchase Program at a weighted averageprice of $3.59 per share for a total of $65.4 million, completing the 2016 Share Repurchase Program.In April 2018, a new share repurchase program was authorized for up to $200.0 million of our outstanding Class A common stock. During 2018, werepurchased 7.1 million shares of our Class A common stock under the 2018 Share Repurchase Program at a weighted average price of $3.71 per share for atotal of $26.2 million.Operating Activities2018 Compared to 2017. After our net income of $15.5 million is adjusted to exclude certain non-cash items, operating activities provided $168.2million of cash, cash equivalents and restricted cash during 2018. Significant non-cash, cash equivalent or restricted cash items included stock-basedcompensation expense of $68.2 million and depreciation and amortization of $42.1 million. Stock-based compensation expense increased $3.7 million from2017 to 2018 primarily due to our acquisition of Gram Games in May 2018. Depreciation and amortization increased by $11.8 million primarily due to anincrease in intangible asset amortization from our acquisitions in December 2017 and May 2018. The change in our operating assets and liabilities during2018 resulted in a $49.8 million inflow of cash, cash equivalents and restricted cash primarily due to changes in deferred revenue and accounts receivable,net, of $62.3 million and $22.6 million, respectively. The cash, cash equivalents and restricted cash inflow from the change in deferred revenue was primarilyattributable to strong bookings performance, which was supplemented by our Gram Games acquisition in May 2018, while the inflow from accountsreceivable was partially due to the accounts receivable, net acquired as part of the Gram Games acquisition, as well the as the timing of cash receipts. Theinflow of cash, cash equivalents and restricted cash were partially offset by outflows from prepaid and other assets, other liabilities, income tax payable andaccounts payable of $18.4 million, $13.8 million, $2.1 million and $0.8 million, respectively. The cash, cash equivalents and restricted cash outflow from thechange in prepaid and other assets was primarily driven by minimum guarantee payments on several licenses, while the outflow from the change in otherliabilities was primarily driven by the settlement payment related to the Zindagi legal matter made in the first quarter of 2018. 2017 Compared to 2016. After our net income of $26.6 million is adjusted to exclude certain non-cash items, operating activities provided $94.4million of cash, cash equivalents and restricted cash during 2017. Significant non-cash, cash equivalent and restricted cash items included stock-basedcompensation expense of $64.5 million and depreciation and amortization of $30.3 million. Stock-based compensation expense decreased $42.9 millionfrom 2016 to 2017 primarily due to higher stock-based compensation expense in 2016 related to non-recurring restricted stock units (“ZSUs”) expenseassociated with the NaturalMotion acquisition, further supplemented by declines in grant activity in 2017. Depreciation and amortization decreased by $11.5million primarily due to44lower amortization expense from fully amortized intangibles, as well as the one-time impairment taken in 2016 related to intangibles acquired as part of theRising Tide acquisition. The change in our operating assets and liabilities during 2017 resulted in a $30.0 million outflow of cash, cash equivalents andrestricted cash primarily due to changes in accounts receivable, net, other assets and deferred revenue of $26.4 million, $8.1 million and $7.6 million,respectively, offset by changes in other liabilities of $11.0 million. The increase in accounts receivable, net was primarily driven by a change in timing offiscal year ends of one of our largest payment processors, resulting in two months of accounts receivable due at December 31, 2017 compared to only onemonth at December 31, 2016. Investing Activities2018 Compared to 2017. Investing activities resulted in a cash, cash equivalents and restricted cash inflow of $19.0 million during 2018. The primaryinflow of cash, cash equivalents and restricted cash associated with investing activities was the net sales and maturities of $275.1 million of short-terminvestments during 2018, while during 2017, we had net purchases of $308.6 million of short-term investments. This increase was offset by an outflow ofcash, cash equivalents and restricted cash of $222.4 million for the 2018 acquisition of Gram Games, further supplemented by the release of escrow of $22.8million related to previous acquisitions, whereas during 2017, the acquisitions of Harpan and the casual card games division of Peak Games resulted in acash, cash equivalents and restricted cash outflow of $101.2 million. The Company expects to continue to seek acquisition opportunities in the future.Finally, capital expenditures resulted in a cash, cash equivalents and restricted cash outflow of $11.5 million in 2018, which was in line with theoutflow of $10.0 million in the prior year. We expect capital expenditures of approximately $28.0 to $33.0 million in 2019.2017 Compared to 2016. Investing activities resulted in a cash, cash equivalents and restricted cash outflow of $431.3 million during 2017. Theprimary outflow of cash, cash equivalents and restricted cash associated with investing activities was a net purchase of $308.6 million of short-terminvestments during 2017, while no purchases of short-term investments were made in the prior year. Additionally, net cash, cash equivalent and restrictedcash outflows of $101.2 million were used for the 2017 acquisitions of Harpan and the casual card games division of Peak Games, versus a net outflow of$29.7 million for the 2016 acquisitions of Zindagi and PuzzleSocial. Finally, capital expenditures resulted in cash, cash equivalents and restricted cashoutflows of $10.0 million in 2017, which were in line with cash outflows of $10.3 million in 2016. Financing Activities2018 Compared to 2017. Financing activities resulted in a cash, cash equivalents and restricted cash outflow of $8.3 million during 2018. Theprimary outflow of cash, cash equivalents and restricted cash associated with financing activities was from $91.6 million of repurchases of Class A commonstock during 2018, whereas during 2017, repurchases of Class A common stock resulted in an outflow of $105.0 million. Further, the Company paid $25.8million on taxes on behalf of employees related to the net settlement of equity awards in 2018, versus $21.7 million in the prior year. These outflows of cash,cash equivalents and restricted cash in 2018 were offset by $99.1 million of net proceeds associated with the opening of, and draw against, our CreditFacility. 2017 Compared to 2016. Financing activities resulted in a cash, cash equivalents and restricted cash outflow of $123.1 million during 2017. Theprimary outflow of cash, cash equivalents and restricted cash associated with financing activities was from $105.0 million of repurchases of Class A commonstock in 2017, whereas during 2016, repurchases of Class A common stock resulted in an outflow of $142.6 million. Additionally, the Company paid $21.7million on taxes on behalf of employees related to the net settlement of equity awards in 2017, versus $3.4 million in 2016. Off-Balance Sheet ArrangementsWe did not have any off-balance sheet arrangements during 2018, 2017 and 2016.45Contractual Obligations (1) Lease Licensor andMarketing Other Total (in thousands) 2019 $8,974 $16,356 $23,304 $48,634 2020 8,782 42,369 19,331 70,482 2021 7,384 — 8,861 16,245 2022 3,611 — — 3,611 2023 2,215 — — 2,215 Thereafter 185 — — 185 Total $31,151 $58,725 $51,496 $141,372 (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 periodsin which they will be expensed in the Company’s consolidated statement of operations.Lease CommitmentsOur lease commitments primarily consist of operating leases for our office facilities. We do not have any capital lease obligations, and all of ourproperty and equipment has been purchased with cash.Licensor and Marketing CommitmentsLicensor commitments include minimum guarantee royalty payments due to licensors for use of their brands, properties and other licensed content inour games, as well as marketing commitments for specified spend related to our marketing products.Other CommitmentsOther commitments primarily include costs for hosting of data systems and other services. Excluded from other commitments is our uncertain incometax position liability of $10.1 million, which includes interest and penalties, as the Company cannot make a reasonably reliable estimate of the period of cashsettlement.Tenant Improvement ObligationsExcluded from the contractual obligations table above are $57.5 million of lease incentive obligations for tenant improvements associated with ourSan Francisco corporate headquarters. Of this amount, the Company has a current lease incentive obligation of $24.9 million related to tenant improvements,which is reflected in other current liabilities in our consolidated balance sheet as of December 31, 2018. The remaining lease incentive commitments fortenant improvements of $32.6 million are not reflected in our consolidated balance sheet as of December 31, 2018, as our obligation occurs once the tenant isprovided access to the leased space.Contingent Consideration LiabilityUnder the original terms of the acquisition agreements with PuzzleSocial, the maximum amount of additional consideration that could be earned bythe sellers and payable by us is $42.0 million. The amounts payable were contingent upon the achievement of certain December 31, 2018 performance targetsafter the date of acquisition. As of December 31, 2018, the performance targets were not met.Under the terms of the Gram Games acquisition, contingent consideration may be payable based on the achievement of certain future performancetargets during each annual period following the acquisition date for a total of three years, with no maximum limit as to the contingent considerationachievable. At acquisition, the estimated fair value of the contingent consideration obligation was $43.5 million. However, as of December 31, 2018, theestimated fair value of the contingent consideration obligation increased to $49.0 million, primarily due to the increased probability of achievement andstronger than expected performance, resulting in $5.5 million of expense recognized within research and development expense in our consolidated statementof operations for the year ended December 31, 2018. GuaranteesDuring the third quarter of 2018, we executed an assignment of the Oxford office lease associated with our fourth quarter 2017 restructuring plan. Theoriginal lease term ends in November 2022, with a lessee option to early terminate in November 2019. All terms under the original lease were assigned in fullto the assignee, with the assignee becoming primarily liable to make rental payments directly to the landlord. Further, the assignee was required to providethe landlord a security deposit equal to twelve months rent to be used by the landlord in the event of the assignee’s non-performance.46In connection with the assignment, the Company became secondarily liable in the event the assignee is unable to perform under the lease. Based onthe current rent and related payments, the maximum exposure to the Company is estimated to be $2.3 million as of December 31, 2018. However, the lease issubject to periodic rate reviews which allow the landlord to make market adjustments to the rent and other related payments and accordingly, the maximumexposure may be greater than this amount. As of December 31, 2018, the fair value of this guarantee is not material.Critical Accounting Policies and EstimatesThe preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reportedamounts in our consolidated financial statements and related notes. Our significant accounting policies are described in Note 1 to our consolidated financialstatements included in this Annual Report on form 10-K. We have identified below our critical accounting policies and estimates that we believe require thegreatest amount of judgment. These estimates and judgments have a significant impact on our consolidated financial statements. Actual results could differmaterially from those estimates. The accounting policies that reflect our more significant estimates and judgments and that we believe are the most critical tofully understand and evaluate our reported financial results include the following: •Revenue recognition •Income taxes •Business combinations •Licenses and royaltiesRevenue RecognitionThe revenue recognition accounting policy described below relates to revenue transactions from January 1, 2018 and onward, which are accountedfor in accordance with Accounting Standards Codification Topic 606 – Revenue from Contracts with Customers We primarily derive revenue from the sale of virtual items associated with our online games and the sale of advertising.Online Game. We operate our games as live services that allow players to play for free. Within these games however, players can purchase virtualcurrency to obtain virtual goods or virtual goods directly (together, defined as “virtual items”) to enhance their game-playing experience. Our identifiedperformance obligation is to display the virtual items within the game over the estimated life of the paying player or until it is consumed in game play basedupon the nature of the virtual item. Payment is required at time of purchase and the purchase price is a fixed amount.Players can purchase our virtual items through various widely accepted payment methods offered in the games, including Apple iTunes accounts,Google Play accounts, Facebook local currency payments, PayPal and credit cards. Payments from players for virtual items are non-refundable and relate tonon-cancellable contracts that specify our obligations. Such payments are initially recorded to deferred revenue. As a result, in connection with new gamelaunches, acquisitions of new games from third parties or during periods of increased bookings, the deferred revenue balance specific to such games willincrease, sometimes significantly. For revenue earned through mobile platforms, the transaction price is equal to the gross amount we request to be charged to our player because we arethe principal in the transaction. The related platform and payment processing fees are recorded as cost of revenue in the period incurred.For revenue earned on our web based games through Facebook, our players utilize Facebook’s local currency-based payments program to purchasevirtual items in our games. For all payment transactions on the Facebook platform, Facebook remits to us 70% of the price we request to be charged to theplayer for each transaction, which represents the transaction price. Despite being the principal in the transaction, we recognize revenue net of the amountsretained by Facebook for platform and payment processing fees because Facebook may choose to alter our requested price, for example by offering a discountor other incentives to players playing on their platform, and we do not receive information from Facebook indicating the amount of such discounts orincentives or the actual amount paid by our players. Accordingly, we are unable to determine the gross amount paid by our players on the Facebook platform.The satisfaction of our performance obligation is dependent on the nature of the virtual item purchased and as a result, we categorize our virtual itemsas either consumable or durable. •Consumable virtual items represent items that can be consumed by a specific player action. Common characteristics of consumable virtual itemsmay include items that are no longer displayed on the player’s game board after a short period of time, do not provide the player any continuingbenefit following consumption, or often times enable a player to perform an in-game action immediately (e.g. chips in Zynga Poker). For the saleof consumable virtual items, we recognize revenue as the items are consumed (i.e., over time), which approximates one month.47 •Durable virtual items represent items that are accessible to the player over an extended period of time (e.g. animals in Farmville 2). We recognizerevenue from the sale of durable virtual items ratably over the estimated average playing period of payers for the applicable game (i.e., over time),which represents our best estimate of the average life of the durable virtual item. •If we do not have the ability to differentiate between revenue attributable to consumable virtual items versus durable virtual items for a specificgame, we recognize revenue ratably over the estimated average playing period of payers for the applicable game.Historically, we have had sufficient data to separately account for consumable and durable virtual items for substantially all of our web games.However, for our standalone mobile games, we do not have the requisite data to separately account for consumable and durable virtual items and thereforerecognize mobile revenue ratably over the estimated average playing period of payers.We expect that in future periods, there will be changes in the mix of consumable and durable virtual items offered and sold, reduced virtual item salesin some existing games, changes in estimates of the average playing period of payers and/or changes in our ability to make such estimates. When suchchanges occur, and in particular if more of our revenue in any period is derived from durable virtual items or the estimated average playing period of payersincreases on average, the amount of revenue that we recognize in a current or future period may be reduced, perhaps significantly. Conversely, if theestimated average playing period of payers decreases on average, the amount of revenue that we recognize in a current or future period may be accelerated,perhaps significantly.On a quarterly basis, we determine the estimated average playing period of payers by game beginning at the time of a payer’s first purchase in therespective game and ending on a date when that paying player is deemed to be no longer playing. To determine when paying players are no longer playing agiven game, we analyze monthly cohorts of payers who made their first in-game payment between six and 18 months prior to the beginning of each quarterand determine whether each payer within the cohort is an active or inactive player as of the date of our analysis. To determine which payers are inactive, weanalyze the dates that each payer last logged into that game. We determine a payer to be inactive once they have reached a period of inactivity for which it isprobable that they will not return to a specific game. For the payers deemed inactive as of our analysis date, we analyze the dates they last logged into thatgame to determine the rate at which inactive payers stopped playing. Based on these dates, we then project a date at which all payers for each monthly cohortare expected to cease playing our games. We then average the time periods from first purchase date and the date the last payer is expected to cease playingthe game for each of the monthly cohorts to determine the total playing period of payers for that game. To determine the estimated average playing period ofpayers, we then divide this total period by two. The use of this “average” approach is supported by our observations that payers typically become inactive ata relatively consistent rate for our games. If future data indicates payers do not become inactive at a relatively consistent rate, we will modify our calculationsaccordingly. When a new game is launched and only a limited period of payer data is available for our analysis, then we also consider other factors todetermine the estimated average playing period of payers, such as the estimated average playing period of payers for other recently launched games withsimilar characteristics.Advertising. We have contractual relationships with advertising networks, agencies, advertising brokers and directly with advertisers foradvertisements in our games. For all advertising arrangements, we are the principal and our performance obligation is to provide the inventory foradvertisements to be displayed in our games. For contracts made directly with advertisers, we are also obligated to serve the advertisements in our games.However, for those direct advertising arrangements, providing the advertising inventory and serving the advertisement is considered a single performanceobligation, as the advertiser cannot benefit from the advertising space without its advertisements being displayed.The pricing and terms for all our advertising arrangements are governed by either a master contract or insertion order and generally stipulate paymentterms as a specific number of days subsequent to the end of the month, generally ranging from 30 to 60 days. The transaction price in advertisingarrangements is generally the product of the number of advertising units delivered (e.g., impressions, offers completed, videos viewed, etc.) and thecontractually agreed upon price per advertising unit. Further, for advertising transactions not placed directly with the advertiser, the contractually agreedupon price per advertising unit is generally based on our revenue share stated in the contract. The number of advertising units delivered is determined at theend of each month, which resolves any uncertainty in the transaction price during the reporting period. For a limited number of advertising network arrangements, the transaction price is determined based on a volume-tiered pricing structure, whereby theprice per advertising unit in a given month is determined by the number of impressions delivered in that month. However, the number of impressionsdelivered is resolved at the end of each month, therefore, eliminating any uncertainty with respect to the price per advertising unit for each reporting period.For in-game display ads, in-game offers, engagement advertisements and other advertisements, our performance obligation is satisfied over the life ofcontract (i.e., over time), with revenue being recognized as advertising units are delivered.48For in-game sponsorships with branded virtual items, revenue is initially recorded to deferred revenue and then recognized ratably over the estimatedlife 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.Arrangements with Multiple Performance Obligations. For arrangements with multiple performance obligations, we allocate the transaction price toeach performance obligation in an amount that depicts the amount of consideration to which we expect to be entitled in exchange for satisfying eachperformance obligation, which is based on the standalone selling price. The standalone selling price represents the observable price which we would sell theadvertising placement separately in a similar circumstance, to a similar customer. Taxes Collected from Customers. We present taxes collected from customers and remitted to governmental authorities on a net basis within ourconsolidated statement of operations.The revenue recognition accounting policy described below relates to revenue transactions prior to January 1, 2018, which are accounted for inaccordance with Accounting Standards Codification Topic 605 – Revenue Recognition.We primarily derive revenue from the sale of virtual items associated with our online games and the sale of advertising.Online Game. We operate our games as live services that allow players to play for free. Within these games, however, players can purchase virtualcurrency to obtain virtual goods or virtual goods directly (together, defined as “virtual items”) to enhance their game-playing experience. Players canpurchase our virtual items through various widely accepted payment methods offered in the games, including Apple iTunes accounts, Google Play accounts,Facebook local currency payments, PayPal and credit cards. Advance payments from customers for virtual items that are non-refundable and relate to non-cancellable contracts that specify our obligations are recorded to deferred revenue. All other advance payments that do not meet these criteria are recorded ascustomer deposits.For revenue earned through mobile platforms, we recognize online game revenue based on the gross amount paid by the player because we are theprincipal in the transaction. The related platform and payment processing fees are recorded as cost of revenue in the period incurred.For revenue earned on our web based games through Facebook, our players utilize Facebook’s local currency-based payments program to purchasevirtual items in our games. For all payment transactions on the Facebook platform, Facebook remits to us 70% of the price we request to be charged to theplayer for each transaction. We recognize revenue net of the amounts retained by Facebook because Facebook may choose to alter our recommended price,for example by offering a discount or other incentives to players playing on their platform. Additionally, we do not receive information from Facebookindicating the amount of such discounts or incentives or the actual amount paid by our players. Accordingly, we are unable to determine the gross amountpaid by our players on the Facebook platform.We recognize revenue when all of the following conditions are satisfied: there is persuasive evidence of an arrangement; the service has been providedto the player; the collection of our fees is reasonably assured; and the amount of fees to be paid by the player is fixed or determinable. For purposes ofdetermining when the service has been provided to the player, we have determined that an implied obligation exists to the paying player to continuedisplaying the purchased virtual items within the online game over their estimated life or until they are consumed. Accordingly, we categorize our virtualitems as either consumable or durable. Consumable virtual items represent items that can be consumed by a specific player action. Common characteristics ofconsumable virtual items may include items that are no longer displayed on the player’s game board after a short period of time, do not provide the playerany continuing benefit following consumption, or often times enable a player to perform an in-game action immediately. For the sale of consumable virtualitems, we recognize revenue as the items are consumed, which approximates one month. Durable virtual items represent items that are accessible to the playerover an extended period of time. We recognize revenue from the sale of durable virtual items ratably over the estimated average playing period of payers forthe applicable game, which represents our best estimate of the average life of the durable virtual item. If we do not have the ability to differentiate betweenrevenue attributable to consumable virtual items from durable virtual items for a specific game, we recognize revenue ratably over the estimated averageplaying period of payers for the applicable game.We have had sufficient data to separately account for consumable and durable virtual items for substantially all of our web games. However, for ourstandalone mobile games, we do not have the requisite data to separately account for consumable and durable virtual items and therefore recognize revenueratably over the estimated average playing period of payers.We expect that in future periods there will be changes in the mix of durable and consumable virtual items offered and sold, reduced virtual item salesin some existing games, changes in estimates of the average playing period of payers and/or changes in our ability to make such estimates. When suchchanges occur, and in particular if more of our revenue in any period is derived from durable virtual items or the estimated average playing period of payersincreases on average, the amount of revenue that we recognize in a current or future period may be reduced, perhaps significantly. Conversely, if theestimated average playing period of payers decreases on average, the amount of revenue that we recognize in a current or future period may be accelerated,perhaps significantly.49On a quarterly basis, we determine the estimated average playing period of payers by game beginning at the time of a payer’s first purchase in therespective game and ending on a date when that paying player is deemed to be no longer playing. To determine when paying players are no longer playing agiven game, we analyze monthly cohorts of payers who made their first in-game payment between six and 18 months prior to the beginning of each quarterand determine whether each payer within the cohort is an active or inactive player as of the date of our analysis. To determine which payers are inactive, weanalyze the dates that each payer last logged into that game. We determine a payer to be inactive once they have reached a period of inactivity for which it isprobable that they will not return to a specific game. For the payers deemed inactive as of our analysis date, we analyze the dates they last logged into thatgame to determine the rate at which inactive payers stopped playing. Based on these dates, we then project a date at which all payers for each monthly cohortare expected to cease playing our games. We then average the time periods from first purchase date and the date the last payer is expected to cease playingthe game for each of the monthly cohorts to determine the total playing period of payers for that game. To determine the estimated average playing period ofpayers, we then divide this total period by two. The use of this “average” approach is supported by our observations that payers typically become inactive ata relatively consistent rate for our games. If future data indicates payers do not become inactive at a relatively consistent rate, we will modify our calculationsaccordingly. When a new game is launched and only a limited period of payer data is available for our analysis, then we also consider other factors todetermine the estimated average playing period of payers, such as the estimated average playing period of payers for other recently launched games withsimilar characteristics.Advertising. We have contractual relationships with advertising networks, agencies, advertising brokers and directly with advertisers foradvertisements within our games. We generally report our advertising revenue net of amounts retained by advertising networks, agencies, and brokersbecause we are not the principal for the advertisement transaction. However, certain advertisement placements that are directly between us and the endadvertiser are recognized gross equal to the price paid to the Company by the end advertiser since we are the principal in the direct advertising arrangement.We recognize advertising revenue for engagement advertisements and offers, mobile advertisements, branded virtual items and sponsorships and otheradvertisements as advertisements are delivered to customers as long as evidence of the arrangement exists, the price is fixed or determinable, andcollectability as reasonably assured. Price is determined to be fixed or determinable when there is a fixed price included a master contract, insertion order, or athird party statement of advertising activity. For engagement advertisements and offers, mobile advertisements, and other advertisements, delivery occurswhen the advertisement has been displayed or the offer has been completed by the customer, as evidenced by third party verification reports supporting thenumber of advertisements displayed or offers completed. Certain branded in-game sponsorships that involve virtual items are deferred and recognized overthe estimated life of the branded virtual good or as consumed, similar to online game revenue. For these branded virtual items and sponsorships, we determinethe delivery criteria has been met based on delivery reporting received from third parties.Multiple-Element Arrangements. We allocate arrangement consideration in multiple-deliverable revenue arrangements at the inception of anarrangement to all deliverables based on the relative selling price method, generally based on our best estimate of selling price.Taxes Collected from Customers. We present taxes collected from customers and remitted to governmental authorities on a net basis within ourconsolidated statement of operations. Income TaxesWe account for income taxes using an asset and liability approach, which requires the recognition of taxes payable or refundable for the current yearand deferred tax liabilities and assets for the future tax consequences of events that have been recognized in our financial statements or tax returns. Themeasurement of current and deferred tax assets and liabilities is based on provisions of enacted tax laws at the end of the reporting period; the effect of futurechanges in tax laws or rates are not anticipated (refer to the header “Tax Cuts and Jobs Act” earlier in MD&A for further discussion on the impact to theenacted tax laws in 2017). If necessary, the measurement of deferred tax assets is reduced by the amount of any tax benefits that are not expected to berealized based on all available positive and negative evidence including scheduled reversals of deferred tax liabilities, projected future taxable income, tax-planning strategies and results of recent operations. In evaluating the objective evidence that the results of recent operations provide, we generally considerthe trailing three years of cumulative operating income (loss). The assumptions about future taxable income require the use of significant judgment and areconsistent with the plans and estimates we are using to manage the underlying businesses.We account for uncertain tax positions by reporting a liability for unrecognized tax benefits resulting from uncertain tax positions taken or expectedto be taken in a tax return. We recognize interest and penalties, if any, related to unrecognized tax benefits in the provision for income tax.50Business CombinationsIn accounting for acquisitions through which a set of assets and activities are transferred to the Company, we perform an initial test to determinewhether substantially all of the fair value of the gross assets transferred are concentrated in a single identifiable asset or a group of similar identifiable assets,such that the acquisition would not represent a business. If that test does not suggest that the set of assets and activities are not a business, we then perform asecond test to evaluate whether the assets and activities transferred include inputs and substantive processes that together, significantly contribute to theability to create outputs, which would constitute a business. If the result of the second test suggests that the acquired assets and activities constitute abusiness, we account for the transaction as a business combination.For our business combinations, we allocate the purchase price of the acquisition, which includes the estimated acquisition date fair value ofcontingent consideration (if applicable), to the tangible assets, liabilities and identifiable intangible assets acquired based on their estimated fair values at theacquisition date. The excess of the purchase price over those fair values is recorded as goodwill. Determining the fair value of such items requires judgment,including estimating future cash flows or the cost to recreate an acquired asset. If actual results are lower than initial estimates, we could be required to recordimpairment charges in the future. Acquired intangible assets with definite lives are amortized over their estimated useful lives generally on a straight-linebasis, unless evidence indicates a more appropriate method. Intangible assets with indefinite lives are not amortized but rather tested for impairmentannually, or more frequently if circumstances indicate an impairment may exist.Acquisition-related expenses are expensed as incurred. During the one-year period beginning with the acquisition date, we may record certainpurchase accounting adjustments related to the fair value of assets acquired and liabilities assumed against goodwill. After the final determination of the fairvalue of assets acquired or liabilities assumed, any subsequent adjustments are recorded to our consolidated statements of operations. The fair value ofcontingent consideration liabilities assumed from an acquisition are remeasured each reporting period and the changes in the fair value, if any, is recordedwithin operating expenses in our consolidated statement of operations each reporting period.Licenses and RoyaltiesWe obtain licenses from third parties for use of their brands, properties and other licensed content in our games (e.g., Hit It Rich! Slots or vehicles inCSR2). Our licensing agreements typically include minimum guarantee royalty payments, which are due over the term of the agreement and are recoupableagainst future royalty obligations that would otherwise become payable. These advance payments are capitalized as prepaid royalties when paid andamortized once the licensed product is launched in our game. Amortization is recorded as cost of revenue and is calculated as (i) the contractual royalty ratebased on actual net product sales as defined in the licensing agreement or (ii) the straight-line method over the remaining estimated useful life of the licensedproduct, whichever is greater. Each quarter, we evaluate the recoverability of our prepaid royalties as well as any contractual commitments not yet paid to determine amounts thatwe deem unlikely to be recovered through product sales. To evaluate the future recoverability of prepaid royalties and guarantees, we consider the terms ofthe agreement, game development plans, forecasted and actual financial performance of the game as well as other qualitative factors such as the success ofsimilar games and similar genres published by the Company. To the extent that this evaluation indicates that the remaining prepaid and guaranteed royaltypayments are not recoverable, the Company records an impairment charge in the period that impairment is indicated. Any impairment losses determinedbefore the launch of a product are recorded as research and development, while any impairment losses determined post-launch are recorded as cost of revenuein our consolidated statement of operations.Recent Accounting PronouncementsFor information with respect to recent accounting pronouncements and the impact of these pronouncements on our consolidated financial statements,see Note 1 – “Overview and Summary of Significant Accounting Policies” in the notes to the consolidated financial statements included elsewhere in thisAnnual Report on Form 10-K. 51ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKInterest Rate Fluctuation RiskAt December 31, 2018, our cash and cash equivalents and short-term investments consist of cash, money market funds, and corporate debt securities.The primary objective of our investment activities is to preserve principal, ensure liquidity and maximize income without significantly increasing risk. Ourcorporate debt securities may be subject to market risk due to changes in prevailing interest rates that may cause the fair values of our investments tofluctuate. Based on a sensitivity analysis, we have determined that a hypothetical 100 basis points increase in interest rates would have resulted in a decreasein the fair values of our investments of approximately $0.2 million as of December 31, 2018. Such losses would only be realized if we sold the investmentsprior to maturity.With respect to our borrowings under the Credit Facility, changes in interest rates will impact interest expense on any future borrowings.Foreign Currency Exchange RiskWe have foreign currency risks related to our revenue and operating expenses incurred outside the U.S. and denominated in currencies other than thefunctional currency of the entities in which they are recorded. Accordingly, we are subject to fluctuations due to changes in foreign currency exchange rates,particularly changes in the Euro, Japanese Yen, British Pound, Canadian Dollar, Australian Dollar, Turkish Lira and Indian Rupee. The volatility of exchangerates depends on many factors that we cannot forecast with reliable accuracy. Although we have experienced and will continue to experience fluctuations inour net income (loss) as a result of transaction gains (losses), including remeasurement, of certain cash balances, trade accounts receivable, trade accountspayable, current liabilities and intercompany balances that are denominated in currencies other than the functional currency of the entity in which they arerecorded, we believe such a change would not have a material impact on our results of operations. 52ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATAZynga Inc.INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page No.Reports of Independent Registered Public Accounting Firm54Consolidated Financial Statements Consolidated Balance Sheets56Consolidated Statements of Operations57Consolidated Statements of Comprehensive Income (Loss)58Consolidated Statements of Stockholders’ Equity59Consolidated Statements of Cash Flows60Notes to Consolidated Financial Statements61 The supplementary financial information required by this Item 8 is included in Item 7 under the caption “Quarterly Results of Operations Data,” which isincorporated herein by reference.53Report of Independent Registered Public Accounting FirmTo the Stockholders and the Board of Directors of Zynga Inc.Opinion on the Financial StatementsWe have audited the accompanying consolidated balance sheets of Zynga Inc. (the Company) as of December 31, 2018 and 2017, and the relatedconsolidated statements of operations, comprehensive income (loss), stockholders’ equity and cash flows for each of the three years in the period endedDecember 31, 2018, and the related notes and financial statement schedule listed in the Index at Item 15(a)2 (collectively referred to as the “consolidatedfinancial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company atDecember 31, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018, inconformity with U.S. generally accepted accounting principles.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company'sinternal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control-Integrated Framework issued by theCommittee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 27, 2019 expressed an unqualifiedopinion thereon.Basis for OpinionThese financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financialstatements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Companyin accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing proceduresto assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also includedevaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financialstatements. We believe that our audits provide a reasonable basis for our opinion./s/ Ernst & Young LLP We have served as the Company’s auditor since 2009. San Jose, CAFebruary 27, 2019 54Report of Independent Registered Public Accounting FirmTo the Stockholders and the Board of Directors of Zynga Inc.Opinion on Internal Control Over Financial ReportingWe have audited Zynga Inc.’s internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control—IntegratedFramework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion ZyngaInc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018, based on the COSOcriteria.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidatedbalance sheets of the Company as of December 31, 2018 and 2017, and the related consolidated statements of operations, comprehensive income (loss),stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2018, and the related notes and financial statement schedulelisted in the Index at Item 15(a)2 and our report dated February 27, 2019 expressed an unqualified opinion thereon.Basis for OpinionThe Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness ofinternal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Ourresponsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firmregistered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and theapplicable rules and regulations of the Securities and Exchange Commission and the PCAOB.We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonableassurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing andevaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considerednecessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.Definition and Limitations of Internal Control Over Financial ReportingA company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reportingand the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal controlover financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairlyreflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are beingmade only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention ortimely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation ofeffectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliancewith the policies or procedures may deteriorate. /s/ Ernst & Young LLP San Jose, CAFebruary 27, 2019 55Zynga Inc.Consolidated Balance Sheets(In thousands, except par value) December 31, December 31, 2018 2017 Assets Current assets: Cash and cash equivalents $544,990 $372,870 Short-term investments 36,232 308,506 Accounts receivable, net of allowance of $0 at December 31, 2018 andDecember 31, 2017 91,630 103,677 Restricted cash 35,006 12,807 Prepaid expenses 26,914 24,253 Other current assets 12,505 8,837 Total current assets 747,277 830,950 Goodwill 934,187 730,464 Intangible assets, net 118,600 64,258 Property and equipment, net 266,557 266,589 Restricted cash — 20,000 Prepaid expenses 30,774 23,821 Other non-current assets 49,308 43,251 Total assets $2,146,703 $1,979,333 Liabilities and stockholders’ equity Current liabilities: Accounts payable $26,811 $18,938 Income tax payable 4,895 6,677 Deferred revenue 191,299 134,007 Debt 100,000 — Other current liabilities 156,829 123,089 Total current liabilities 479,834 282,711 Deferred revenue 1,586 568 Deferred tax liabilities, net 16,087 5,902 Other non-current liabilities 52,586 48,912 Total liabilities 550,093 338,093 Stockholders’ equity: Common stock, $0.00000625 par value, and additional paid-in capital - authorizedshares: 2,020,517; shares outstanding: 861,111 shares (Class A) as of December 31, 2018 and 870,660(Class A, 783,376, Class B, 66,767 and Class C, 20,517) as ofDecember 31, 2017 3,504,713 3,426,505 Accumulated other comprehensive income (loss) (118,439) (93,497)Accumulated deficit (1,789,664) (1,691,768)Total stockholders’ equity 1,596,610 1,641,240 Total liabilities and stockholders’ equity $2,146,703 $1,979,333 See accompanying notes to consolidated financial statements. 56Zynga Inc.Consolidated Statements of Operations(In thousands, except per share data) Year Ended December 31, 2018 2017 2016 Revenue: Online game $670,877 $665,593 $547,291 Advertising and other 236,331 195,797 194,129 Total revenue 907,208 861,390 741,420 Costs and expenses: Cost of revenue 304,658 258,971 238,546 Research and development 270,323 256,012 320,300 Sales and marketing 226,524 212,030 183,637 General and administrative 98,941 108,653 92,509 Impairment of intangible assets — — 20,677 Total costs and expenses 900,446 835,666 855,669 Income (loss) from operations 6,762 25,724 (114,249)Interest income 6,549 5,309 3,057 Other income (expense), net 13,152 6,550 6,461 Income (loss) before income taxes 26,463 37,583 (104,731)Provision for (benefit from) income taxes 11,006 10,944 3,442 Net income (loss) $15,457 $26,639 $(108,173) Net income (loss) per share attributable to common stockholders: Basic $0.02 $0.03 $(0.12)Diluted $0.02 $0.03 $(0.12) Weighted average common shares used to compute net income (loss) per share attributable to common stockholders: Basic 862,460 869,067 878,827 Diluted 889,584 897,165 878,827 See accompanying notes to consolidated financial statements. 57Zynga Inc.Consolidated Statements of Comprehensive Income (Loss)(In thousands) Year Ended December 31, 2018 2017 2016 Net income (loss) $15,457 $26,639 $(108,173)Other comprehensive income (loss): Change in foreign currency translation adjustment (25,122) 35,352 (76,410)Net change in unrealized gains (losses) on available-for-sale marketable debt securities, net of tax 180 (155) 104 Other comprehensive income (loss), net of tax: (24,942) 35,197 (76,306)Comprehensive income (loss): $(9,485) $61,836 $(184,479) See accompanying notes to consolidated financial statements. 58Zynga Inc.Consolidated Statements of Stockholders’ Equity(In thousands) Accumulated Class A, B and C Additional Other Total Common Stock Paid-In Treasury Comprehensive Accumulated Stockholders' Shares Amount Capital Stock Income (Loss) Deficit Equity Balances at December 31, 2015 903,617 $6 $3,234,545 $(98,942) $(52,388) $(1,296,320) $1,786,901 Exercise of stock options and ESPP 6,989 — 5,921 — — — 5,921 Vesting of ZSUs, net of tax withholdings 30,794 — (2,582) (841) — — (3,423)Stock-based compensation expense — — 111,824 — — — 111,824 Repurchases of common stock (54,550) — — (136,080) — — (136,080)Retirements of treasury stock — — — 235,863 — (235,863) — Net income (loss) — — — — — (108,173) (108,173)Other comprehensive income (loss) — — — — (76,306) — (76,306)Balances at December 31, 2016 886,850 $6 $3,349,708 $— $(128,694) $(1,640,356) $1,580,664 Exercise of stock options and ESPP 5,365 — 8,769 — — — 8,769 Vesting of ZSUs, net of tax withholdings 14,768 — (427) (21,292) — — (21,719)Stock-based compensation expense — — 64,515 — — — 64,515 Repurchases of common stock (36,323) (1) — (101,035) — — (101,036)Retirements of treasury stock — — — 122,327 — (122,327) — Adoption of ASU 2016-09 — — 3,935 — — 44,276 48,211 Net income (loss) — — — — — 26,639 26,639 Other comprehensive income (loss) — — — — 35,197 — 35,197 Balances at December 31, 2017 870,660 $5 $3,426,500 $— $(93,497) $(1,691,768) $1,641,240 Exercise of stock options and ESPP 5,090 — 9,969 — — — 9,969 Vesting of ZSUs, net of tax withholdings 10,618 — — (25,807) — — (25,807)Stock-based compensation expense — — 68,239 — — — 68,239 Repurchases of common stock (25,257) — — (91,570) — — (91,570)Retirements of treasury stock — — — 117,377 — (117,377) — Adoption of ASU 2014-09 — — — — — 4,024 4,024 Net income (loss) — — — — — 15,457 15,457 Other comprehensive income (loss) — — — — (24,942) — (24,942)Balances at December 31, 2018 861,111 $5 $3,504,708 $— $(118,439) $(1,789,664) $1,596,610 See accompanying notes to consolidated financial statements. 59Zynga Inc.Consolidated Statements of Cash Flows(In thousands) Year Ended December 31, 2018 2017(As Adjusted)(1) 2016(As Adjusted)(1) Cash flows from operating activities: Net income (loss) $15,457 $26,639 $(108,173)Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 42,057 30,294 41,770 Stock-based compensation expense 68,239 64,515 107,461 (Gain) loss from foreign currency, sales of investments, assets and other, net 263 (238) 26 (Accretion) and amortization on marketable debt securities, net (2,730) (636) 323 Noncash consideration received (1,494) — — Change in deferred income taxes and other (3,366) 3,780 (1,988)Impairment of intangible assets — — 20,677 Changes in operating assets and liabilities: Accounts receivable, net 22,625 (26,417) 3,834 Other assets (18,417) (8,124) (2,501)Accounts payable (810) (3,666) (3,613)Deferred revenue 62,338 (7,581) 13,113 Income tax payable (2,116) 4,788 1,889 Other liabilities (13,806) 11,021 (12,788)Net cash provided by (used in) operating activities 168,240 94,375 60,030 Cash flows from investing activities: Purchases of short-term investments (333,832) (348,594) — Maturities of short-term investments 519,800 40,000 244,837 Sales of short-term investments 89,168 — — Acquisition of property and equipment (11,469) (9,971) (10,313)Proceeds from sale of property and equipment 33 273 3,209 Business acquisitions, net of cash acquired and restricted cash held in escrow (222,440) (101,201) (29,705)Release of restricted cash escrow from business combinations (22,800) (3,625) (1,000)Other investing activities, net 521 (8,163) — Net cash provided by (used in) investing activities 18,981 (431,281) 207,028 Cash flows from financing activities: Proceeds from issuance of debt, net 99,100 — — Taxes paid related to net share settlement of stockholders' equity awards (25,807) (21,719) (3,422)Repurchases of common stock (91,570) (105,013) (142,596)Proceeds from issuance of common stock 9,969 8,769 5,921 Acquisition-related contingent consideration payment — (5,115) (10,230)Contingent consideration restricted cash held in escrow — — 5,115 Net cash provided by (used in) financing activities (8,308) (123,078) (145,212) Effect of exchange rate changes on cash, cash equivalents and restricted cash (4,594) 3,945 (3,542) Net change in cash, cash equivalents and restricted cash 174,319 (456,039) 118,304 Cash, cash equivalents and restricted cash, beginning of period 405,677 861,716 743,412 Cash, cash equivalents and restricted cash, end of period $579,996 $405,677 $861,716 Supplemental cash flow information: Income taxes paid $16,111 $4,024 $1,033 Software acquired as noncash consideration $1,494 $— $— (1)Prior period amounts retrospectively adjusted to reflect the adoption of ASU 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash”. Refer to Note 1 – “Overview and Summary ofSignificant Accounting Policies” in the notes to the consolidated financial statements for further discussion on the adoption. See accompanying notes to consolidated financial statements.60Zynga Inc.Notes to Consolidated Financial Statements 1. Overview and Summary of Significant Accounting PoliciesOrganization and Description of BusinessZynga Inc. (“Zynga,” or “we” or the “Company”) is a leading provider of social game services. We develop, market and operate social games as liveservices played on mobile platforms such as iOS and Android and social networking sites such as Facebook. Generally, all of our games are free to play, andwe generate substantially all of our revenue through the sale of in-game virtual items and advertising services. Our operations are headquartered in SanFrancisco, 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 thesymbol “ZNGA.”Basis of Presentation and ConsolidationThe accompanying consolidated financial statements are presented in accordance with United States generally accepted accounting principles (“U.S.GAAP”). The consolidated financial statements include the operations of the Company and its wholly owned subsidiaries. All significant intercompanybalances and transactions have been eliminated in the consolidation.Use of EstimatesThe preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reportedamounts in the consolidated financial statements and notes thereto. Significant estimates and assumptions reflected in the financial statements include, butare not limited to, the estimated average playing period of payers that we use for revenue recognition, useful lives of property and equipment and intangibleassets, accrued liabilities, income taxes, the fair value of assets and liabilities acquired through business combinations, contingent consideration obligations,stock-based compensation expense and the evaluation of recoverability of goodwill, intangible assets and long-lived assets. Actual results could differmaterially from those estimates.During the year ended December 31, 2018, we recognized $0.9 million of online game revenue and income from operations from games that havebeen discontinued as there is no further performance obligation, which did not impact our reported earnings per share. Further, there were no changes in ourestimated average playing period of payers that required adjusting the recognition period of deferred revenue generated in prior periods for the year endedDecember 31, 2018.During the year ended December 31, 2017, we recognized $1.3 million of online game revenue and income from operations from changes in ourestimated average playing period of payers, which was the result of adjusting the remaining recognition period of deferred revenue generated in prior periodsat the time of a change in estimate. This change in estimate did not impact our reported earnings per share. Further, there were no discontinued games thatrequired adjusting the recognition period of deferred revenue generated in prior periods for the year ended December 31, 2017.During the year ended December 31, 2016, changes in our estimated average playing period of payers resulted in a decrease in online game revenueand income from operations of $0.1 million. Further, we recognized $4.0 million of online game revenue and income from operations from games that hadbeen discontinued. These changes in estimates did not impact our reported earnings per share.SegmentsWe have one operating and reportable segment, which is at the consolidated company level. The Chief Operating Decision Maker (“CODM”), ourChief Executive Officer, manages our operations on a consolidated basis for purposes of assessing performance and allocating resources.Revenue RecognitionThe revenue recognition accounting policy described below relates to revenue transactions from January 1, 2018 and onward, which are accountedfor in accordance with Accounting Standards Codification Topic 606 – Revenue from Contracts with Customers We primarily derive revenue from the sale of virtual items associated with our online games and the sale of advertising.61Online Game. We operate our games as live services that allow players to play for free. Within these games however, players can purchase virtualcurrency to obtain virtual goods or virtual goods directly (together, defined as “virtual items”) to enhance their game-playing experience. Our identifiedperformance obligation is to display the virtual items within the game over the estimated life of the paying player or until it is consumed in game play basedupon the nature of the virtual item. Payment is required at time of purchase and the purchase price is a fixed amount.Players can purchase our virtual items through various widely accepted payment methods offered in the games, including Apple iTunes accounts,Google Play accounts, Facebook local currency payments, PayPal and credit cards. Payments from players for virtual items are non-refundable and relate tonon-cancellable contracts that specify our obligations. Such payments are initially recorded to deferred revenue. For revenue earned through mobile platforms, the transaction price is equal to the gross amount we request to be charged to our player because we arethe principal in the transaction. The related platform and payment processing fees are recorded as cost of revenue in the period incurred.For revenue earned on our web based games through Facebook, our players utilize Facebook’s local currency-based payments program to purchasevirtual items in our games. For all payment transactions on the Facebook platform, Facebook remits to us 70% of the price we request to be charged to theplayer for each transaction, which represents the transaction price. Despite being the principal in the transaction, we recognize revenue net of the amountsretained by Facebook for platform and payment processing fees because Facebook may choose to alter our requested price, for example by offering a discountor other incentives to players playing on their platform, and we do not receive information from Facebook indicating the amount of such discounts orincentives or the actual amount paid by our players. Accordingly, we are unable to determine the gross amount paid by our players on the Facebook platform.The satisfaction of our performance obligation is dependent on the nature of the virtual item purchased and as a result, we categorize our virtual itemsas either consumable or durable. •Consumable virtual items represent items that can be consumed by a specific player action. Common characteristics of consumable virtual itemsmay include items that are no longer displayed on the player’s game board after a short period of time, do not provide the player any continuingbenefit following consumption, or often times enable a player to perform an in-game action immediately (e.g. chips in Zynga Poker). For the saleof consumable virtual items, we recognize revenue as the items are consumed (i.e., over time), which approximates one month. •Durable virtual items represent items that are accessible to the player over an extended period of time (e.g. animals in Farmville 2). We recognizerevenue from the sale of durable virtual items ratably over the estimated average playing period of payers for the applicable game (i.e., over time),which represents our best estimate of the average life of the durable virtual item. •If we do not have the ability to differentiate between revenue attributable to consumable virtual items versus durable virtual items for a specificgame, we recognize revenue ratably over the estimated average playing period of payers for the applicable game.Historically, we have had sufficient data to separately account for consumable and durable virtual items for substantially all of our web games.However, for our standalone mobile games, we do not have the requisite data to separately account for consumable and durable virtual items and thereforerecognize mobile revenue ratably over the estimated average playing period of payers.We expect that in future periods, there will be changes in the mix of consumable and durable virtual items offered and sold, reduced virtual item salesin some existing games, changes in estimates of the average playing period of payers and/or changes in our ability to make such estimates. When suchchanges occur, and in particular if more of our revenue in any period is derived from durable virtual items or the estimated average playing period of payersincreases on average, the amount of revenue that we recognize in a current or future period may be reduced, perhaps significantly. Conversely, if theestimated average playing period of payers decreases on average, the amount of revenue that we recognize in a current or future period may be accelerated,perhaps significantly.On a quarterly basis, we determine the estimated average playing period of payers by game beginning at the time of a payer’s first purchase in therespective game and ending on a date when that paying player is deemed to be no longer playing. To determine when paying players are no longer playing agiven game, we analyze monthly cohorts of payers who made their first in-game payment between six and 18 months prior to the beginning of each quarterand determine whether each payer within the cohort is an active or inactive player as of the date of our analysis. To determine which payers are inactive, weanalyze the dates that each payer last logged into that game. We determine a payer to be inactive once they have reached a period of inactivity for which it isprobable that they will not return to a specific game. For the payers deemed inactive as of our analysis date, we analyze the dates they last logged into thatgame to determine the rate at which inactive payers stopped playing. Based on these dates, we then project a date at which all payers for each monthly cohortare expected to cease playing our games. We then average the time periods from first purchase date and the date the last62payer is expected to cease playing the game for each of the monthly cohorts to determine the total playing period of payers for that game. To determine theestimated average playing period of payers, we then divide this total period by two. The use of this “average” approach is supported by our observations thatpayers typically become inactive at a relatively consistent rate for our games. If future data indicates payers do not become inactive at a relatively consistentrate, we will modify our calculations accordingly. When a new game is launched and only a limited period of payer data is available for our analysis, then wealso consider other factors to determine the estimated average playing period of payers, such as the estimated average playing period of payers for otherrecently launched games with similar characteristics.Advertising. We have contractual relationships with advertising networks, agencies, advertising brokers and directly with advertisers foradvertisements in our games. For all advertising arrangements, we are the principal and our performance obligation is to provide the inventory foradvertisements to be displayed in our games. For contracts made directly with advertisers, we are also obligated to serve the advertisements in our games.However, for those direct advertising arrangements, providing the advertising inventory and serving the advertisement is considered a single performanceobligation, as the advertiser cannot benefit from the advertising space without its advertisements being displayed.The pricing and terms for all our advertising arrangements are governed by either a master contract or insertion order and generally stipulate paymentterms as a specific number of days subsequent to the end of the month, generally ranging from 30 to 60 days. The transaction price in advertisingarrangements is generally the product of the number of advertising units delivered (e.g., impressions, offers completed, videos viewed, etc.) and thecontractually agreed upon price per advertising unit. Further, for advertising transactions not placed directly with the advertiser, the contractually agreedupon price per advertising unit is generally based on our revenue share stated in the contract. The number of advertising units delivered is determined at theend of each month, which resolves any uncertainty in the transaction price during the reporting period. For a limited number of advertising network arrangements, the transaction price is determined based on a volume-tiered pricing structure, whereby theprice per advertising unit in a given month is determined by the number of impressions delivered in that month. However, the number of impressionsdelivered is resolved at the end of each month, therefore, eliminating any uncertainty with respect to the price per advertising unit for each reporting period.For in-game display ads, in-game offers, engagement advertisements and other advertisements, our performance obligation is satisfied over the life ofcontract (i.e., over time), with revenue being recognized as advertising units are delivered.For in-game sponsorships with branded virtual items, revenue is initially recorded to deferred revenue and then recognized ratably over the estimatedlife 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.Arrangements with Multiple Performance Obligations. For arrangements with multiple performance obligations, we allocate the transaction price toeach performance obligation in an amount that depicts the amount of consideration to which we expect to be entitled in exchange for satisfying eachperformance obligation, which is based on the standalone selling price. The standalone selling price represents the observable price which we would sell theadvertising placement separately in a similar circumstance, to a similar customer. Taxes Collected from Customers. We present taxes collected from customers and remitted to governmental authorities on a net basis within ourconsolidated statement of operations.The revenue recognition accounting policy described below relates to revenue transactions prior to January 1, 2018, which are accounted for inaccordance with Accounting Standards Codification Topic 605 – Revenue Recognition.We primarily derive revenue from the sale of virtual items associated with our online games and the sale of advertising.Online Game. We operate our games as live services that allow players to play for free. Within these games, however, players can purchase virtualcurrency to obtain virtual goods or virtual goods directly (together, defined as “virtual items”) to enhance their game-playing experience. Players canpurchase our virtual items through various widely accepted payment methods offered in the games, including Apple iTunes accounts, Google Play accounts,Facebook local currency payments, PayPal and credit cards. Advance payments from customers for virtual items that are non-refundable and relate to non-cancellable contracts that specify our obligations are recorded to deferred revenue. All other advance payments that do not meet these criteria are recorded ascustomer deposits.For revenue earned through mobile platforms, we recognize online game revenue based on the gross amount paid by the player because we are theprincipal in the transaction. The related platform and payment processing fees are recorded as cost of revenue in the period incurred.63For revenue earned on our web based games through Facebook, our players utilize Facebook’s local currency-based payments program to purchasevirtual items in our games. For all payment transactions on the Facebook platform, Facebook remits to us 70% of the price we request to be charged to theplayer for each transaction. We recognize revenue net of the amounts retained by Facebook because Facebook may choose to alter our recommended price,for example by offering a discount or other incentives to players playing on their platform. Additionally, we do not receive information from Facebookindicating the amount of such discounts or incentives or the actual amount paid by our players. Accordingly, we are unable to determine the gross amountpaid by our players on the Facebook platform.We recognize revenue when all of the following conditions are satisfied: there is persuasive evidence of an arrangement; the service has been providedto the player; the collection of our fees is reasonably assured; and the amount of fees to be paid by the player is fixed or determinable. For purposes ofdetermining when the service has been provided to the player, we have determined that an implied obligation exists to the paying player to continuedisplaying the purchased virtual items within the online game over their estimated life or until they are consumed. Accordingly, we categorize our virtualitems as either consumable or durable. Consumable virtual items represent items that can be consumed by a specific player action. Common characteristics ofconsumable virtual items may include items that are no longer displayed on the player’s game board after a short period of time, do not provide the playerany continuing benefit following consumption, or often times enable a player to perform an in-game action immediately. For the sale of consumable virtualitems, we recognize revenue as the items are consumed, which approximates one month. Durable virtual items represent items that are accessible to the playerover an extended period of time. We recognize revenue from the sale of durable virtual items ratably over the estimated average playing period of payers forthe applicable game, which represents our best estimate of the average life of the durable virtual item. If we do not have the ability to differentiate betweenrevenue attributable to consumable virtual items from durable virtual items for a specific game, we recognize revenue ratably over the estimated averageplaying period of payers for the applicable game.We have had sufficient data to separately account for consumable and durable virtual items for substantially all of our web games. However, for ourstandalone mobile games, we do not have the requisite data to separately account for consumable and durable virtual items and therefore recognize revenueratably over the estimated average playing period of payers.We expect that in future periods there will be changes in the mix of durable and consumable virtual items offered and sold, reduced virtual item salesin some existing games, changes in estimates of the average playing period of payers and/or changes in our ability to make such estimates. When suchchanges occur, and in particular if more of our revenue in any period is derived from durable virtual items or the estimated average playing period of payersincreases on average, the amount of revenue that we recognize in a current or future period may be reduced, perhaps significantly. Conversely, if theestimated average playing period of payers decreases on average, the amount of revenue that we recognize in a current or future period may be accelerated,perhaps significantly.On a quarterly basis, we determine the estimated average playing period of payers by game beginning at the time of a payer’s first purchase in therespective game and ending on a date when that paying player is deemed to be no longer playing. To determine when paying players are no longer playing agiven game, we analyze monthly cohorts of payers who made their first in-game payment between six and 18 months prior to the beginning of each quarterand determine whether each payer within the cohort is an active or inactive player as of the date of our analysis. To determine which payers are inactive, weanalyze the dates that each payer last logged into that game. We determine a payer to be inactive once they have reached a period of inactivity for which it isprobable that they will not return to a specific game. For the payers deemed inactive as of our analysis date, we analyze the dates they last logged into thatgame to determine the rate at which inactive payers stopped playing. Based on these dates, we then project a date at which all payers for each monthly cohortare expected to cease playing our games. We then average the time periods from first purchase date and the date the last payer is expected to cease playingthe game for each of the monthly cohorts to determine the total playing period of payers for that game. To determine the estimated average playing period ofpayers, we then divide this total period by two. The use of this “average” approach is supported by our observations that payers typically become inactive ata relatively consistent rate for our games. If future data indicates payers do not become inactive at a relatively consistent rate, we will modify our calculationsaccordingly. When a new game is launched and only a limited period of payer data is available for our analysis, then we also consider other factors todetermine the estimated average playing period of payers, such as the estimated average playing period of payers for other recently launched games withsimilar characteristics.Advertising. We have contractual relationships with advertising networks, agencies, advertising brokers and directly with advertisers foradvertisements within our games. We generally report our advertising revenue net of amounts retained by advertising networks, agencies, and brokersbecause we are not the principal for the advertisement transaction. However, certain advertisement placements that are directly between us and the endadvertiser are recognized gross equal to the price paid to the Company by the end advertiser since we are the principal in the direct advertising arrangement.64We recognize advertising revenue for engagement advertisements and offers, mobile advertisements, branded virtual items and sponsorships and otheradvertisements as advertisements are delivered to customers as long as evidence of the arrangement exists, the price is fixed or determinable, andcollectability as reasonably assured. Price is determined to be fixed or determinable when there is a fixed price included a master contract, insertion order, or athird party statement of advertising activity. For engagement advertisements and offers, mobile advertisements, and other advertisements, delivery occurswhen the advertisement has been displayed or the offer has been completed by the customer, as evidenced by third party verification reports supporting thenumber of advertisements displayed or offers completed. Certain branded in-game sponsorships that involve virtual items are deferred and recognized overthe estimated life of the branded virtual good or as consumed, similar to online game revenue. For these branded virtual items and sponsorships, we determinethe delivery criteria has been met based on delivery reporting received from third parties.Multiple-Element Arrangements. We allocate arrangement consideration in multiple-deliverable revenue arrangements at the inception of anarrangement to all deliverables based on the relative selling price method, generally based on our best estimate of selling price.Taxes Collected from Customers. We present taxes collected from customers and remitted to governmental authorities on a net basis within ourconsolidated statement of operations.Cash and Cash EquivalentsCash and cash equivalents consist of cash on hand, money market funds and corporate debt with maturities of 90 days or less from the date ofpurchase.Short-Term InvestmentsShort-term investments consist of corporate debt securities. The fair value of short-term investments is determined as the exit price in the principalmarket in which we would transact. Based on our intentions regarding our short-term investments, all short-term investments are classified as available-for-sale and are reported at fair value with unrealized gains and losses recorded as a separate component of other comprehensive income, net of income taxes.Realized gains and losses are determined using the specific-identification method and are reflected as a component of other income (expense), net in theconsolidated statements of operations.We assess whether an other-than-temporary loss on our investments has occurred due to declines in fair value or other market conditions. When wedetermine that a decline in fair value is other-than-temporary, the cost basis of the individual security is written down to the fair value with the amount of thewrite-down recorded as a realized loss within other income (expense), net. The new cost basis will not be adjusted for subsequent recoveries in fair value.Determination of whether declines in fair value are other than temporary requires judgment regarding the amount and timing of recovery. No suchimpairments of short-term investments have been recorded in any of the periods presented.Restricted CashRestricted cash consists of collateral for royalty agreements and funds held in escrow in accordance with the terms of our business acquisitionagreements.Accounts Receivable and Allowance for Doubtful AccountsAccounts receivable are recorded at the original invoiced amount less an allowance for any potential uncollectible amounts. In evaluating our abilityto collect outstanding receivable balances, we consider many factors, including the age of the balance, the customer’s payment history and currentcreditworthiness and current economic conditions that may affect our customers’ ability to pay. Bad debts are written off after all collection efforts haveceased. We do not require collateral from our customers.Property and Equipment, NetProperty and equipment are recorded at historical cost less accumulated depreciation. Depreciation is recorded using the straight-line method over theestimated useful lives of the assets. Leasehold improvements are amortized using the straight-line method over the shorter of the estimated useful lives of theimprovements or the lease term.65The estimated useful lives of property and equipment are as follows: Property and Equipment Useful LifeComputer equipment 3 yearsSoftware 2 to 3 yearsBuilding and building improvements 7 to 39 yearsFurniture and fixtures 2 yearsLeasehold improvements Shorter of useful life (generally up to 7 years) or remaininglease term Business CombinationsIn accounting for acquisitions through which a set of assets and activities are transferred to the Company, we perform an initial test to determinewhether substantially all of the fair value of the gross assets transferred are concentrated in a single identifiable asset or a group of similar identifiable assets,such that the acquisition would not represent a business. If that test does not suggest that the set of assets and activities are not a business, we then perform asecond test to evaluate whether the assets and activities transferred include inputs and substantive processes that together, significantly contribute to theability to create outputs, which would constitute a business. If the result of the second test suggests that the acquired assets and activities constitute abusiness, we account for the transaction as a business combination.For our business combinations, we allocate the purchase price of the acquisition, which includes the estimated acquisition date fair value ofcontingent consideration (if applicable), to the tangible assets, liabilities and identifiable intangible assets acquired based on their estimated fair values at theacquisition date. The excess of the purchase price over those fair values is recorded as goodwill. Determining the fair value of such items requires judgment,including estimating future cash flows or the cost to recreate an acquired asset. If actual results are lower than initial estimates, we could be required to recordimpairment charges in the future. Acquired intangible assets with definite lives are amortized over their estimated useful lives generally on a straight-linebasis, unless evidence indicates a more appropriate method. Intangible assets with indefinite lives are not amortized but rather tested for impairmentannually, or more frequently if circumstances indicate an impairment may exist.Acquisition-related expenses are expensed as incurred. During the one-year period beginning with the acquisition date, we may record certainpurchase accounting adjustments related to the fair value of assets acquired and liabilities assumed against goodwill. After the final determination of the fairvalue of assets acquired or liabilities assumed, any subsequent adjustments are recorded to our consolidated statements of operations. The fair value ofcontingent consideration liabilities assumed from an acquisition are remeasured each reporting period and the changes in the fair value, if any, is recordedwithin operating expenses in our consolidated statement of operations each reporting period.Software Development CostsWe review internal use software development costs associated with new games or updates to existing games on a quarterly basis to determine if thecosts qualify for capitalization. Our studio teams follow an agile development process, whereas the preliminary project stage remains ongoing until just priorto worldwide launch, at which time final feature selection occurs. As such, the development costs are expensed as incurred to research and development inour consolidated statement of operations. We did not capitalize any software development costs in 2018, 2017 or 2016.Goodwill and Indefinite-Lived Intangible AssetsGoodwill and indefinite-lived intangible assets are evaluated annually for impairment, or more frequently if circumstances exist that indicate thatimpairment may exist.When conducting our annual goodwill impairment assessment, we perform a quantitative evaluation of whether goodwill is impaired by comparingthe fair value of our single reporting unit to its carrying value. If the carrying value of the reporting unit exceeds its fair value, then we record the amount bywhich the carrying value exceeds its fair value, if any, as impairment to goodwill. For our annual goodwill impairment analysis performed in the fourthquarter of 2018, our estimates of fair value were based on the market approach, which estimated the fair value of our reporting unit based on the Company’smarket capitalization at the annual testing date. The result of the quantitative evaluation indicated that the estimated fair value of the reporting unitexceeded its carrying value. Accordingly, we concluded goodwill was not impaired.66At least annually, we test recoverability of indefinite-lived intangible assets using a qualitative approach that considers whether it is more likely thannot that the fair value of the intangible asset exceeds its carrying value. If qualitative factors indicate that it is more likely than not that the indefinite-livedintangible asset is impaired, a quantitative analysis is performed and the amount of any impairment loss recorded, if any, is measured as the differencebetween the carrying value and the fair value of the impaired intangible asset. We concluded that indefinite-lived intangible assets were not impaired as ofDecember 31, 2018.Intangible AssetsIntangible assets generally consist of definite-lived intangibles assets acquired from a prior business combination and are carried at historical cost lessaccumulated amortization. Amortization is generally recorded on a straight-lined basis, unless another method is deemed more appropriate, over theestimated useful lives of the assets, generally 12 to 84 months.Impairment of Long-Lived AssetsLong-lived assets, including other intangible assets not considered indefinite-lived intangible assets, are reviewed for impairment whenever events orchanges in circumstances indicate an asset’s carrying value may not be recoverable. If such circumstances are present, we assess the recoverability of thelong-lived assets by comparing the carrying value to the undiscounted future cash flows associated with the related assets. If the future net undiscounted cashflows are less than the carrying value of the assets, the assets are considered impaired and an expense, equal to the amount required to reduce the carryingvalue of the assets to the estimated fair value, is recorded as an impairment of intangible assets in the consolidated statements of operations. Significantjudgment 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 offactors, including external factors such as industry and economic trends, and internal factors such as changes in our business strategy and our internalforecasts. For example, if our future operating results do not meet current forecasts, we may be required to record future impairment charges for acquiredintangible assets. Impairment charges could materially decrease our future net income and result in lower asset values on our balance sheet. In the thirdquarter of 2016, we recorded an $18.2 million and $2.5 million impairment charge associated with developed technology previously acquired from RisingTide and Zindagi, respectively. There were no impairment charges recorded during 2018 or 2017.Licenses and RoyaltiesWe obtain licenses from third parties for use of their brands, properties and other licensed content in our games (e.g., Hit It Rich! Slots or vehicles inCSR2). Our licensing agreements typically include minimum guarantee royalty payments, which are due over the term of the agreement and are recoupableagainst future royalty obligations that would otherwise become payable. These advance payments are capitalized as prepaid royalties when paid andamortized once the licensed product is launched in our game. Amortization is recorded as cost of revenue and is calculated as (i) the contractual royalty ratebased on actual net product sales as defined in the licensing agreement or (ii) the straight-line method over the remaining estimated useful life of the licensedproduct, whichever is greater. Each quarter, we evaluate the recoverability of our prepaid royalties as well as any contractual commitments not yet paid to determine amounts thatwe deem unlikely to be recovered through product sales. To evaluate the future recoverability of prepaid royalties and guarantees, we consider the terms ofthe agreement, game development plans, forecasted and actual financial performance of the game as well as other qualitative factors such as the success ofsimilar games and similar genres published by the Company. To the extent that this evaluation indicates that the remaining prepaid and guaranteed royaltypayments are not recoverable, the Company records an impairment charge in the period that impairment is indicated. Any impairment losses determinedbefore the launch of a product are recorded as research and development, while any impairment losses determined post-launch are recorded as cost of revenuein our consolidated statement of operations.Stock-Based Compensation ExpenseWe recognize stock-based compensation expense for restricted stock units (“ZSUs”) based on grant date fair value on a straight-line basis over therequisite service period for the entire award. For certain performance based ZSUs, we recognize the stock-based compensation expense based upon the grantdate fair value on an accelerated attribution basis over the requisite service period of the award. We estimate the fair value of stock options using the Black-Scholes option-pricing model. This model requires the use of the following assumptions:expected volatility of our Class A common stock, which is based on our own calculated historical rate; expected life of the option award, which we elected tocalculate using the simplified method; expected dividend yield, which is 0%, as67we have not paid and do not have any plans to pay dividends on our common stock; and the risk-free interest rate, which is based on the U.S. Treasury rate ineffect at the time of grant with maturities equal to the stock option award’s expected life. If any of the assumptions used in the Black-Scholes model changessignificantly, stock-based compensation expense for future awards may differ materially compared to awards previously granted previously. We record stock-based compensation expense for stock options on a straight-line basis over the vesting term.Stock-based compensation expense is recorded net of forfeitures as they are occur.Income TaxesWe account for income taxes using an asset and liability approach, which requires the recognition of taxes payable or refundable for the current yearand deferred tax liabilities and assets for the future tax consequences of events that have been recognized in our financial statements or tax returns. Themeasurement of current and deferred tax assets and liabilities is based on provisions of enacted tax laws at the end of the reporting period; the effect of futurechanges in tax laws or rates are not anticipated. If necessary, the measurement of deferred tax assets is reduced by the amount of any tax benefits that are notexpected to be realized based on all available positive and negative evidence including scheduled reversals of deferred tax liabilities, projected futuretaxable income, tax-planning strategies and results of recent operations. In evaluating the objective evidence that the results of recent operations provide, wegenerally consider the trailing three years of cumulative operating income (loss). The assumptions about future taxable income require the use of significantjudgment and are consistent with the plans and estimates we are using to manage the underlying businesses.We account for uncertain tax positions by reporting a liability for unrecognized tax benefits resulting from uncertain tax positions taken or expectedto be taken in a tax return. We recognize interest and penalties, if any, related to unrecognized tax benefits in the provision for income tax.Refer to Note 8 — “Income Taxes” below for discussion on the impact of the 2017 Tax Cuts and Jobs Act (“2017 Tax Act”). Foreign Currency TransactionsGenerally, the functional currency of our international subsidiaries is the U.S. dollar or the local currency that the international subsidiary operates in.We translate the financial statements of these subsidiaries to U.S. dollars using the prevailing balance sheet date exchange rate for assets and liabilities, andaverage exchange rates during the period for revenue and costs and expenses. We record translation gains and losses in accumulated other comprehensiveincome (loss) as a component of stockholders’ equity. We reflect foreign exchange transaction gains and losses resulting from the conversion of thetransaction currency to functional currency, which includes gains and losses from the remeasurement of assets and liabilities, as a component of other income(expense), net.Concentration of Credit Risk and Significant CustomersFinancial instruments, which potentially expose us to concentrations of credit risk, consist primarily of cash and cash equivalents, short-terminvestments, accounts receivable and lease receivables. Substantially all of our cash and cash equivalents are maintained with three financial institutionswith high credit standings. We perform periodic evaluations of the relative credit standing of these institutions.Accounts receivable and lease receivables are unsecured and represent amounts due to us based on contractual obligations where an executed contractor click-through agreement exists. In cases where we are aware of circumstances that may impair a specific customer or tenant’s ability to meet its financialobligations, we record a specific allowance as a reduction to the accounts or lease receivable balance to reduce the receivable to its net realizable value.Google, Apple and Facebook are significant distribution, marketing, promotion and payment platforms for our games. A significant portion of our2018, 2017 and 2016 revenue was generated from players who accessed our games through these platforms or were served advertisements in our games onbehalf of advertisers. As of December 31, 2018 and December 31, 2017, 27% and 19% of our accounts receivable, net, respectively, were amounts owed to usby Google, 26% and 34% of our accounts receivable, net, respectively, were amounts owed to us by Apple and 15% and 10% of our accounts receivable, net,respectively, were amounts owed to us by Facebook.Advertising ExpenseCosts for advertising are expensed as incurred. Advertising costs, which are included in sales and marketing expense, primarily consisting of playeracquisition costs, totaled $157.7 million, $147.2 million and $132.5 million for 2018, 2017 and 2016 respectively.68Recent Accounting PronouncementsIssued But Not Yet AdoptedIn February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, “Leases (Topic 842),”which requires a lessee to recognize assets and liabilities on the balance sheet for leases with lease terms greater than 12 months, using a modifiedretrospective transition method. For lessors, accounting for leases will remain substantially the same as in prior periods. The standard is effective in the firstquarter of 2019 and early adoption is permitted. In July 2018, the FASB issued ASU 2018-11, “Leases (Topic 842) – Targeted Improvements,” whichprovides an alternative transition approach allowing companies to initially apply the new leases standard by recognizing a cumulative-effect adjustment onadoption date, which the Company will elect. The Company will adopt on January 1, 2019 and expects adoption of this new standard to significantlyincrease reported assets and liabilities, specifically with respect to leased office facilities, as well as certain data center and data hosting arrangements.As part of the adoption of the new lease standard, the standard allows a number of practical expedients and exemptions. At transition the Companywill elect the following: •The package of practical expedients, which allows us to carryforward our historical lease classification, assessment on whether a contract isor contains a lease and initial direct costs for any leases that exist prior to adoption of the new standard. •The practical expedient to not separate non-lease components from the related lease components, which is expected to further increasereported assets and liabilities. •The exemption to not apply the balance sheet recognition requirements for leases with a lease term of 12 months or less and instead,expense those costs on a straight-line basis over the lease term, or in the period in which the obligation is incurred, if such costs arevariable. The ASU also amends the provisions of ASC 420 – Exit or Disposal Obligations to eliminate the concept of cease-use lease liabilities and instead,requires companies to evaluate leases for impairment in accordance ASC 360 Property, Plant, and Equipment. Accordingly, upon adoption, we expect toderecognize our $10.9 million Q2 2015 Restructuring Plan liability and simultaneously recognize a lease liability for an equal amount. However, inaccordance with the ASU’s transition guidance, the derecognition of the Q2 2015 Restructuring Plan liability will offset the related right-of-use assetassociated with the newly established lease liability upon adoption.We are finalizing our analysis of the transition adjustment, including the determination of the rates used to discount the individual lease liabilities.We are, however, continuing to assess the full impact on our consolidated financial statements, which includes changes to our processes and controls andevaluation of non-real estate arrangements entered into in the second half of 2018.In August 2018, the FASB issued ASU 2018-15, “Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing ArrangementThat Is a Service Contract”, which aligns the accounting for implementation costs incurred with a cloud computing arrangement accounted for as a servicearrangement with the guidance in ASC Topic 350-40, Internal-Use Software to determine which implementation costs should be capitalized. The ASUpermits either a prospective or retrospective transition approach and is effective for interim and annual periods beginning after December 15, 2019, with earlyadoption permitted. The Company is currently assessing this standard’s impact on its consolidated financial statements.Issued And AdoptedIn May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606),” which requires revenue to be recognized whenpromised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services.ASU 2014-09 (“ASC Topic 606”) supersedes the existing revenue recognition guidance and is effective for interim and annual reporting periods beginningafter December 15, 2017. We adopted ASC Topic 606 on January 1, 2018 using the modified retrospective transition approach. Refer to Note 2 – “Revenuefrom Contracts with Customers” for further details on the impact from adoption. In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments,”which provides guidance on specific topics related to how certain cash receipts and cash payments are classified in the statement of cash flows. Later, inNovember 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash,” which requires companies to include amountsgenerally described as restricted cash and restricted cash equivalents in cash and cash equivalents when reconciling beginning-of-period and end-of-periodtotal amounts shown on the statement of cash flows. Our restricted cash primarily consists of funds held in escrow in accordance with the terms of ourbusiness acquisition agreements. The restrictions release based upon the satisfaction of required milestones or lapse of defined time periods. Both standardsare effective for interim and annual reporting periods beginning after December 15, 2017. On January 1, 2018, we adopted both standards using theretrospective transition approach and there was no impact upon adoption of ASU 2016-15.69As a result of adopting ASU 2016-18, the primary impact to the consolidated statement of cash flows relates to cash flows provided by (used in)investing and financing activities. Specifically, our business acquisitions typically involve restricted cash held in escrow at the date of acquisition which islater released. These transactions are now reflected in investing activities. Further, certain acquisition related contingent consideration payments involverestricted cash, the payment of which is reflected in financing activities. In January 2017, the FASB issued ASU 2017-01, “Business Combinations (Topic 805) Clarifying the Definition of a Business,” which clarifies thedefinition of a business to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses.The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill and consolidation. The standard is effective forinterim and annual periods beginning after December 15, 2017. On January 1, 2018, we adopted the standard using the prospective transition approach, withno financial statement impact upon adoption. Moving forward, the impact of this ASU will be fact dependent, but we expect that some transactions that werepreviously accounted for as business combinations or disposal transactions will be accounted for as asset purchases or asset sales under the ASU. 2. Revenue from Contracts with CustomersOn January 1, 2018, we adopted ASC Topic 606 using the modified retrospective transition method applied to contracts that were not complete as ofthe adoption date. Consolidated financial results for reporting periods beginning after January 1, 2018 are presented under ASC Topic 606, while prior periodamounts continue to be reported in accordance with ASC Topic 605, “Revenue Recognition”.As of January 1, 2018, we recorded a net reduction of $4.0 million to our opening deferred revenue and accumulated deficit balances, net of tax, due tothe cumulative impact of adopting ASC Topic 606. The impact was driven by the recognition of revenue for certain advertising arrangements for whichrevenue was not previously recognized until payment was certain, partially offset by the deferral of previously recognized revenue for a symbolic licensearrangement, for which revenue is recognized over the term of the license under ASC Topic 606.The impact of adopting ASC Topic 606 on our consolidated balance sheet as of December 31, 2018 was as follows (in thousands): As of December 31, 2018 Amounts as Reported Amounts withoutAdoption of ASCTopic 606 Increase(Decrease)from ASC Topic 606Adoption Current liabilities: Deferred revenue $191,299 $202,238 $(10,939)Total current liabilities 479,834 490,773 (10,939)Deferred revenue 1,586 1,013 573 Total liabilities 550,093 560,459 (10,366)Accumulated deficit (1,789,664) (1,800,030) 10,366 Total stockholders' equity 1,596,610 1,586,244 10,366 Total liabilities and stockholders' equity $2,146,703 $2,146,703 $— As a result of adopting ASC Topic 606, deferred revenue as of December 31, 2018 decreased from certain advertising arrangements for which revenuewould otherwise not be recognized until payment was certain under ASC Topic 605, partially offset by an increase to deferred revenue associated with thedeferral of previously recognized revenue from the aforementioned symbolic license arrangement. The increase to stockholders’ equity as of December 31,2018 from adopting ASC Topic 606 is the result of the net income impact discussed below and the $4.0 million transition adjustment recognized uponadoption of ASC Topic 606 on January 1, 2018. 70The impact of adopting ASC Topic 606 on our consolidated statement of operations for the year ended December 31, 2018 was as follows (inthousands): Year Ended December 31, 2018 Amounts as Reported Amounts withoutAdoption of ASCTopic 606 Increase(Decrease)from ASC Topic 606Adoption Revenue: Advertising and other $236,331 $229,989 $6,342 Total revenue 907,208 900,866 6,342 Income (loss) from operations 6,762 420 6,342 Income (loss) before taxes 26,463 20,121 6,342 Net income (loss) $15,457 $9,115 $6,342 Net income (loss) per share attributable to common stockholders: Basic $0.02 $0.01 $0.01 Diluted $0.02 $0.01 $0.01 As a result of adopting ASC Topic 606 during the year ended December 31, 2018, advertising and other revenue increased primarily as a result of theaforementioned recognition of revenue for certain advertising arrangements for which revenue would otherwise not be recognized until payment was certainunder ASC Topic 605 and the recognition of revenue over time from the symbolic license. There was no impact to net cash flows provided by (used in)operating, investing or financing activities for the year ended December 31 as a result of adopting ASC Topic 606. However, within cash flows fromoperating activities, net income (loss) is $6.3 million higher and the change in deferred revenue is $6.3 million lower as a result of adopting ASC Topic 606during the year ended December 31, 2018. Disaggregation of RevenueThe following table presents our revenue disaggregated by platform (in thousands): Year Ended December 31, 2018 2017(1) 2016(1) Online game: Mobile $590,436 $564,629 $413,919 Web 80,441 100,964 133,372 Online game total $670,877 $665,593 $547,291 Advertising and other: Mobile 225,085 174,867 160,452 Web 9,001 14,961 30,637 Other 2,245 5,969 3,040 Advertising and other total $236,331 $195,797 $194,129 Total revenue $907,208 $861,390 $741,420 (1)Amounts have not been retrospectively adjusted to reflect the adoption of ASC Topic 606. The following table presents our revenue disaggregated based on the geographic location of our payers (in thousands): Year Ended December 31, 2018 2017(1) 2016(1) United States $593,973 $567,315 $507,473 All other countries(2) 313,235 294,075 233,947 Total revenue $907,208 $861,390 $741,420 (1)Amounts have not been retrospectively adjusted to reflect the adoption of ASC Topic 606. (2)No foreign country exceeded 10% of our total revenue for any periods presented.71Consumable virtual items accounted for 43% of online game revenue in the year ended December 31, 2018 and 44% of online game revenue in thesame period of the prior year. Durable virtual items accounted for 57% of online game revenue in the year ended December 31, 2018 and 56% of online gamerevenue in the same period of the prior year. The estimated weighted average life of durable virtual items was nine months in the year ended December 31,2018, compared to eight months in the same period of the prior year.Contract BalancesWe receive payments from our customers based on the payment terms established in our contracts. Payments for online game revenue are required attime of purchase, are non-refundable and relate to non-cancellable contracts that specify our performance obligations. Such payments are initially recorded todeferred revenue and are recognized into revenue as we satisfy our performance obligations.Payments for advertising arrangements are due based on the contractually stated payment terms. For advertising arrangements, the contract termsgenerally require payment within 30 to 60 days subsequent to the end of the month. Our right to payment from the customer is unconditional and thereforerecorded as accounts receivable. During the year ended December 31, 2018, we recognized all of the revenue that was included in the $129.2 million current deferred revenue balanceon January 1, 2018.The decrease in accounts receivable, net during the year ended December 31, 2018 was primarily driven by cash collections of current period andpreviously due amounts exceeding sales on account during the period, partially offset by a net increase in accounts receivable of $10.7 million on theacquisition date from our acquisition of Gram Games Teknoloji A.S (“Gram Games”). The increase in deferred revenue during the year ended December 31,2018 was primarily driven by the sale of virtual items during the period, which includes contribution from Gram Games, exceeding revenue recognized fromthe satisfaction of our performance obligations.Unsatisfied Performance ObligationsSubstantially all of our unsatisfied performance obligations relate to contracts with an original expected length of one year or less. 3. Marketable SecuritiesThe following tables summarize the amortized cost, gross unrealized gains and losses and fair value of our short-term investments as of December 31,2018 and 2017 (in thousands): December 31, 2018 Gross Gross Amortized Unrealized Unrealized Aggregate Cost Gains Losses Fair Value Corporate debt securities $36,230 $2 $— $36,232 Total $36,230 $2 $— $36,232 December 31, 2017 Gross Gross Amortized Unrealized Unrealized Aggregate Cost Gains Losses Fair Value Corporate debt securities $308,684 $— $(178) 308,506 Total $308,684 $— $(178) $308,506All of our short-term investments have contractual maturities of one year or less as of December 31, 2018.Changes in market interest rates and bond yields cause our short-term investments to fall below their cost basis, resulting in unrealized losses. As ofDecember 31, 2018, we had unrealized losses of less than $0.1 million related to our short-term investments that had a fair value of $5.0 million. As ofDecember 31, 2017, we had unrealized losses of $0.2 million related to short-term investments that had a fair value of $143.0 million. As of December 31,2018 and 2017, none of our investments were in a material continuous unrealized loss position for more than 12 months.72As of December 31, 2018, we did not consider any of our short-term investments to be other-than-temporarily impaired. We do not intend to sell, nordo we believe it is more likely than not that we will be required to sell, any of the securities in an unrealized loss position. When evaluating our investmentsfor other-than-temporary impairment, we review factors such as the length of time and extent to which fair value has been below its cost basis, the financialcondition of the issuer, our ability and intent to hold the security to maturity and whether it is more likely than not that we will be required to sell theinvestment before recovery of the amortized cost basis. 4. Fair Value MeasurementsOur financial assets consist of cash equivalents, short-term investments, accounts receivable, net and leasehold receivables. Cash equivalents andshort-term investments, which consist of money market funds and corporate debt securities, are reported at fair value. Accounts receivable, net and leaseholdreceivables are stated at the net realizable amount, which approximates fair value.Our financial liabilities consist of accounts payable and accrued liabilities, which are stated at the invoiced or estimated payout amount, respectively,and approximate fair value, contingent consideration obligations as a result of business acquisitions, which are reported at fair value, and loans drawn againstour Credit Facility; see Note 10 – “Debt” for further discussion on the loans drawn against our Credit Facility.As of December 31, 2018, our contingent consideration obligation represents the estimated fair value of the additional consideration payable inconnection with our acquisition Gram Games in the second quarter of 2018. Under the terms of the acquisition, contingent consideration may be payablebased on the achievement of certain future performance targets during each annual period following the acquisition date for a total of three years ending, withno maximum limit as to the contingent consideration achievable. We estimated the acquisition date fair value of the contingent consideration obligationusing a Monte Carlo simulation. The significant unobservable inputs used in the fair value measurement of the contingent consideration obligation wereGram Games’ projected performance, a risk-adjusted discount rate and performance volatility similar to industry peers. Changes to projected performance ofthe acquired business could result in a higher or lower contingent consideration obligation in the future. At acquisition, the estimated fair value of thecontingent consideration obligation was $43.5 million. As of December 31, 2018, the estimated fair value of the contingent consideration obligationincreased to $49.0 million, primarily due to the increased probability of achievement and stronger than expected performance and as a result, we haverecognized $5.5 million of expense within research and development expenses in our consolidated statement of operations during the year ended December31, 2018.With respect to the PuzzleSocial acquisition that occurred in the third quarter of 2016, we estimated the acquisition date fair value of the contingentconsideration obligation using discounted cash flow models and applied a discount rate that appropriately captured a market participant’s view of the riskassociated with the respective obligation. The significant unobservable inputs used in the fair value measurement of the acquisition-related contingentconsideration obligation were forecasted future cash flows, the timing of those cash flows and the risk-adjusted discount rate. During the second quarter of2017, it was determined the future performance would not meet the required December 31, 2018 performance targets and the estimated fair value of theobligation was reduced to zero. The performance period ended on December 31, 2018 and the minimum required performance targets for the acquisition werenot met. Accordingly, no contingent consideration is payable under the terms of the acquisition.We estimate fair value as the exit price, which represents the amount that would be received to sell an asset or paid to transfer a liability in an orderlytransaction between knowledgeable and willing market participants.The valuation techniques used to measure the fair value of the Company’s financial instruments, all of which have counterparties with high creditratings, were valued based on quoted market prices or model driven valuations using significant inputs derived from or corroborated by observable marketdata. We use a three-tier value hierarchy, which prioritizes the inputs used in measuring fair value as follows:Level 1 — Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.Level 2 — Includes inputs, other than Level 1 inputs, that are directly or indirectly observable in the marketplace.Level 3 — Unobservable inputs that are supported by little or no market activity.73The composition of our financial assets and liabilities as of December 31, 2018 and 2017 among the three levels of the fair value hierarchy are asfollows (in thousands): December 31, 2018 Level 1 Level 2 Level 3 Total Assets: Cash equivalents: Money market funds $565 $— $— $565 Corporate debt securities — 4,987 — 4,987 Short-term investments: Corporate debt securities — 36,232 — 36,232 Total financial assets $565 $41,219 $— $41,784 Liabilities: Contingent consideration — — 49,000 49,000 December 31, 2017 Level 1 Level 2 Level 3 Total Assets: Cash equivalents: Money market funds $177,577 $— $— $177,577 Corporate debt securities — 44,923 — 44,923 Short-term investments: Corporate debt securities — 308,506 — 308,506 Total financial assets $177,577 $353,429 $— $531,006 The following table presents the activity for the year ended December 31, 2018 related to our Level 3 liabilities (in thousands): Level 3 Liabilities: Total Contingent consideration obligation – December 31, 2017 $— Additions 43,500 Fair value adjustments 5,500 Contingent consideration obligation – December 31, 2018 $49,000 5. Property and Equipment, NetProperty and equipment, net consist of the following (in thousands): December 31, December 31, 2018 2017 Computer equipment $20,624 $21,583 Software 34,937 32,509 Land 89,130 89,130 Building and building improvements 203,873 199,070 Furniture and fixtures 10,321 10,376 Leasehold improvements 6,144 7,965 Total property and equipment, gross $365,029 $360,633 Less accumulated depreciation (98,472) (94,044)Total property and equipment, net $266,557 $266,589 The following represents our property and equipment, net by location (in thousands): December 31, December 31, 2018 2017 United States $262,844 $263,037 All other countries 3,713 3,552 Total property and equipment, net $266,557 $266,589 746. Acquisitions2018 AcquisitionOn May 25, 2018, we acquired a 100% equity interest in Gram Games, a mobile game developer, to expand our hyper-casual and puzzle gamesportfolio, for total purchase consideration of $299.4 million. Of the total purchase consideration, $230.9 million was paid in cash and $25.0 million isretained in escrow for a period of 18 months for general representations and warranties for total cash consideration of $255.9 million. The remaining purchaseconsideration relates to contingent consideration valued at $43.5 million as of the acquisition date. The contingent consideration may be payable based onthe achievement of certain future performance targets during each annual period following the acquisition date for a total of three years. We will recordchanges in the fair value of the contingent consideration obligation within our consolidated statement of operations in each future reporting period as theyoccur (see Note 4 – “Fair Value Measurements” for further discussion). Additionally, in connection with the transaction, the Company executednoncompetition agreements with the prior management owners of Gram Games for a term of three years following the acquisition date. However, theacquisition date estimated fair value of the noncompetition agreements was not material. The following table summarizes the acquisition date fair value of the tangible assets, liabilities assumed, intangible assets, contingent considerationand related goodwill acquired from Gram Games (in thousands): Total Cash $8,474 Accounts receivable, net 10,747 Prepaid expenses 279 Other current assets 937 Intangible assets, net: Developed technology, useful life of 5 years 43,000 Developed technology, useful life of 3 years 26,000 Trade names, useful life of 7 years 14,000 Trade names, useful life of 3 years 500 Goodwill 224,289 Property and equipment, net 898 Other non-current assets 329 Total assets acquired 329,453 Accounts payable (8,874)Income tax payable (502)Other current liabilities (5,164)Deferred tax liabilities, net (15,499)Total liabilities assumed (30,039)Total purchase price consideration $299,414 Non-current contingent consideration payable (43,500)Total cash consideration $255,914 The fair value of our intangible assets, net was determined using a risk-adjusted, discounted cash flow model.Goodwill, which is non-deductible for tax purposes, represents the excess of the purchase price over the fair value of the net tangible and intangibleassets acquired and is primarily attributable to the assembled workforce of the acquired business and expected synergies at the time of the acquisition. Theweighted average amortization period of the acquired intangible assets was 4.7 years at acquisition.Transaction costs incurred by the Company in connection with the Gram Games acquisition, including professional fees, were $1.7 million for the yearended December 31, 2018 and were recorded within general and administrative expenses in our consolidated statements of operations. The results of operations from Gram Games have been included in our consolidated statement of operations since the date of acquisition. Pro formaresults of operations have not been presented as they are not material to our consolidated statements of operations for the year ended December 31, 2018.752017 AcquisitionsAcquisition of Solitaire Mobile Gaming ApplicationsOn February 14, 2017, we purchased Solitaire mobile game applications (“Solitaire”) from Harpan LLC (“Harpan”) and, in connection with thetransaction, executed noncompetition agreements with the founders. We acquired these games to expand our card game portfolio. The total considerationpaid to Harpan was approximately $42.5 million in cash, of which approximately $35.1 million was allocated to the business combination and the remaining$7.4 million was allocated to the noncompetition agreements with a useful life of two years.The following table summarizes the purchase date fair value of acquired net intangible assets (excluding the noncompetition agreement) from Harpan(in thousands): Total Developed technology, useful life of 5 years $20,471 Goodwill 14,610 Total $35,081 Goodwill, which is deductible for tax purposes, represents the excess of the purchase price over the fair value of the net intangible assets acquired andis primarily attributable to the expected synergies at the time of the acquisition.Acquisition of Peak Casual Card Game DivisionOn December 12, 2017, we acquired the casual card game division of Peak Oyun Yazilim Ve Pazarlama Anonim Sirketi (“Peak Games”) to expand ourcard game portfolio, and in connection with the transaction, executed noncompetition agreements with Peak Games and its founder for a term of three yearssubsequent to the closing date. The total consideration paid to Peak Games was approximately $99.7 million in cash, of which $98.6 million was allocatedto the business combination, $1.0 million was allocated to the noncompetition agreement with a useful life of three years and the remaining $0.1 million wasallocated to a transition service agreement with Peak Games for certain data and reporting services over the next twelve months. The following table summarizes the purchase date fair value of the net tangible assets, intangible assets (excluding the noncompetition and transferservice agreements) and the related goodwill acquired from Peak Games (in thousands): Total Developed technology, useful life of 5 years $24,000 Trade names, useful life of 7 years 2,000 Goodwill 72,120 Net tangible assets acquired 500 Total assets acquired $98,620 Goodwill, which is deductible for tax purposes, represents the excess of the purchase price over the fair value of the net tangible and intangible assetsacquired and is primarily attributable to the expected synergies at the time of the acquisition. The weighted average amortization period of the acquiredintangible assets was 5.2 years at acquisition.Transaction costs incurred by the Company in connection with the Peak casual card game division and Solitaire acquisitions, including professionalfees, were $3.0 million and recorded in our consolidated statement of operations during 2017.The results of operations for the games acquired from Peak Games and Harpan have been included in our consolidated statement of operations sincethe dates of acquisition. Pro forma results of operations related to our acquisitions have not been presented as they are not material to our 2017 consolidatedstatement of operations. 767. Goodwill and Intangible Assets, NetThe following table presents the changes to goodwill from December 31, 2016 to December 31, 2018 (in thousands): Goodwill – December 31, 2016 (1) $613,335 Additions 86,730 Foreign currency translation adjustments (2) 30,399 Goodwill – December 31, 2017 (1) $730,464 Additions 224,289 Foreign currency translation adjustments (2) (20,566)Goodwill – December 31, 2018 (1) $934,187 (1)There are no accumulated impairment losses at the beginning or end of any period presented. (2)The foreign currency translation adjustments are primarily related to adjustments on goodwill associated with the acquisition of NaturalMotion, for which the functionalcurrency is denominated in British pounds.The details of our acquisition-related intangible assets as of December 31, 2018 and 2017 are as follows (in thousands): December 31, 2018 Gross Carrying Accumulated Net Book Value Amortization Value Developed technology $263,720 $(167,664) $96,056 Trademarks, branding and domain names 32,772 (11,702) 21,070 Noncompetition agreements 8,390 (7,107) 1,283 Acquired lease intangibles 5,708 (5,517) 191 Total $310,590 $(191,990) $118,600 December 31, 2017 Gross Carrying Accumulated Net Book Value Amortization Value Developed technology $197,908 $(147,427) $50,481 Trademarks, branding and domain names 18,272 (10,152) 8,120 Noncompetition agreements 8,390 (3,079) 5,311 Acquired lease intangibles 5,708 (5,362) 346 Total $230,278 $(166,020) $64,258 Our trademarks, branding and domain names intangible assets include $6.1 million of indefinite-lived intangible assets as of December 31, 2018 andDecember 31, 2017. The remaining assets were, and continue to be, amortized on a straight-line basis. Amortization expense related to other intangible assetsfor 2018, 2017 and 2016 was $29.0 million, $16.2 million and $29.0 million – exclusive of a $20.7 million impairment charge, respectively.As of December 31, 2018, the weighted-average remaining useful lives of our acquired intangible assets are 3.6 years for developed technology, 6.3years for trademarks, branding, and domain names, 1.4 years for acquired lease intangibles, 1.1 years for noncompetition agreements, and 3.9 years in total,for all acquired intangible assets. As of December 31, 2018, future amortization expense related to our intangible assets is shown below (in thousands): Year ending December 31: 2019 $32,383 2020 31,145 2021 23,596 2022 16,368 2023 5,869 Thereafter 3,119 Total $112,480 778. Income TaxesOn December 22, 2017, the 2017 Tax Act was enacted into law. Beginning January 1, 2018, the 2017 Tax Act reduced the U.S. federal corporate taxrate from 35% to 21%, requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax-deferred,created new taxes on certain foreign sourced earnings, repealed the Alternative Minimum Tax (“AMT”), and expanded the number of individuals whosecompensation is subject to a $1.0 million cap on deductibility, amongst other minor changes.In January 2018, the SEC staff issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (“SAB118”) to provide guidance for companies that did not have sufficient time to complete the accounting for the income tax effects of the 2017 Tax Act duringthe fourth quarter of 2017 (i.e., the period of enactment). Specifically, SAB 118 states that companies that did not complete accounting for the effects of the2017 Tax Act in the period of enactment may report provisional amounts based on reasonable estimates for items for which the accounting is incomplete.Those provisional amounts are then subject to adjustment during a measurement period that began in December 2017 and ends when a company hasobtained, prepared and analyzed the information needed to complete the accounting requirements under ASC 740 Income Taxes. This measurement periodshould not extend beyond one year from the enactment date. Furthermore, SAB 118 states that if a company cannot make a reasonable estimate for an incometax effect, it should not account for that effect until it can make such an estimate.In certain cases, as described below, we made a reasonable estimate of the effects on our existing deferred tax balances and refundable AMT credit andrecorded provisional amounts during the fourth quarter 2017. In other cases, we were not able to make a reasonable estimate during the period of enactmentand continued to account for those items based on our existing accounting under ASC 740 Income Taxes and the provisions of the tax laws that were in effectimmediately prior to enactment, in accordance with SAB 118. During the fourth quarter of 2018, the one-year provisional period lapsed and accordingly, theCompany completed its accounting for the income tax effects of the 2017 Tax Act. The various income tax effects are reflected below, by period.2017 Tax Act Effects: Year Ended December 31, 2017We recognized a provisional tax benefit of $5.0 million during the fourth quarter of 2017 as a result of the 2017 Tax Act’s enactment, which wasincluded as a component of the provision for income tax in the consolidated statement of operations during 2017. The components of the provisional taxbenefit recognized during 2017 included:Deferred tax assets and liabilities. Certain deferred tax assets and liabilities were re-measured based on the rates at which they are expected to reversein the future, which is generally 21%. The related provisional income tax benefit recorded to the consolidated statement of operations for the year endedDecember 31, 2017, net of valuation allowance, was $2.4 million.AMT credit. As part of the 2017 Tax Act, the corporate AMT was repealed. AMT credits generated by the Company in previous years are refundable intax years beginning after 2017 and before 2022 with any remaining credits being fully refundable in 2022. The related provisional income tax benefitrecorded to the consolidated statement of operations for the year ended December 31, 2017 for the AMT credit refund was $2.6 million. The receivable for therefundable AMT credit was recorded to non-current other assets within the consolidated balance sheet.Officer compensation. As noted above, the 2017 Tax Act expanded the number of individuals whose compensation is subject to a $1.0 million cap ondeductibility and required companies to include performance-based compensation (such as bonuses) in the calculation. As a result, the Company recorded aprovisional amount to reduce the future tax benefit related to officers’ stock-based compensation for the year ended December 31, 2017. However, there wasno net impact to the provision for income tax as the provisional amount was offset by an equal reduction in the Company's deferred tax asset valuationallowance. Refer to discussion below on the reversal of this provisional amount during the year ended December 31, 2018.One-time transitional tax. As part of the 2017 Tax Act, total foreign earnings and profits (“E&P”) after 1986, that were previously deferred from U.S.federal taxation, are subject to a one-time tax on the mandatory deemed repatriation of foreign earnings. The Company’s provisional analysis of the one-timetransition tax resulted in no additional taxes being owed due to the overall accumulated E&P deficit.2017 Tax Act Effects: Year Ended December 31, 2018During 2018, no further adjustments were made to the provisional amounts previously recorded during the fourth quarter of 2017, except the officercompensation matter discussed below. However, we did recognize $3.9 million of tax expense during the fourth quarter of 2018 as a result of the 2017 TaxAct’s enactment, which is included as a component of the provision for income tax in the consolidated statement of operations. The components of the taxexpense recognized during 2018 included:78Base Erosion and Anti-Abuse Tax (“BEAT”). During the fourth quarter of 2018, the United States Treasury proposed regulations concerning the typesof related party payments subject to BEAT. Further, the guidance clarified that for a company utilizing net operating losses, the starting point for calculating“modified taxable income” for BEAT is zero. As a result of the proposed regulations, the Company recorded $3.9 million tax expense to the consolidatedstatement of operations for the year ended December 31, 2018.Global Intangible Low-Taxed Income (“GILTI”). With respect to the GILTI provisions, companies may make an accounting policy election to either(i) account for GILTI as a component of tax expense in the period in which the entity is subject to the rules or (ii) account for GILTI in the entity’smeasurement of deferred taxes. The Company elected to account for the GILTI provisions as a component of tax expense in the period in which the entity issubject to the rules. The Company did not incur any GILTI related tax expense in 2018 due to cumulative net losses in its foreign jurisdictions.Officer compensation. The Internal Revenue Service (“IRS”) issued guidance to clarify the application of the 2017 Tax Act, which expanded thedefinition of a “covered employee” subject to annual tax-deductible compensation limits to include an entity’s Chief Financial Officer (“CFO”). The IRSguidance clarified that compensatory contracts (e.g., ZSU or stock option grants) in effect prior to the enactment of the 2017 Tax Act were eligible to begrandfathered into the pre-2017 Tax Act rules and are therefore not subject to certain limitations. All of our current stock compensation awards vesting to theCFO were granted prior to the enactment date, and thus, will be treated under the pre-2017 Tax Act rules. As a result, the Company recorded a reversal of theprovisional amount originally recorded during the fourth quarter of 2017. However, there was no net impact to the provision for income tax as the amountwas offset by an equal addition to the Company's deferred tax asset valuation allowance.Income (loss) before income taxes consists of the following for the periods shown below (in thousands): Year Ended December 31, 2018 2017 2016 United States $29,941 $(6,081) $(62,037)International (3,478) 43,664 (42,694)Total $26,463 $37,583 $(104,731) The provision for (benefit from) income taxes consists of the following for the periods shown below (in thousands): Year Ended December 31, 2018 2017 2016 Current tax expense (benefit): Federal $3,918 $(2,132) $(30)State 205 142 2 Foreign 11,967 13,562 7,178 Total current tax expense (benefit) $16,090 $11,572 $7,150 Deferred tax (benefit) expense: Federal $1,350 $(1,231) $(2,809)State 444 300 (20)Foreign (6,878) 303 (879)Total deferred tax (benefit) expense $(5,084) $(628) $(3,708)Provision for (benefit from) income taxes $11,006 $10,944 $3,442 79The reconciliation of federal statutory income tax provision (benefit) to our effective income tax provision is as follows (in thousands): Year Ended December 31, 2018 2017 2016 Expected provision for (benefit from) income taxes at U.S. federal statutory rate (1) $5,557 $13,154 $(36,656)State income taxes - net of federal benefit 205 142 2 BEAT obligation 3,918 — — Income taxed at foreign rates 4,447 (3,643) 20,112 Stock-based compensation (3,457) (2,898) 4,295 Tax reserve for uncertain tax positions 1,676 3,101 2,382 Change in valuation allowance (5,610) (51,976) 14,786 Impact of change in enacted tax rates (94) 48,296 69 Acquisition costs 536 — 110 Contingent consideration 1,155 (252) (2,781)Officer's compensation limitation 2,340 2,582 — Investment in subsidiaries — 1,676 — Other 333 762 1,123 Actual provision for (benefit from) income taxes $11,006 $10,944 $3,442 (1)For the purpose of the reconciliation above, the U.S. federal statutory rate was 21% for the year ended December 31, 2018 and 35% for both the years ended December31, 2017 and 2016. Our analysis of the one-time transition tax liability for our foreign subsidiaries enacted by the 2017 Tax Act did not result in additional taxes beingowed, considering our accumulated deficit position at December 31, 2017. Additionally, no other income taxes (state or foreign) have been provided for anyremaining undistributed foreign earnings not subject to the transition tax, or any additional outside basis difference inherent in these entities, as theseamounts continue to be indefinitely reinvested in foreign operations. As of December 31, 2018 and 2017, the cumulative amount of earnings upon whichincome taxes have not been provided is approximately $73.0 million and $48.8 million, respectively.80Deferred tax assets and liabilities are recognized for the future tax consequences of differences between the carrying amounts of assets and liabilitiesand their respective tax basis using enacted tax rates in effect for the year in which the differences are expected to be reversed. Our deferred tax assets andliabilities are as follows (in thousands): December 31, December 31, 2018 2017 Deferred tax assets: Net operating loss carryforwards $60,737 $66,680 Tax credit carryforwards 103,740 99,966 Acquired intangible assets 28,957 25,692 Equity based compensation 10,150 7,467 Accrued expenses 3,718 5,505 Other accrued compensation 6,524 4,747 Charitable contributions 2,533 2,886 State taxes 351 248 Other — 735 Total deferred tax assets $216,710 $213,926 Less: Valuation allowance (205,989) (209,652)Deferred tax assets, net of valuation allowance $10,721 $4,274 Deferred tax liabilities: Acquired intangible liabilities $(11,637) $— Goodwill (5,000) (3,210)Deferred rent (2,334) (1,073)Depreciation (4,694) (3,839)Other (2,547) (1,248)Total deferred tax liabilities $(26,212) $(9,370)Net deferred taxes $(15,491) $(5,096) Due to our history of net operating losses, we believe it is more likely than not that certain federal, state and foreign deferred tax assets will not berealized in future periods as of December 31, 2018. The decrease in the valuation allowance during the year ended December 31, 2018 is primarily related tothe use of net operating losses.Net operating loss and tax credit carryforwards as of December 31, 2018 are as follows (in thousands): Amount ExpirationyearsNet operating losses, federal $363,599 2028 - 2036Net operating losses, state 216,531 2019 - 2037Tax credits, federal 92,375 2027 - 2038Tax credits, state 86,982 2021 - indefinite The federal and state net operating loss carryforwards are subject to various annual limitations under Section 382 of the Internal Revenue Code andsimilar state provisions.81The following table reflects changes in the gross unrecognized tax benefits (in thousands): December 31, 2015 $142,845 Additions based on tax positions related to 2016 9,043 Additions for tax positions of prior years 68 Reductions for tax positions of prior years (856)December 31, 2016 $151,100 Additions based on tax positions related to 2017 8,598 Additions for tax positions of prior years 427 Decreases related to expiration of prior year tax positions (31)Decreases related to settlements of prior year tax positions (54)December 31, 2017 $160,040 Additions based on tax positions related to 2018 4,355 Additions for tax positions of prior years 815 Decreases related to expiration of prior year tax positions (1,230)December 31, 2018 $163,980We classify uncertain tax positions as non-current unrecognized tax liabilities unless expected to be paid within one year or otherwise directly relatedto an existing deferred tax asset, in which case the uncertain tax position is recorded as an offset to the asset on the consolidated balance sheet. As ofDecember 31, 2018, $154.8 million of our gross unrecognized tax benefits were recorded as a reduction of the related deferred tax assets and the remaining$9.2 million of our gross unrecognized tax benefits were recorded as non-current liabilities in our consolidated balance sheets. If the balance of gross unrecognized tax benefits of $164.0 million as of December 31, 2018 was realized, this would have resulted in a tax benefit of$9.2 million within our provision for income taxes at such time. If the balance of gross unrecognized tax benefits of $160.0 million as of December 31, 2017was realized, this would have resulted in a tax benefit of $9.0 million within our provision of income taxes at such time.During all years presented, we recognized interest and penalties related to unrecognized tax benefits within the provision for income taxes on theconsolidated statements of operations. The amount of interest and penalties recorded to the consolidated statements of operations during 2018, 2017 and2016, were $0.2 million, $0.3 million and $0.1 million, respectively, and the amount of interest and penalties accrued as of December 31, 2018 and 2017 was$0.9 million and $1.0 million, respectively. We file income tax returns in the U.S. federal jurisdiction as well as many U.S. states and certain foreign jurisdictions. The material jurisdictions inwhich we are subject to potential examination include the U.S., United Kingdom and Ireland. We are subject to examination in these jurisdictions for allyears since our inception in 2007. Fiscal years outside the normal statute of limitation remain open to audit by tax authorities due to tax attributes generatedin those early years which have been carried forward and may be audited in subsequent years when utilized. We do not expect any material changes to ourunrecognized tax benefits within the next twelve months. 9. Other Current and Non-Current LiabilitiesOther current liabilities consist of the following (in thousands): December 31, December 31, 2018 2017 Accrued accounts payable $22,669 $38,046 Accrued compensation liability 41,554 33,815 Accrued restructuring liability 3,449 3,674 Contingent consideration payable 17,300 — Accrued payable from acquisitions 35,000 12,800 Accrued lease incentive obligation 24,895 20,059 Value-added taxes payable 2,624 3,453 Other current liabilities 9,338 11,242 Total other current liabilities $156,829 $123,089 82Our accrued compensation liability represents employee bonus and other payroll withholding expenses, while other current liabilities include variousexpenses that we accrue for transaction taxes, customer deposits and accrued vendor expenses. Other non-current liabilities consist of the following (in thousands): December 31, December 31, 2018 2017 Contingent consideration payable $31,700 $— Accrued payable from acquisitions — 20,000 Accrued restructuring liability 7,613 10,856 Uncertain tax positions liability, including interest and penalties 10,065 8,975 Accrued lease incentive obligation — 4,836 Other non-current liabilities 3,208 4,245 Total other non-current liabilities $52,586 $48,912 10. DebtIn December 2018, the Company entered into a credit agreement (“the Credit Agreement”) with Bank of America, N.A. that provides for a three-yearrevolving credit facility (“the Credit Facility”) in an aggregate principal amount of up to $200.0 million and is secured by a blanket lien on the Company’sassets, excluding the Company’s San Francisco corporate headquarters. The Credit Facility will reduce to $150.0 million upon the earlier of (i) a sale of theCompany’s corporate headquarters or (ii) the first anniversary of the closing date, unless, within 90 days after such anniversary, the Company mortgages itscorporate headquarters as collateral to secure the Credit Facility. The Company may borrow, repay and re-borrow funds under the Credit Agreement until thethird anniversary of the closing date, at which time the Credit Facility will terminate, and all outstanding revolving loans, together with all accrued andunpaid interest, must be repaid. Finally, the Company may use the proceeds of future borrowings under the Credit Facility for general corporate purposes.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% to1.00%, determined based on the Company’s consolidated leverage ratio for the four most recent fiscal quarters (“the Consolidated Leverage Ratio”) or (ii) theLIBOR 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’sConsolidated Leverage Ratio (“LIBOR Loan”). The base rate is defined as the highest of (i) the federal funds rate, plus 0.50%, (ii) Bank of America, N.A.’sprime rate and (iii) the LIBOR rate for a 1-month interest period plus 1.00%. The Company is also obligated to pay an ongoing commitment fee on undrawnamounts at a rate ranging from 0.25% to 0.35%, determined based on the Company’s Consolidated Leverage Ratio.On December 28, 2018, the Company drew against the Credit Facility for a $100.0 million LIBOR Loan, with a three-month interest period at aninterest rate of 4.31%. The Company has an additional $100.0 million of borrowing capacity remaining under the Credit Facility as of December 31, 2018.The estimated fair value of the loan drawn against our Credit Facility, which is based on Level 2 inputs, approximated its carrying value as of December 31,2018. Debt issuance costs associated with the Credit Facility were capitalized and will amortize on a straight-line basis over the three-year term of the CreditAgreement, with the expense recorded to other income (expense), net in our consolidated statement of operations. 11. RestructuringWe recorded the following net restructuring charges within our consolidated statements of operations for the years presented (in thousands): Year Ended December 31, 2018 2017 2016 Cost of revenue $27 $— $— Research and development 96 2,347 124 Sales and marketing — 149 — General and administrative 885 688 1,814 Total restructuring charges $1,008 $3,184 $1,938 83Significant restructuring activities related to the Company’s employees and other charges, summarized by plan, are presented in the table below (inthousands): Q4 2017 Q2 2015 Other RestructuringPlan RestructuringPlan RestructuringPlans Total Restructuring liability – December 31, 2015 $— $26,406 $2,622 $29,028 Restructuring expense and adjustments — 926 1,012 1,938 Cash payments — (7,944) (3,550) (11,494)Restructuring liability – December 31, 2016 — 19,388 84 19,472 Restructuring expense and adjustments 1,466 (451) 2,169 3,184 Cash payments (1,095) (4,785) (2,246) (8,126)Restructuring liability – December 31, 2017 371 14,152 7 14,530 Restructuring expense and adjustments 723 254 31 1,008 Cash payments (911) (3,527) (38) (4,476)Restructuring liability – December 31, 2018 $183 $10,879 $— $11,062 Cumulative costs to date, as of December 31, 2018 $2,189 $34,578 $6,025 $42,792 Total costs expected to be incurred, as of December 31, 2018 $2,189 $35,112 $6,025 $43,326Q4 2017 Restructuring PlanDuring the fourth quarter of 2017, we implemented a restructuring plan, which included a reduction in work force to reduce the Company’s long-termcost structure. As a result of ongoing initiatives associated with this restructuring plan, we recorded $0.7 million of expense in the year ended December 31,2018, which is included in operating expenses in our consolidated statement of operations. The $0.7 million restructuring charge is primarily comprised of$0.3 million of employee severance costs and $0.4 million of other costs. For the year ended December 31, 2017, we recorded expense of $1.5 million in ourconsolidated statement of operations, which is primarily comprised of employee severance costs. The remaining costs are expected to be paid out within thenext quarter.We also executed an assignment of the office lease associated with this restructuring activity during the third quarter of 2018. The original lease termends in November 2022, with a lessee option to early terminate in November 2019. All terms under the original lease were assigned in full to the assignee,with the assignee becoming primarily liable to make rental payments directly to the landlord. Further, the assignee was required to provide the landlord asecurity deposit equal to twelve months rent to be used by the landlord in the event of the assignee’s non-performance under the lease.In connection with the assignment, the Company became secondarily liable in the event the assignee is unable to perform under the lease. Based onthe current rent and related payments, the maximum exposure to the Company is estimated to be $2.3 million as of December 31, 2018. However, the lease issubject to periodic rate reviews which allow the landlord to make market adjustments to the rent and other related payments and accordingly, the maximumexposure may be greater than this amount. In estimating the fair value of this guarantee, the Company considered, amongst other factors, the assignee’sfinancial position, amount of the security deposit provided to the landlord, length of the remaining lease term and the assignee’s contractual ability, ifnecessary, to early terminate the lease. As of December 31, 2018, the fair value of this guarantee is not material. Q2 2015 Restructuring PlanDuring the second quarter of 2015, we implemented a restructuring plan, which included a reduction in work force to reduce the Company’s long-termcost structure. As a result of ongoing initiatives associated with this restructuring plan, we recorded $0.3 million of expense in the year ended December 31,2018, which is included in operating expenses in our consolidated statement of operations. The $0.3 million restructuring charge is primarily comprised oflease termination costs. For the year ended December 31, 2017, we recorded a net benefit of $0.5 million in our consolidated statements of operations,primarily related to lease termination items. For the year ended December 31, 2016, we recorded expense of $0.9 million in our consolidated statement ofoperations, which is comprised of $0.7 million of lease termination costs, $0.1 million of employee severance costs and $0.1 million of other costs. Theremaining costs are expected to be paid within the next 3.4 years. 8412. Stockholders’ Equity and Other Employee BenefitsCommon StockOur three classes of common stock are Class A, Class B and Class C common stock. On May 2, 2018, our founder, Mark Pincus, elected to convertcertain outstanding shares of Class B common stock and all outstanding shares of Class C common stock controlled by Mr. Pincus and an affiliatedinvestment entity into an equivalent number of shares of Class A common stock. As a result of Mr. Pincus’ conversion, the remaining shares of Class Bcommon stock represented less than 10% of the total voting power of all Zynga stockholders and, accordingly, each remaining outstanding share of Class Bcommon stock automatically converted into one share of Class A common stock. Each Zynga stockholder now has one vote per share on all matters subjectto stockholder vote. Following the conversion, no shares of Class B or Class C common stock are outstanding and the total number of authorized shares ofcapital stock will be reduced to account for the elimination of the Class B and Class C common stock.The following are the rights and privileges of our classes of common stock:Dividends. The holders of outstanding shares of our common stock are entitled to receive dividends out of funds legally available at the times and inthe amounts which our Board of Directors may determine.Voting Rights. Holders of our Class A common stock are entitled to one vote per share.Liquidation. Upon our liquidation, dissolution or winding-up, the assets legally available for distribution to our stockholders would be distributableratably among the holders of our Class A common stock.Preemptive or Similar Rights. None of our common stock is entitled to preemptive rights or subject to redemption.Conversion. Our Class A common stock is not convertible into any other shares of our capital stock. The Class B and Class C common stock convertedinto Class A common stock may not be reissued.Stock RepurchasesIn April 2018, a share repurchase program was authorized for up to $200.0 million of our outstanding Class A common stock (“2018 Share RepurchaseProgram”). The timing and amount of any stock repurchases will be determined based on market conditions, share price and other factors. The program doesnot 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 withoutnotice. The stock repurchase program will be funded from existing cash on hand or other sources of funding as the Company may determine to beappropriate. Share repurchases under these authorizations may be made through a variety of methods, which may include open market purchases, privatelynegotiated transactions, block trades, accelerated share repurchase transactions, purchases through 10b5-1 plans or by any combination of such methods.During the year ended December 31, 2018, we repurchased 7.1 million shares for our Class A common stock under the 2018 Share RepurchaseProgram at a weighted average price of $3.71 per share for a total of $26.2 million.In November 2016, we announced that our Board of Directors authorized a share repurchase program allowing us to repurchase up to $200.0 million ofour outstanding shares of Class A common stock (“2016 Share Repurchase Program”). In 2016, we repurchased 12.3 million shares of our Class A commonstock under the repurchase program at a weighted average price of $2.76 per share for a total of $34.2 million. In 2017, we repurchased 36.3 million shares forour Class A common stock under the 2016 Share Repurchase Program at a weighted average price of $2.78 per share for a total of $101.0 million. During2018, we completed the 2016 Share Repurchase Program by repurchasing 18.2 million shares of our Class A common stock at a weighted average price of$3.59 per share for a total of $65.4 million. All of our stock repurchases were made through open market purchases under Rule 10b5-1 plans and subsequently retired.Equity Incentive Plans and Stock-Based Compensation ExpenseIn 2007, we adopted the 2007 Equity Incentive Plan (the “2007 Plan”) for the purpose of granting stock options and ZSUs to employees, directors andnon-employees. Concurrent with the effectiveness of our initial public offering on December 15, 2011, we adopted the 2011 Equity Incentive Plan (the“2011 Plan”), and all remaining common shares reserved for future grant or issuance under the 2007 Plan were added to the 2011 Plan. The 2011 Plan wasadopted for purposes of granting stock options and ZSUs to employees, directors and non-employees. The number of shares of our Class A common stockreserved for future issuance under our 2011 Plan will automatically increase on January 1 of each year, beginning on January 1, 2012, and continuingthrough and including January 1, 2021, by 4% of the total number of shares of our capital stock outstanding as of December 31 of the preceding calendaryear or such lesser number of shares that may be determined by the Company’s Board of Directors.85We recorded stock-based compensation expense related to grants of employee stock options, ZSUs and performance-based awards in our consolidatedstatements of operations as follows (in thousands): Year Ended December 31, 2018 2017 2016 Cost of revenue $1,584 $1,838 $3,720 Research and development 42,151 42,176 84,236 Sales and marketing 8,495 7,281 7,254 General and administrative 16,009 13,220 12,251 Total stock-based compensation expense $68,239 $64,515 $107,461Stock Option ActivityAll stock options granted under the 2011 Plan generally vest over four to five years, with 25% to 20% vesting after one year and the remainder vestingmonthly thereafter over 36 to 48 months, respectively. The stock options have a contract term of 10 years and the related expense is determined using theBlack-Scholes option pricing model on the date of grant.The following table shows stock option activity for the year ended December 31, 2018 (in thousands, except weighted-average exercise price andweighted-average contractual term): Outstanding Options Stock Options Weighted-AverageExercise Price AggregateIntrinsicValue ofStock OptionsOutstanding Weighted-AverageContractualTerm (in years) Balance as of December 31, 2017 32,964 $2.07 $64,114 6.32 Granted 6,122 3.48 Forfeited, expired and cancelled (523) 3.66 Exercised (2,378) 1.14 Balance as of December 31, 2018 36,185 $2.35 $57,510 6.23 As of December 31, 2018 Exercisable options 18,604 $1.74 $41,016 4.38 Vested and expected to vest 36,185 $2.35 $57,510 6.23The following table presents the weighted-average grant date fair value and related assumptions used to estimate the fair value of our stock options: Year Ended December 31, 2018 2017 2016 Expected term, in years 6 6 6 Risk-free interest rates 2.14% 2.12% 1.53%Expected volatility 47% 46% 50%Dividend yield — — — Weighted-average estimated fair value of stock options granted during the year $1.61 $1.75 $1.30The aggregate intrinsic value of stock options exercised during 2018, 2017 and 2016 was $6.3 million, $4.9 million and $8.1 million, respectively.The total grant date fair value of options that vested during December 31, 2018, 2017 and 2016 was $6.0 million, $8.0 million and $6.0 million, respectively.As of December 31, 2018, total unrecognized stock-based compensation expense of $22.8 million related to unvested stock options is expected to berecognized over a weighted-average recognition period of approximately 2.7 years.86ZSU ActivityZSUs are granted to eligible employees under the 2011 Plan. In general, ZSU awards vest in annual or quarterly installments over a period of fouryears, are subject to the employee’s continuing service to us and do not have an expiration date. The cost of ZSUs is determined using the fair value of ourcommon stock on the date of grant.The following table shows a summary of ZSU activity for the year ended December 31, 2018 (in thousands, except weighted-average grant date fairvalue): Outstanding ZSUs Weighted- AverageGrant Date AggregateIntrinsic Fair Value Value of Shares (per share) Unvested ZSUs Unvested as of December 31, 2017 45,478 $3.00 $181,912 Granted 32,493 3.85 Vested (17,135) 2.97 Forfeited (8,354) 3.29 Unvested as of December 31, 2018 52,482 $3.49 $206,254As of December 31, 2018, total unamortized stock-based compensation expense relating to ZSUs amounted to $160.4 million over a weighted-averagerecognition period of approximately 2.7 years.Performance-Based AwardsIn 2017, certain executives were eligible to receive performance-based ZSUs, which are subject to performance and time-based vesting requirements.The target number of shares of the performance-based awards are adjusted based on our business performance measured against the performance goalsapproved by the Compensation Committee at the beginning of the performance period. Generally, if the performance criteria are satisfied, one-half of theaward vests immediately and the other half vests on the one-year anniversary. Stock-based compensation expense for performance-based ZSUs granted inconnection with our executive compensation plan is recorded based on the probability of achievement of certain performance milestones. In 2018, 2017 and2016, no expense was recorded in connection with performance awards granted under our executive compensation plan.Certain employees are eligible to receive performance-based ZSUs, which are subject to performance and time-based vesting requirements. The targetnumber of shares of the performance-based awards are adjusted based on our business performance measured against the performance goals approved by theCompensation Committee at the date of employment with the Company. Generally, if the performance criteria are satisfied, 25% of the award will vestimmediately or soon after with the remaining vesting ratably for each quarter or six month periods thereafter. Stock-based compensation expense forperformance-based ZSUs granted to these employees is recorded based on the probability of achievement of the performance milestones. In 2018 and 2017,we recorded $1.8 million and $2.4 million, respectively, of stock-based compensation expense related to these performance-based ZSUs. Additionally, during2017, one performance-based ZSU award was modified to eliminate the performance vesting requirements, thus only requiring time-based vesting. At thetime of modification, there was no incremental compensation costs recorded. During 2016, we recorded no stock-based compensation expense related toperformance-based ZSUs. 2011 Employee Stock Purchase PlanOur 2011 Employee Stock Purchase Plan (“2011 ESPP”), was approved by our Board of Directors in September 2011 and by our stockholders inNovember 2011 and amended in August 2012. The number of shares of our Class A common stock reserved for future issuance under our 2011 ESPP willautomatically increase on January 1 of each year, beginning on January 1, 2012, and continuing through and including January 1, 2021, by the lesser of 2%of the total number of shares of our capital stock outstanding as of December 31 of the preceding calendar year, 25,000,000 shares or the number of sharesthat may be determined by the Company’s Board of Directors.Our 2011 ESPP permits participants to purchase shares of our Class A common stock through payroll deductions up to 15% of their earnings, subjectto a maximum of 5,000 shares available for purchase on any purchase date. Unless otherwise determined by the administrator, the purchase price of the shareswill be 85% of the lower of the fair market value of our Class A common stock on the first day of an offering or on the date of purchase. The ESPP offers twopurchase dates within each annual period, resulting in a six-month and twelve-month look-back. Additionally, the ESPP contains an automatic reset featureafter the first six months of each annual period, such that if the fair market value of our Class A common stock has decreased from the original offering date,the offering will automatically terminate and all participants will be re-enrolled in the new, lower-priced offering for the remaining six months. Participantsmay end their participation at any time during an offering and will be refunded their accrued contributions that have not yet been used to purchase shares.Participation ends automatically upon termination of employment.87As of December 31, 2018, there were $3.1 million of employee contributions withheld by the Company. During the year ended December 31, 2018,the Company recognized $2.9 million of stock-based compensation expense related to the 2011 ESPP.Employee Savings PlanWe have a defined contribution plan, which is qualified under Section 401(k) of the Internal Revenue Code. Participating employees may contributeup to 90% of their eligible compensation, or the statutory limit, whichever is lower. In 2018, 2017 and 2016, we contributed one dollar for each dollar aparticipant contributed, with a maximum contribution of 3% of each employee’s eligible compensation, subject to a maximum total contribution mandatedby the IRS. The total expense for these savings plans was $4.7 million, $4.5 million and $4.5 million in 2018, 2017 and 2016, respectively.Common Stock Reserved for Future IssuanceAs of December 31, 2018, we had reserved shares of common stock for future issuance as follows (in thousands): December 31,2018 Stock options outstanding 36,185 ZSUs outstanding 52,482 2011 Equity Incentive Plan 132,288 2011 Employee Stock Purchase Plan 107,578 Total 328,533 13. Accumulated Other Comprehensive Income (Loss)The following table shows a summary of changes in accumulated other comprehensive income (loss) by component from December 31, 2016 toDecember 31, 2018 (in thousands): ForeignCurrencyTranslation UnrealizedGains (Losses)on Available-for-SaleMarketableSecurities Total Balance as of December 31, 2016 $(128,671) $(23) $(128,694)Other comprehensive income (loss) before reclassifications 35,352 (155) 35,197 Amounts reclassified from accumulated other comprehensive income (loss) — — — Net other comprehensive income (loss) 35,352 (155) 35,197 Balance as of December 31, 2017 $(93,319) $(178) $(93,497)Other comprehensive income (loss) before reclassifications (25,122) 180 (24,942)Amounts reclassified from accumulated other comprehensive income (loss) — — — Net other comprehensive income (loss) (25,122) 180 (24,942)Balance as of December 31, 2018 $(118,441) $2 $(118,439) 14. Net Income (Loss) Per Share of Common StockAs noted previously, our founder, Mark Pincus, elected to convert certain outstanding shares of Class B common stock and all outstanding shares ofClass C common stock controlled by Mr. Pincus and an affiliated investment entity into an equivalent number of shares of Class A common stock in May2018. Following the conversion, no shares of Class B or Class C common stock are outstanding and accordingly, the Company calculated basic and dilutivenet income (loss) per share under a single-class method for the current period. Prior to the conversion noted above, we computed net income (loss) per share of common stock using the two-class method required for participatingsecurities and multiple classes of common stock. Prior to the date of the initial public offering, we considered all series of our convertible preferred stock tobe participating securities due to their non-cumulative dividend rights. Additionally, we considered shares issued upon the early exercise of options subjectto repurchase and unvested restricted shares to be participating securities, because the holders of such shares have non-forfeitable dividend rights in the eventwe declare a dividend for88common shares. In accordance with the two-class method, net income allocated to these participating securities, which include participation rights inundistributed net income, is subtracted from net income (loss) to determine total net income (loss) to be allocated to common stockholders.Basic net income (loss) per share is computed by dividing net income (loss) attributable to common stockholders by the weighted-average number ofcommon shares outstanding during the period. Diluted net income (loss) per share is computed by dividing net income (loss) attributable to commonstockholders 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 ZSUs, unvested performance-based ZSUs and ESPP withholdings. For periods in which we have generated a net loss or there is no incomeattributable to common stockholders, we do not include dilutive securities in our calculation of diluted net income (loss) per share, as the impact of theseawards is anti-dilutive.The following table sets forth the computation of basic and diluted net income (loss) per share of common stock (in thousands, except per share data): Year Ended December 31, 2018 Class A (1) BASIC: Net income (loss) attributable to common stockholders – basic $15,457 Weighted-average common shares outstanding – basic 862,460 Net income (loss) per share attributable to common stockholders – basic $0.02 DILUTED: Net income (loss) attributable to common stockholders – basic $15,457 Weighted-average common shares outstanding – basic 862,460 Weighted-average effect of dilutive securities: Stock options and employee stock purchase plan 10,958 ZSUs 15,212 Performance-based ZSUs 954 Weighted-average common shares outstanding – diluted 889,584 Net income (loss) per share attributable to common stockholders – diluted $0.02 (1)The net income (loss) per share calculation for the year ended December 31, 2018 is presented as if the one-for-one class conversion occurred as of the beginning of the period.89 Year Ended December 31, 2017 2016 Class Class Class Class Class Class A B C A B C BASIC: Net income (loss) attributable to common stockholders – basic $23,795 $2,204 $629 $(92,988) $(12,660) $(2,525)Weighted-average common shares outstanding – basic 776,625 71,925 20,517 755,460 102,850 20,517 Net income (loss) per share attributable to common stockholders – basic $0.03 $0.03 $0.03 $(0.12) $(0.12) $(0.12)DILUTED: Net income (loss) attributable to common stockholders – basic $23,795 $2,204 $629 $(92,988) $(12,660) $(2,525)Reallocation of net income (loss) as a result of conversion of Class C shares to Class A shares 629 — — (2,525) — — Reallocation of net income (loss) as a result of conversion of Class B shares to Class A shares 2,204 — — (12,660) — — Reallocation of net income (loss) to Class B and Class C shares — 180 (20) — — — Net income (loss) attributable to common stockholders – diluted $26,628 $2,384 $609 $(108,173) $(12,660) $(2,525)Weighted-average common shares outstanding – basic 776,625 71,925 20,517 755,460 102,850 20,517 Conversion of Class C to Class A common shares outstanding 20,517 — — 20,517 — — Conversion of Class B to Class A common shares outstanding 71,925 — — 102,850 — — Weighted-average effect of dilutive securities: Stock options and employee stock purchase plan 9,879 8,390 — — — — ZSUs 16,935 — — — — — Performance-based ZSUs 1,284 — — — — — Weighted-average common shares outstanding – diluted 897,165 80,315 20,517 878,827 102,850 20,517 Net income (loss) per share attributable to common stockholders – diluted$0.03 $0.03 $0.03 $(0.12) $(0.12) $(0.12) The following weighted-average employee equity awards were excluded from the calculation of diluted net income (loss) per share because their effectwould have been anti-dilutive for the periods presented (in thousands): Year Ended December 31, 2018 2017 2016 Stock options and employee stock purchase plan 6,193 17,331 28,380 Restricted shares — 349 3,899 ZSUs 8,071 5,087 61,183 Total 14,264 22,767 93,462 15. LeasesRental IncomeThe Company owns the building where its San Francisco headquarters is located and leases available office space to other tenants. One tenant willoccupy approximately 43% of the building with a lease term concluding in February 2027. The original agreement provides for total minimum rentalpayments of $167.3 million with escalating rent payments and various lease incentives to be straight-lined over the lease term. In February 2019, the originalagreement was amended to provide additional space to the tenant, resulting in an additional $5.1 million of minimum rental payments to be received over thelease term and an additional $0.8 million lease incentive obligation for the Company related to tenant improvements.The monthly rental income, net of the lease incentives and amortization of the lease origination costs, is recorded within other income and expense,net in the consolidated statement of operations. As of December 31, 2018, the Company has a current lease incentive obligation of $24.9 million related totenant improvements for this lease.90Further, in October 2018, the Company entered into a lease agreement to provide approximately 17% of its San Francisco headquarters to a tenantbeginning in April 2019 with a lease term concluding in August 2031. The agreement provides for total office space and parking minimum rental paymentsof $145.8 million with escalating rent payments and various lease incentives, including tenant improvement allowances of $2.4 million.As of December 31, 2018, cash to be received from future minimum rentals for the noncancelable lease term are as follows (in thousands): Year ending December 31: 2019 $16,437 2020 24,706 2021 30,934 2022 31,863 2023 32,819 Thereafter 169,869 Total $306,628 The Company has other lease arrangements for its owned corporate headquarters, however, the amounts are not material to the consolidated financialstatements.Lease CommitmentsWe have entered into operating leases for primarily office facilities. As of December 31, 2018, future minimum lease payments related to theCompany’s leases are as follows (in thousands): Year ending December 31: 2019 $8,974 2020 8,782 2021 7,384 2022 3,611 2023 2,215 Thereafter 185 Total $31,151 Rent expense on operating leases for facilities for 2018, 2017 and 2016 totaled $5.5 million, $5.7 million and $5.3 million, respectively. 16. Commitments and ContingenciesThe amounts represented in the tables below reflect our minimum cash obligations for the respective calendar years based on contractual terms, butnot necessarily the periods in which these costs will be expensed in the Company’s consolidated statement of operations. Licensor and Marketing CommitmentsWe have entered into several contracts with licensors that contain minimum contractual and marketing commitments that may not be dependent onany deliverables. As of December 31, 2018, future minimum contractual royalty payments due to licensors and marketing commitments for the licensedproducts are as follows (in thousands): Year ending December 31: 2019 $16,356 2020 42,369 Thereafter — Total $58,72591Other Purchase CommitmentsWe have entered into several contracts primarily for hosting of data systems and other services. As of December 31, 2018, future minimum purchasecommitments that have initial or remaining non-cancelable terms are as follows (in thousands): Year ending December 31: 2019 $23,304 2020 19,331 2021 8,861 Thereafter — Total $51,496 Excluded from tables above is our uncertain income tax position liability of $10.1 million, which includes interest and penalties, as the Companycannot make a reasonably reliable estimate of the period of cash settlement.Legal MattersThe Company is involved in legal and regulatory proceedings on an ongoing basis. Some of these proceedings are in early stages and may seek anindeterminate amount of damages. If the Company believes that a loss arising from such matters is probable and can be reasonably estimated, the Companyaccrues the estimated liability in its financial statements. If only a range of estimated losses can be determined, the Company accrues an amount within therange 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, theCompany accrues the low end of the range. For proceedings in which an unfavorable outcome is reasonably possible but not probable and an estimate of theloss 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 notreasonably estimable, the Company discloses that fact. In assessing the materiality of a proceeding, the Company evaluates, among other factors, the amountof monetary damages claimed, as well as the potential impact of non-monetary remedies sought by plaintiffs that may require changes to business practices ina manner that could have a material adverse impact on the Company’s business. Legal expenses are recognized as incurred.Derivative LitigationSince August 3, 2012, eight stockholder derivative lawsuits have been filed in State or Federal courts in California and Delaware purportedly onbehalf of the Company against certain current and former directors and executive officers of the Company. The derivative plaintiffs allege that the defendantsbreached their fiduciary duties and violated California Corporations Code section 25402 in connection with the Company’s initial public offering inDecember 2011 and the Company’s secondary offering in April 2012 by allegedly making false or misleading statements regarding the Company’s businessand financial projections.Beginning on August 3, 2012, three of the actions were filed in San Francisco County Superior Court. On October 2, 2012, the court consolidatedthose three actions as In re Zynga Shareholder Derivative Litigation, Lead Case CGC-12-522934. On March 14, 2013, the plaintiffs filed a First AmendedComplaint in that consolidated California state action. On March 21, 2013, the court endorsed a stipulation among the parties staying the action pending theruling on the motion to dismiss in a related federal securities class action. On March 24, 2014, the court endorsed a stipulation among the parties staying theaction pending a ruling on a motion to dismiss the First Amended Complaint in the federal securities class action.On April 24, 2015, the court endorsed a stipulation among the parties staying the action until the Delaware Chancery Court ruled on the defendants’motion to stay or dismiss in the action described below. On May 2, 2016, the court endorsed a stipulation among the parties staying the action until finalresolution of plaintiff’s appeal in the Delaware derivative action that is discussed in further detail below. At a status conference on March 8, 2017, the courtstayed the action, in light of the Company’s formation of a special litigation committee discussed below. At a status conference on September 29, 2017, thecourt extended the stay in the action until April 9, 2018. On April 20, 2018, the Special Litigation Committee (discussed below), acting on the Company’sbehalf, filed a motion to dismiss the action on grounds that the appropriate forum for resolution of the action is the Delaware Court of Chancery. On May 25,2018, plaintiffs’ counsel requested, and the court granted, a voluntary dismissal of the action in its entirety. This action has now been dismissed. Beginning on August 16, 2012, four stockholder derivative actions were filed in the U.S. District Court for the Northern District of California. OnDecember 3, 2012, the court consolidated these four actions as In re Zynga Inc. Derivative Litigation, Lead Case No. 12-CV-4327-JSW. On March 11, 2013,the court endorsed a stipulation among the parties staying the action pending the ruling on the motion to dismiss in a related federal securities class action.On March 21, 2014, the court issued an order continuing the stay pending a ruling on a motion to dismiss the First Amended Complaint in the federalsecurities class action. On April 27, 2015, the court92endorsed a stipulation among the parties staying the action until the Delaware Chancery Court ruled on the defendants’ motion to stay or dismiss in theaction described below. On April 27, 2016, the court endorsed a stipulation among the parties staying the action until final resolution of plaintiff’s appeal inthe Delaware derivative action discussed below. On January 26, 2017, the court endorsed a stipulation among the parties providing for a further stay of thisaction until July 14, 2017. On August 17, 2017, the court endorsed a stipulation among the parties providing for a further stay of this action until September29, 2017. On October 27, 2017, the court endorsed a stipulation among the parties provided for further stay of this action until April 9, 2018. On March 29,2018, the plaintiffs filed a motion to lift the stay in the action, and on April 17, 2018, the Special Litigation Committee, acting on behalf of the Company,filed a cross-motion to dismiss the action on grounds that the appropriate forum for resolution of the action is the Delaware Court of Chancery. On May 17,2018, the court granted plaintiffs’ motion to lift the stay, and simultaneously granted defendants’ motion to dismiss the action. This consolidated action hasnow been dismissed.On April 4, 2014, a derivative action was filed in the Court of Chancery of the State of Delaware captioned Sandys v. Pincus, et al. Case No. 9512-CB.The derivative actions include claims for, among other things, unspecified damages in favor of the Company, certain corporate actions to purportedlyimprove the Company’s corporate governance, and an award of costs and expenses to the derivative plaintiffs, including attorneys’ fees.On December 9, 2014, the defendants filed a motion to stay or dismiss the action. The court held a hearing on defendants’ motion on November 17,2015, and on February 29, 2016, the court granted the Company’s motion to dismiss. On March 29, 2016, plaintiff filed a notice of appeal of the court’s orderdismissing the action. On December 5, 2016, the Delaware Supreme Court reversed the Court of Chancery’s dismissal and remanded the case for furtherproceedings. On June 7, 2017, the court endorsed a stipulation among the parties staying the action through July 31, 2017, in light of the Company’sformation of a Special Litigation Committee, as noted below. On July 18, 2017, the court endorsed a stipulation among the parties continuing the stay in theaction through September 7, 2017. On September 11, 2017, the court endorsed a stipulation among the parties continuing the stay in the action throughOctober 31, 2017. Subsequently, on January 5, 2018, the Special Litigation Committee, acting on behalf of the Company, filed a supplemental motion tostay the action until February 20, 2018, to allow the parties to engage in settlement negotiation.On February 3, 2017, the Company’s Board of Directors established a special litigation committee (the “Special Litigation Committee”) consistingof Janice Roberts and Carol Mills, to investigate the claims asserted against certain former and current officers and directors of the Company in theshareholder derivative suits described above (collectively, the “Derivative Litigation”). The Company’s Board of Directors determined that each member ofthe Special Litigation Committee is disinterested and independent with respect to the Derivative Litigation. The Special Litigation Committee was created todetermine what actions are appropriate and in the best interests of the Company, and decide whether it is in the best interests of the Company to pursue,dismiss or consensually resolve the claims asserted in the Derivative Litigation. The Special Litigation Committee’s findings and determinations shall befinal and not subject to review by the Company’s Board of Directors and in all respects shall be binding upon the Company.On March 1, 2018, the Special Litigation Committee (on behalf of the Company) and the Sandys defendants filed a stipulation of settlement notifyingthe court that these parties had reached an agreement to settle the action, releasing all claims against the defendants in consideration of an insurer-fundedsettlement payment that will be made to the Company. In connection with filing of the stipulation of settlement, the Special Litigation Committee also fileda report related to its investigation of the matters alleged in the action, and its conclusions with respect thereto and with respect to the proposed settlement.In response to the filing of the stipulation of settlement, the plaintiff requested discovery relating to the settlement, and following negotiations overscope of the discovery, the Special Litigation Committee responded with written and oral discovery. Following the close of settlement-related discovery inlate October 2018, plaintiff informed the parties that he will endorse the stipulated and proposed settlement as a reasonable exercise of the Special LitigationCommittee’s business judgment. Accordingly, the settling parties filed a revised stipulated proposed scheduling order that the court signed and entered onOctober 30, 2018. The terms of that scheduling order require Zynga to provide shareholder notice of the settlement within 10 business days of the scheduling order’sentry and establish a briefing schedule and a date of January 17, 2019 for a hearing regarding final court approval of the settlement and plaintiff’s applicationfor a related fee and expense award.Following satisfaction of all aspects of the scheduling order, and the lack of any objection by any shareholder, the court held the final approvalhearing on January 18, 2019. At the hearing, the court determined the proposed settlement to be fair, adequate, and reasonable, and entered an orderapproving the $12.0 million settlement and dismissing the underlying action with prejudice. The court also approved a fee award to plaintiff’s counsel in theamount of $2.3 million. The Company has received the $12.0 million settlement proceeds, and has distributed the fee award to plaintiff’s counsel from thoseproceeds, resulting in a net settlement amount of $9.7 million retained by the Company.93OtherThe Company is, at various times, also party to various other legal proceedings and claims not previously discussed which arise in the ordinary courseof business. In addition, the Company may receive notifications alleging infringement of patent or other intellectual property rights. Adverse results in anysuch litigation, legal proceedings or claims may include awards of substantial monetary damages, expensive legal fees, costly royalty or licensingagreements, 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 cannotbe predicted with certainty, the Company believes that the amount or range of reasonably possible losses related to such pending or threatened litigation willnot have a material adverse effect on its business, operating results, cash flows, or financial condition should such litigation be resolved unfavorably. 17. Subsequent EventsOn December 20, 2018, the Company executed a Share Sale and Purchase Agreement (the “Agreement”) with the shareholders and option holders ofSmall Giant Games Oy (“Small Giant”), a Finnish company, pursuant to which, effective January 1, 2019, Zynga (i) acquired 80% of all issued andoutstanding share capital (including all rights to acquire share capital) of Small Giant in exchange for consideration of $594.5 million of which (a) $333.6million was paid in cash, (b) $30.0 million was deposited into an escrow account for a period of 18 months as security for general representations andwarranties and (c) the remaining $230.9 million was satisfied by the issue of 63,794,746 shares of Zynga Class A common stock, based on the average closingprice of Zynga’s Class A common stock during the 30 trading days immediately preceding the date of the Agreement, and (ii) will acquire the remaining 20%of the Small Giant shares ratably for additional cash consideration during each of the three years following the closing (the “Step-In Period”), payableannually based upon the achievement of specified profitability metrics by Small Giant, with no maximum limit as to the cash consideration achievable.Following the end of the Step-In Period, Small Giant will be a direct, wholly-owned subsidiary of Zynga. Our interest in Small Giant will be consolidated intoour financial information beginning in 2019.All of the common stock issued in connection with the acquisition were in a transaction exempt from registration requirements of the 1933 Act.94ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSUREITEM 9A. CONTROLS AND PROCEDURESEvaluation of Disclosure Controls and ProceduresOur management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosurecontrols and procedures as of the end of the period covered by this Annual Report on Form 10-K. The term “disclosure controls and procedures,” as defined inRules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that informationrequired to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, withinthe time periods specified in the SEC rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed toensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated andcommunicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisionsregarding required disclosure. Based on the evaluation of our disclosure controls and procedures as of December 31, 2018, our Chief Executive Officer andChief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.Management’s Report on Internal Control over Financial ReportingOur management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) of theExchange Act. Our management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework inInternal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework). Based onthis evaluation, management concluded that our internal control over financial reporting was effective as of December 31, 2018. Management reviewed theresults of its assessment with our Audit Committee. The effectiveness of our internal control over financial reporting as of December 31, 2018 has beenaudited by Ernst & Young LLP, an independent registered public accounting firm, as stated in its report which is included in Item 8 under the caption“Report of Ernst & Young LLP, Independent Registered Public Accounting Firm” which is incorporated herein by reference.Changes in Internal Control over Financial ReportingThere 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 December 31, 2018 that materially affected, or are reasonably likely to materially affect, our internalcontrol over financial reporting.Limitations on Effectiveness of Controls and ProceduresIn designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how welldesigned and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls andprocedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possiblecontrols and procedures relative to their costs. ITEM 9B. OTHER INFORMATIONOn February 26, 2019, our Board of Directors amended and restated the Company’s bylaws (the “Amended and Restated Bylaws”) in order to: •provide for a majority vote standard in director elections at uncontested annual meetings, such that a nominee for director will be elected ifthe votes cast for such nominee’s election exceed the votes cast against such nominee’s election; •remove various provisions that were no longer applicable following the conversion of the Company’s multi-class capital structure; and •make certain other non-substantive technical edits and updates.The foregoing description of the Amended and Restated Bylaws does not purport to be complete and is qualified in its entirety by reference to the fulltext of the Amended and Restated Bylaws, which is filed as Exhibit 3.2 to this Annual Report on Form 10-K and is incorporated herein by reference. 95PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCEThe information required by this item is incorporated by reference to Zynga’s Proxy Statement for its 2018 Annual Meeting of Stockholders to be filedwith the SEC within 120 days after the end of the fiscal year ended December 31, 2018.Our Board of Directors has adopted a Code of Business Conduct and Ethics applicable to all officers, directors and employees, which is available onour website (www.zynga.com) under “Corporate Governance.” We will provide a copy of these documents to any person, without charge, upon request, bywriting to us at Zynga Inc., Investor Relations Department, 699 Eighth Street, San Francisco, California 94103. We intend to satisfy the disclosurerequirement under Item 5.05 of Form 8-K regarding an amendment to, or waiver from, a provision of our Code of Business Conduct and Ethics by postingsuch information on our website at the address and the location specified above. ITEM 11. EXECUTIVE COMPENSATIONThe information required by this item is incorporated by reference to Zynga’s Proxy Statement for its 2018 Annual Meeting of Stockholders to be filedwith the SEC within 120 days after the end of the fiscal year ended December 31, 2018. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERSThe information required by this item is incorporated by reference to Zynga’s Proxy Statement for its 2018 Annual Meeting of Stockholders to be filedwith the SEC within 120 days after the end of the fiscal year ended December 31, 2018. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCEThe information required by this item is incorporated by reference to Zynga’s Proxy Statement for its 2018 Annual Meeting of Stockholders to be filedwith the SEC within 120 days after the end of the fiscal year ended December 31, 2018. ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICESThe information required by this item is incorporated by reference to Zynga’s Proxy Statement for its 2018 Annual Meeting of Stockholders to be filedwith the SEC within 120 days after the end of the fiscal year ended December 31, 2018. 96PART IVITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES(a) Documents filed as part of this report:1.Consolidated Financial Statements: See Index to Consolidated Financial Statements under Item 8 on page 49 of this Annual Report on Form 10-K.2.Financial Statements Schedule:Schedule II: Valuation and Qualifying Accounts (in thousands) Allowance for Doubtful Accounts and Reserve for Uncollectible Advances Balance atBeginningof Year Charges toExpense Write-Offs,Net ofRecoveries Balance atEnd of Year Year Ended December 31, 2018 $— $3,215 $(562) $2,653 Year Ended December 31, 2017 $— $— $— $— Year Ended December 31, 2016 $— $— $— $— All other schedules have been omitted because they are not required, not applicable, or the required information is otherwise included. 3.Exhibits: Incorporated by Reference Exhibit No. Description of Exhibit Form File No. Exhibit Filing Date FiledHerewith2.1† Share Sale and Purchase Agreement relating to the sale andpurchase of all issued and outstanding shares and otherequity securities of Small Giant Games Oy between thosepersons listed in Schedule 1 as Sellers and Zynga Inc. asPurchaser 8-K 001-35375 2.1 12/20/2018 2.2† Share Sale and Purchase Agreement relating to the sale andpurchase of the entire issued share capital of Gram GamesTeknoloji A.S. between those persons listed in Schedule 1 asSellers and Zynga Inc. as Purchaser 8-K 001-35375 2.1 5/30/2018 3.1 Seventeenth Amended and Restated Certificate ofIncorporation of Zynga Inc. 8-K 001-35375 3.1 06/11/2014 3.2 Third Amended and Restated Bylaws of Zynga Inc. X4.1 Form of Zynga Inc. Class A Common Stock Certificate S-1/A 333-175298 4.1 11/4/2011 10.1 Fifth Amended and Restated Investor Rights Agreement, byand between Zynga Inc., the investors listed on Schedule Athereto and Mark Pincus, dated February 18, 2011 S-1/A 333-175298 10.1 8/11/2011 10.2+ Zynga Inc. 2007 Equity Incentive Plan, as Amended andRestated on August 21, 2018 8-K 001-35375 10.2 8/27/2018 10.3+ Forms of Stock Option Agreement and Stock OptionExercise Agreement under 2007 Equity Incentive Plan S-1/A 333-175298 10.3 11/17/2011 10.4+ Forms of Notice of Restricted Stock Unit Award andRestricted Stock Unit Agreement under 2007 EquityIncentive Plan S-1/A 333-175298 10.26 11/17/2011 10.5+ Zynga Inc. 2011 Equity Incentive Plan, as Amended andRestated on August 21, 2018 8-K 001-35375 10.3 8/27/2018 10.6+ Forms of Stock Option Grant Notice and Option Agreementunder 2011 Equity Incentive Plan S-1/A 333-175298 10.5 11/17/2011 97 Incorporated by Reference Exhibit No. Description of Exhibit Form File No. Exhibit Filing Date FiledHerewith10.7+ Forms of Restricted Stock Unit Grant Notice and RestrictedStock Unit Agreement under 2011 Equity Incentive Plan 10-Q 001-35375 10.3 5/8/2012 10.8+ Form of 2011 Equity Incentive Plan Performance CashAward Agreement 8-K 001-35375 10.1 4/4/2013 10.9+ Zynga Inc. 2011 Employee Stock Purchase Plan, as amendedon August 15, 2012 S-8 333-206185 4.6 8/7/2015 10.10+ Form of Indemnification Agreement made by and betweenZynga Inc. and each of its directors and executive officers S-1/A 333-175298 10.6 11/17/2011 10.11+ Zynga Inc. Non-Employee Director Compensation Policy X10.12+ Zynga Inc. Change in Control Severance Benefit Plan, asAmended and Restated on August 21, 2018 8-K 001-35375 10.1 8/27/2018 10.13+ Offer Letter, between Zynga Inc. and Frank Gibeau, asAmended and Restated effective as of August 23, 2018 8-K 001-35375 10.4 8/27/2018 10.14+ Offer Letter, between Zynga Inc. and Matthew Bromberg 10-Q 001-35375 101 8/5/2016 10.15+ Offer Letter between Zynga Inc. and Bernard Kim 10-Q 001-35375 10.2 8/5/2016 10.16+ Offer letter between Zynga Inc. and Gerard Griffin 8-K 001-35375 10.1 9/30/2016 10.17+ Promotion letter between Zynga Inc. and Jeffrey Buckley 10-Q 001-35375 10.2 5/5/2017 10.18+ Offer letter between Zynga Inc. and Phuong Phillips 10-Q 001-35375 10.1 11/8/2017 10.19+ Offer letter between Zynga Inc. and Jeffrey Ryan X10.20+ Director Nomination Letter 8-K 001-35375 10.1 5/2/2018 10.21+ Consulting Services Agreement between Zynga Inc. andWilliam B. Gordon, dated as of May 11, 2018 10-Q 001-35375 10.2 8/3/2018 10.22† Developer addendum by and between Facebook, Inc., andZynga Inc. dated May 14, 2010 and Amendment No.1 toDeveloper Addendum, dated October 13, 2011 S-1/A 333-175298 10.15 11/17/2011 10.23† Amendment No. 2 to Developer Addendum by and betweenFacebook, Inc. and Zynga Inc., dated April 25, 2012 10-Q 001-35375 10.1 7/30/2012 10.24† Amendment No. 3 to Developer Addendum by and betweenFacebook, Inc., Facebook Ireland Limited, Zynga Inc.,Zynga Game Ireland Limited and Zynga Luxembourg S.àr.L,dated November 28, 2012 10-K 001-35375 10.30 02/25/2013 10.25† Developer Addendum No. 2 by and between Facebook, Inc.,Facebook Ireland Limited and Zynga Inc., dated December26, 2010 S-1/A 333-175298 10.16 11/4/2011 10.26† Amendment No. 1 to Developer Addendum No. 2 by andbetween Facebook, Inc., Facebook Ireland Limited andZynga Inc., dated June 12, 2012 10-Q 001-35375 10.2 7/30/2012 98 Incorporated by Reference Exhibit No. Description of Exhibit Form File No. Exhibit Filing Date FiledHerewith10.27† Amendment No. 2 to Developer Addendum No. 2 by andbetween Facebook, Inc., Facebook Ireland Limited andZynga Inc., dated July 2, 2012 10-Q 001-35375 10.3 7/30/2012 10.28† Amendment No. 3 to Developer Addendum No. 2 by andbetween Facebook, Inc., Facebook Ireland Limited,Zynga Inc. and Zynga Game Ireland Limited, datedNovember 28, 2012 10-K 001-35375 10.34 02/25/2013 21.1 List of subsidiaries X23.1 Consent of Independent Registered Public AccountingFirm X24.1 Power of Attorney (included in signature page) X31.1 Certification of the Chief Executive Officer of Zynga Inc.pursuant to rule 13a-14 under the Securities ExchangeAct of 1934 X31.2 Certification of the Chief Financial Officer of Zynga Inc.pursuant to rule 13a-14 under the Securities ExchangeAct of 1934 X32.1• Certification of the Chief Executive Officer and ChiefFinancial Officer of Zynga Inc. pursuant to18 U.S.C.Section 1350 as Adopted Pursuant to Section 906 of theSarbanes-Oxley Act of 2002 X101.INS* XBRL Instance Document 101.SCH* XBRL Taxonomy Extension Schema Document 101.CAL* XBRL Taxonomy Extension Calculation LinkbaseDocument 101.DEF* XBRL Taxonomy Extension Definition LinkbaseDocument 101.LAB* XBRL Taxonomy Extension Labels Linkbase Document 101.PRE* XBRL Taxonomy Extension Presentation LinkbaseDocument +Indicates management contract or compensatory plan.†Confidential treatment has been granted for certain information contained in this exhibit. Such information has been omitted and was filed separatelywith the Securities and Exchange Commission.•The certifications attached as Exhibit 32.1 accompany this Annual Report on Form 10-K pursuant to 18 U.S.C. Section 1350, as adopted pursuant toSection 906 of the Sarbanes-Oxley Act of 2002, and shall not be deemed “filed” by the Registrant for purposes of Section 18 of the SecuritiesExchange Act of 1934, as amended.99SIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Annual Report onForm 10-K to be signed on its behalf by the undersigned, thereunto duly authorized on February 27, 2019. ZYNGA INC. By: /s/ Frank Gibeau Frank GibeauChief Executive Officer(On behalf of Registrant) By: /s/ Gerard Griffin Gerard GriffinChief Financial Officer(On behalf of Registrant) By: /s/ Jeffrey Buckley Jeffrey BuckleyChief Accounting Officer(On behalf of Registrant) 100POWER OF ATTORNEYKNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Gerard Griffin andPhuong Y. Phillips, and each of them, as his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him orher and in his or her name, place, and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file thesame, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connectiontherewith, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming that all said attorneys-in-fact andagents, or any of them or their or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed below by the followingpersons on behalf of the Registrant and in the capacities and on the dates indicated: Signature Title Date /s/ Mark Pincus Chairman of the Board February 27, 2019Mark Pincus /s/ Frank Gibeau Chief Executive Officer and Director(Principal Executive Officer) February 27, 2019Frank Gibeau /s/ Gerard Griffin Chief Financial Officer(Principal Financial Officer) February 27, 2019Gerard Griffin /s/ Jeffrey Buckley Chief Accounting Officer(Principal Accounting Officer) February 27, 2019Jeffrey Buckley /s/ Regina E. Dugan Director February 27, 2019Regina E. Dugan /s/ William “Bing” Gordon Director February 27, 2019William “Bing” Gordon /s/ Louis J. Lavigne, Jr. Director February 27, 2019Louis J. Lavigne, Jr. /s/ Carol G. Mills Director February 27, 2019Carol G. Mills /s/ Janice M. Roberts Director February 27, 2019Janice M. Roberts /s/ Ellen F. Siminoff Director February 27, 2019Ellen F. Siminoff 101Exhibit 3.2 THIRD AMENDED AND RESTATED BYLAWSOFZYNGA INC.(A DELAWARE CORPORATION)Effective, February 26, 2019 TABLE OF CONTENTS PAGE ARTICLE I OFFICES 1 Section 1. Registered Office 1 Section 2. Other Offices 1 ARTICLE II CORPORATE SEAL 1 Section 3. Corporate Seal 1 ARTICLE III STOCKHOLDERS’ MEETINGS 1 Section 4. Place Of Meetings 1 Section 5. Annual Meetings 1 Section 6. Special Meetings 4 Section 7. Notice Of Meetings 4 Section 8. Quorum; Voting 4 Section 9. Adjournment And Notice Of Adjourned Meetings 5 Section 10. Voting Rights 5 Section 11. Action Without Meeting 5 Section 12. Organization 5 ARTICLE IV DIRECTORS 6 Section 13. Number And Term Of Office 6 Section 14. Powers 6 Section 15. Board of Directors 6 Section 16. Vacancies 6 Section 17. Resignation 6 Section 18. Removal 6 Section 19. Meetings 6 Section 20. Quorum And Voting 7 Section 21. Action Without Meeting 8 Section 22. Fees And Compensation 8 Section 23. Committees 8 Section 24. Organization 9 Section 25. Duties of Chairperson of the Board of Directors 9 ARTICLE V OFFICERS 9 Section 26. Officers Designated 9 Section 27. Tenure And Duties Of Officers 9 Section 28. Delegation Of Authority 10 Section 29. Resignations 10 Section 30. Removal 10 ARTICLE VI EXECUTION OF CORPORATE INSTRUMENTS AND VOTING OF SECURITIES OWNED BYTHE CORPORATION 11 Section 31. Execution of Corporate Instruments 11 Section 32. Voting Of Securities Owned By The Corporation 11 ARTICLE VII SHARES OF STOCK 11 Section 33. Form And Execution Of Certificates 11 Section 34. Lost Certificates 11 Section 35. Transfers 11 Section 36. Registered Stockholders 11 ARTICLE VIII OTHER SECURITIES OF THE CORPORATION 12 Section 37. Execution Of Other Securities 12 ARTICLE IX FISCAL YEAR 13 Section 38. Fiscal Year 13 ARTICLE X INDEMNIFICATION 13 Section 39. Indemnification of Directors, Executive Officers, Other Officers, Employees and Other Agents 13 ARTICLE XI NOTICES 14 Section 40. Notices 14 ARTICLE XII AMENDMENTS 15 Section 41. Amendments 15 ARTICLE XIII LOANS TO OFFICERS 15 Section 42. Loans To Officers 15 THIRD AMENDED AND RESTATED BYLAWSOFZYNGA INC.(A DELAWARE CORPORATION)ARTICLE IOFFICESSection 1. Registered Office. The registered office of the corporation in the State of Delaware shall be fixed in the corporation’s certificate of incorporation.Section 2. Other Offices. The corporation shall also have and maintain an office or principal place of business at such place as may be fixed by the Board ofDirectors, and may also have offices at such other places, both within and without the State of Delaware as the Board of Directors may from time to timedetermine or the business of the corporation may require.ARTICLE IICORPORATE SEALSection 3. Corporate Seal. The Board of Directors may provide for a corporate seal. The corporate seal shall consist of a die bearing the name of thecorporation and the inscription, “Corporate Seal-Delaware.” Said seal may be used by causing it or a facsimile thereof to be impressed or affixed orreproduced or otherwise.ARTICLE IIISTOCKHOLDERS’ MEETINGSSection 4. Place Of Meetings. Meetings of the stockholders of the corporation may be held at such place, either within or without the State of Delaware, asmay be determined from time to time by the Board of Directors. The Board of Directors may, in its sole discretion, determine that the meeting shall not beheld at any place, but may instead be held solely by means of remote communication as provided under the Delaware General Corporation Law (“DGCL”).Section 5. Annual Meetings. (a) The annual meeting of the stockholders of the corporation, for the purpose of election of directors and for such other business as may properly comebefore it, shall be held on such date and at such time as may be designated from time to time by the Board of Directors. Nominations of persons for election tothe Board of Directors and the proposal of business to be considered by the stockholders may be made at an annual meeting of stockholders: (i) pursuant tothe corporation’s notice of meeting of stockholders (with respect to business other than nominations); (ii) brought specifically by or at the direction of theBoard of Directors; or (iii) by any stockholder of the corporation who was a stockholder of record at the time of giving the stockholder’s notice provided forin Section 5(b) below, who is entitled to vote at the meeting and who complied with the notice procedures set forth in Section 5. For the avoidance of doubt,clause (iii) above shall be the exclusive means for a stockholder to make nominations and submit other business (other than matters properly included in thecorporation’s notice of meeting of stockholders and proxy statement under Rule 14a-8 under the Securities Exchange Act of 1934, as amended, and the rulesand regulations thereunder (the “1934 Act”)) before an annual meeting of stockholders.(b) At an annual meeting of the stockholders, only such business shall be conducted as is a proper matter for stockholder action under Delaware law and asshall have been properly brought before the meeting in accordance with the procedures below.(i) For nominations for the election to the Board of Directors to be properly brought before an annual meeting by a stockholder pursuant to clause (iii) ofSection 5(a) of these Bylaws, the stockholder must deliver written notice to the-1- Secretary at the principal executive offices of the corporation on a timely basis as set forth in Section 5(b)(iii) and must update and supplement such writtennotice on a timely basis as set forth in Section 5(c). Such stockholder’s notice shall set forth: (A) as to each nominee such stockholder proposes to nominate atthe meeting: (1) the name, age, business address and residence address of such nominee, (2) the principal occupation or employment of such nominee, (3) theclass and number of shares of each class of capital stock of the corporation which are owned of record and beneficially by such nominee, (4) the date or dateson which such shares were acquired and the investment intent of such acquisition, and (5) such other information concerning such nominee as would berequired to be disclosed in a proxy statement soliciting proxies for the election of such nominee as a director in an election contest (even if an electioncontest is not involved), or that is otherwise required to be disclosed pursuant to Section 14 of the 1934 Act and the rules and regulations promulgatedthereunder (including such person’s written consent to being named as a nominee and to serving as a director if elected); and (B) the information required bySection 5(b)(iv). The corporation may require any proposed nominee to furnish such other information as it may reasonably require to determine theeligibility of such proposed nominee to serve as an independent director of the corporation or that could be material to a reasonable stockholder’sunderstanding of the independence, or lack thereof, of such proposed nominee.(ii) For business other than nominations for the election to the Board of Directors to be properly brought before an annual meeting by a stockholder pursuantto clause (iii) of Section 5(a) of these Bylaws, the stockholder must deliver written notice to the Secretary at the principal executive offices of the corporationon a timely basis as set forth in Section 5(b)(iii), and must update and supplement such written notice on a timely basis as set forth in Section 5(c). Suchstockholder’s notice shall set forth: (A) as to each matter such stockholder proposes to bring before the meeting, a brief description of the business desired tobe brought before the meeting, the reasons for conducting such business at the meeting, and any material interest (including any anticipated benefit of suchbusiness to any Proponent (as defined below) other than solely as a result of its ownership of the corporation’s capital stock, that is material to any Proponentindividually, or to the Proponents in the aggregate) in such business of any Proponent; and (B) the information required by Section 5(b)(iv).(iii) To be timely, the written notice required by Section 5(b)(i) or 5(b)(ii) must be received by the Secretary at the principal executive offices of thecorporation not later than the close of business on the ninetieth (90th) day nor earlier than the close of business on the one hundred twentieth (120th) dayprior to the first anniversary of the preceding year’s annual meeting; provided, however, that, subject to the last sentence of this Section 5(b)(iii), in the eventthat the date of the annual meeting is advanced more than thirty (30) days prior to or delayed by more than thirty (30) days after the anniversary of thepreceding year’s annual meeting, notice by the stockholder to be timely must be so received not earlier than the close of business on the one hundredtwentieth (120th) day prior to such annual meeting and not later than the close of business on the later of the ninetieth (90th) day prior to such annualmeeting or the tenth (10th) day following the day on which public announcement of the date of such meeting is first made. In no event shall an adjournmentor a postponement of an annual meeting for which notice has been given, or the public announcement thereof has been made, commence a new time periodfor the giving of a stockholder’s notice as described above.(iv) The written notice required by Section 5(b)(i) or 5(b)(ii) shall also set forth, as of the date of the notice and as to the stockholder giving the notice and thebeneficial owner, if any, on whose behalf the nomination or proposal is made (each, a “Proponent” and collectively, the “Proponents”): (A) the name andaddress of each Proponent, as they appear on the corporation’s books; (B) the class, series and number of shares of the corporation that are owned beneficiallyand of record by each Proponent; (C) a description of any agreement, arrangement or understanding (whether oral or in writing) with respect to suchnomination or proposal between or among any Proponent and any of its affiliates or associates, and any others (including their names) acting in concert, orotherwise under the agreement, arrangement or understanding, with any of the foregoing; (D) a representation that the Proponents are holders of record orbeneficial owners, as the case may be, of shares of the corporation entitled to vote at the meeting and intend to appear in person or by proxy at the meeting tonominate the person or persons specified in the notice (with respect to a notice under Section 5(b)(i)) or to propose the business that is specified in the notice(with respect to a notice under Section 5(b)(ii)); (E) a representation as to whether the Proponents intend to deliver a proxy statement and form of proxy toholders of a sufficient number of holders of the corporation’s voting shares to elect such nominee or nominees (with respect to a notice under Section 5(b)(i))or to carry such proposal (with respect to a notice under Section 5(b)(ii)); (F) to the extent known by any Proponent, the name and address of any otherstockholder supporting the proposal on the date of such stockholder’s notice; and (G) a description of all Derivative Transactions (as defined below) by eachProponent during the previous twelve (12) month period, including the date of the transactions and the class, series and number of securities involved in, andthe material economic terms of, such Derivative Transactions.For purposes of Sections 5 and 6, a “Derivative Transaction” means any agreement, arrangement, interest or understanding entered into by, or on behalf or forthe benefit of, any Proponent or any of its affiliates or associates, whether record or beneficial:-2- (w)the value of which is derived in whole or in part from the value of any class or series of shares or other securities of the corporation, (x)which otherwise provides any direct or indirect opportunity to gain or share in any gain derived from a change in the value of securities of thecorporation, (y)the effect or intent of which is to mitigate loss, manage risk or benefit of security value or price changes, or (z)which provides the right to vote or increase or decrease the voting power of, such Proponent, or any of its affiliates or associates, with respect toany securities of the corporation,which agreement, arrangement, interest or understanding may include, without limitation, any option, warrant, debt position, note, bond, convertiblesecurity, swap, stock appreciation right, short position, profit interest, hedge, right to dividends, voting agreement, performance-related fee or arrangement toborrow or lend shares (whether or not subject to payment, settlement, exercise or conversion in any such class or series), and any proportionate interest ofsuch Proponent in the securities of the corporation held by any general or limited partnership, or any limited liability company, of which such Proponent is,directly or indirectly, a general partner or managing member.(c) A stockholder providing written notice required by Section 5(b)(i) or (ii) shall update and supplement such notice in writing, if necessary, so that theinformation provided or required to be provided in such notice is true and correct in all material respects as of (i) the record date for the meeting and (ii) thedate that is five (5) business days prior to the meeting and, in the event of any adjournment or postponement thereof, five (5) business days prior to suchadjourned or postponed meeting. In the case of an update and supplement pursuant to clause (i) of this Section 5(c), such update and supplement shall bereceived by the Secretary at the principal executive offices of the corporation not later than five (5) business days after the record date for the meeting. In thecase of an update and supplement pursuant to clause (ii) of this Section 5(c), such update and supplement shall be received by the Secretary at the principalexecutive offices of the corporation not later than two (2) business days prior to the date for the meeting, and, in the event of any adjournment orpostponement thereof, two (2) business days prior to such adjourned or postponed meeting.(d) Notwithstanding anything in Section 5(b)(iii) to the contrary, in the event that the number of directors of the Board of Directors is increased and there isno public announcement of the appointment of a director, or, if no appointment was made, of the vacancy, made by the corporation at least ten (10) daysbefore the last day a stockholder may deliver a notice of nomination in accordance with Section 5(b)(iii), a stockholder’s notice required by this Section 5and which complies with the requirements in Section 5(b)(i), other than the timing requirements in Section 5(b)(iii), shall also be considered timely, but onlywith respect to nominees for any new positions created by such increase, if it shall be received by the Secretary at the principal executive offices of thecorporation not later than the close of business on the tenth (10th) day following the day on which such public announcement is first made by thecorporation.(e) A person shall not be eligible for election or re-election as a director unless the person is nominated either in accordance with clause (ii) of Section 5(a), orin accordance with clause (iii) of Section 5(a). Except as otherwise required by law, the chairperson of the meeting shall have the power and duty to determinewhether a nomination or any business proposed to be brought before the meeting was made, or proposed, as the case may be, in accordance with theprocedures set forth in these Bylaws and, if any proposed nomination or business is not in compliance with these Bylaws, or the Proponent does not act inaccordance with the representations in Sections 5(b)(iv)(D) and 5(b)(iv)(E), to declare that such proposal or nomination shall not be presented for stockholderaction at the meeting and shall be disregarded, notwithstanding that proxies in respect of such nominations or such business may have been solicited orreceived.(f) Notwithstanding the foregoing provisions of this Section 5, in order to include information with respect to a stockholder proposal in the proxy statementand form of proxy for a stockholders’ meeting, a stockholder must also comply with all applicable requirements of the 1934 Act and the rules and regulationsthereunder. Nothing in these Bylaws shall be deemed to affect any rights of stockholders to request inclusion of proposals in the corporation’s proxystatement pursuant to Rule 14a-8 under the 1934 Act; provided, however, that any references in these Bylaws to the 1934 Act or the rules and regulationsthereunder are not intended to and shall not limit the requirements applicable to proposals and/or nominations to be considered pursuant to Section 5(a)(iii)of these Bylaws.(g) For purposes of Sections 5 and 6,(i) “public announcement” shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national newsservice or in a document publicly filed by the corporation with the Securities and-3- Exchange Commission pursuant to Section 13, 14 or 15(d) of the 1934 Act; and(ii) “affiliates” and “associates” shall have the meanings set forth in Rule 405 under the Securities Act of 1933, as amended (the “1933 Act”). Section 6. Special Meetings.(a) Special meetings of the stockholders of the corporation may be called, for any purpose as is a proper matter for stockholder action under Delaware law, by(i) the Chairperson of the Board of Directors, (ii) the Chief Executive Officer, or (iii) the Board of Directors pursuant to a resolution adopted by a majority ofthe total number of authorized directors (whether or not there exist any vacancies in previously authorized directorships at the time that any such resolutionis presented to the Board of Directors for adoption).(b) For a special meeting called pursuant to Section 6(a), the Board of Directors shall determine the time and place, if any, of such special meeting. Upondetermination of the time and place, if any, of the meeting, the Secretary shall cause a notice of meeting to be given to the stockholders entitled to vote, inaccordance with the provisions of Section 7 of these Bylaws. No business may be transacted at a special meeting other than as specified in the notice ofmeeting.(c) Nominations of persons for election to the Board of Directors may be made at a special meeting of stockholders at which directors are to be elected (i) byor at the direction of the Board of Directors or (ii) by any stockholder of the corporation who is a stockholder of record at the time of giving notice providedfor in this paragraph, who shall be entitled to vote at the meeting and who delivers written notice to the Secretary of the corporation setting forth theinformation required by Section 5(b)(i). In the event the corporation calls a special meeting of stockholders for the purpose of electing one or more directorsto the Board of Directors, any such stockholder of record may nominate a person or persons (as the case may be), for election to such position(s) as specifiedin the corporation’s notice of meeting, if written notice setting forth the information required by Section 5(b)(i) of these Bylaws shall be received by theSecretary at the principal executive offices of the corporation not later than the close of business on the later of the ninetieth (90th) day prior to such meetingor the tenth (10th) day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by theBoard of Directors to be elected at such meeting. The stockholder shall also update and supplement such information as required under Section 5(c). In noevent shall an adjournment or a postponement of a special meeting for which notice has been given, or the public announcement thereof has been made,commence a new time period for the giving of a stockholder’s notice as described above.(d) Notwithstanding the foregoing provisions of this Section 6, a stockholder must also comply with all applicable requirements of the 1934 Act and the rulesand regulations thereunder with respect to matters set forth in this Section 6. Nothing in these Bylaws shall be deemed to affect any rights of stockholders torequest inclusion of proposals in the corporation’s proxy statement pursuant to Rule 14a-8 under the 1934 Act; provided, however, that any references inthese Bylaws to the 1934 Act or the rules and regulations thereunder are not intended to and shall not limit the requirements applicable to nominations forthe election to the Board of Directors and/or proposals of other business to be considered pursuant to Section 6(c) of these Bylaws.Section 7. Notice Of Meetings. Except as otherwise provided by law, notice, given in writing or by electronic transmission, of each meeting of stockholdersshall be given not less than ten (10) nor more than sixty (60) days before the date of the meeting to each stockholder entitled to vote at such meeting, suchnotice to specify the place, if any, date and hour, in the case of special meetings, the purpose or purposes of the meeting, and the means of remotecommunications, if any, by which stockholders and proxy holders may be deemed to be present in person and vote at any such meeting. If mailed, notice isgiven when deposited in the United States mail, postage prepaid, directed to the stockholder at such stockholder’s address as it appears on the records of thecorporation. Notice of the time, place, if any, and purpose of any meeting of stockholders may be waived in writing, signed by the person entitled to noticethereof, or by electronic transmission by such person, either before or after such meeting, and will be waived by any stockholder by their attendance thereat inperson, by remote communication, if applicable, or by proxy, except when the stockholder attends a meeting for the express purpose of objecting, at thebeginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Any stockholder so waiving notice ofsuch meeting shall be bound by the proceedings of any such meeting in all respects as if due notice thereof had been given.Section 8. Quorum; Voting. At all meetings of stockholders, except where otherwise provided by statute or by the Certificate of Incorporation, or by theseBylaws, the presence, in person, by remote communication, if applicable, or by proxy duly authorized, of the holders of a majority of the voting power of theshares of stock entitled to vote shall constitute a quorum for the transaction of business. In the absence of a quorum, any meeting of stockholders may beadjourned, from-4- time to time, either by the chairperson of the meeting or by vote of the holders of a majority of the voting power of the shares represented thereat, but no otherbusiness shall be transacted at such meeting. The stockholders present at a duly called or convened meeting, at which a quorum is present, may continue totransact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum. Except as otherwise provided bystatute, by applicable stock exchange rules, by the Certificate of Incorporation or by these Bylaws, in all matters other than the election of directors, theaffirmative vote of the holders of a majority of the voting power of the shares present in person, by remote communication, if applicable, or represented byproxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders. Except as otherwise provided by statute, by the Certificateof Incorporation or by these Bylaws, a nominee for director shall be elected to the Board of Directors if the votes cast for such nominee’s election exceed thevotes cast against such nominee’s election; provided, however, that directors shall be elected by a plurality of the votes cast at any meeting of stockholdersfor which (a) (i) the Secretary receives a notice that a stockholder has nominated a person for election to the Board of Directors in compliance with theadvance notice requirements for stockholder nominees set forth in Article III, Section 5(b) or Article III, Section 6(c), as applicable, of these Bylaws; and (ii)such nomination has not been withdrawn by such stockholder on or before the fourteenth (14th) day prior to the date that the corporation files its definitiveproxy statement (regardless of whether or not thereafter revised or supplemented) with the Securities and Exchange Commission; or (b) the number of directornominees otherwise exceeds the number of directors to be elected at such meeting. If directors are to be elected by a plurality of the votes cast, stockholdersshall not be permitted to vote against a nominee. Where a separate vote by a class or classes or series is required, except where otherwise provided by statuteor by the Certificate of Incorporation or these Bylaws, a majority of the outstanding shares of such class or classes or series, present in person, by remotecommunication, if applicable, or represented by proxy duly authorized, shall constitute a quorum entitled to take action with respect to that vote on thatmatter. With respect to the election of directors only, “abstentions”, “withholds” and “broker non-votes,” if any, although counted for quorum purposes, shallnot be included in the total number of votes cast or be counted as votes for or against any nominee’s election.Section 9. Adjournment And Notice Of Adjourned Meetings. Any meeting of stockholders, whether annual or special, may be adjourned from time to timeeither by the chairperson of the meeting or by the vote of holders of a majority of the voting power of the shares present in person, by remote communication,if applicable, or represented by proxy at the meeting. When a meeting is adjourned to another time or place, if any, notice need not be given of the adjournedmeeting if the time and place, if any, thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting, the corporation maytransact any business which might have been transacted at the original meeting. If the adjournment is for more than thirty (30) days or if after the adjournmenta new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at themeeting.Section 10. Voting Rights. For the purpose of determining those stockholders entitled to vote at any meeting of the stockholders, except as otherwiseprovided by law, only persons in whose names shares stand on the stock records of the corporation on the record date shall be entitled to vote at any meetingof stockholders. Every person entitled to vote or execute consents shall have the right to do so either in person, by remote communication, if applicable, orby an agent or agents authorized by a proxy granted in accordance with Delaware law. An agent so appointed need not be a stockholder. No proxy shall bevoted after three (3) years from its date of creation unless the proxy provides for a longer period.Section 11. Action Without Meeting. Except as provided in the Certificate of Incorporation, any action required or permitted to be taken by the stockholdersof the corporation must be effected at a duly called annual or special meeting of stockholders of the corporation and may not be effected by any consent inwriting by such stockholders.Section 12. Organization. (a) At every meeting of stockholders, the Chairperson of the Board of Directors, or, if a Chairperson has not been appointed or is absent, the Chief ExecutiveOfficer, or if no Chief Executive Officer is then serving or is absent, the President, or, if the President is absent, a chairperson of the meeting chosen by amajority in interest of the stockholders entitled to vote, present in person or by proxy, shall act as chairperson. The Chairperson of the Board may appoint theChief Executive Officer as chairperson of the meeting. The Secretary, or, in his or her absence, an Assistant Secretary or other officer or other person directedto do so by the chairperson of the meeting, shall act as secretary of the meeting.(b) The Board of Directors shall be entitled to make such rules or regulations for the conduct of meetings of stockholders as it shall deem necessary,appropriate or convenient. Subject to such rules and regulations of the Board of Directors, if any, the chairperson of the meeting shall have the right andauthority to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such chairperson, are necessary, appropriate orconvenient for the proper conduct of the meeting, including, without limitation, establishing an agenda or order of business for the meeting, rules andprocedures for maintaining order at the meeting and the safety of those present, limitations on participation in such meeting to stockholders-5- of record of the corporation and their duly authorized and constituted proxies and such other persons as the chairperson shall permit, restrictions on entry tothe meeting after the time fixed for the commencement thereof, limitations on the time allotted to questions or comments by participants and regulation ofthe opening and closing of the polls for balloting on matters which are to be voted on by ballot. The date and time of the opening and closing of the polls foreach matter upon which the stockholders will vote at the meeting shall be announced at the meeting. Unless and to the extent determined by the Board ofDirectors or the chairperson of the meeting, meetings of stockholders shall not be required to be held in accordance with rules of parliamentary procedure.ARTICLE IVDIRECTORSSection 13. Number And Term Of Office. The authorized number of directors of the corporation shall be fixed in accordance with the Certificate ofIncorporation. Directors need not be stockholders unless so required by the Certificate of Incorporation. If for any cause, the directors shall not have beenelected at an annual meeting, they may be elected as soon thereafter as convenient at a special meeting of the stockholders called for that purpose in themanner provided in these Bylaws.Section 14. Powers. The powers of the corporation shall be exercised, its business conducted and its property controlled by the Board of Directors, except asmay be otherwise provided by statute or by the Certificate of Incorporation.Section 15. Board of Directors. Directors shall be elected at each annual meeting of stockholders to hold office until the next annual meeting. Each directorshall hold office either until the expiration of the term for which elected or appointed and a successor has been elected and qualified, or until such director’searlier death, resignation or removal. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbentdirector.Section 16. Vacancies. Unless otherwise provided in the Certificate of Incorporation and subject to the rights of the holders of any series of Preferred Stock oras otherwise provided by applicable law, any vacancies on the Board of Directors resulting from death, resignation, disqualification, removal or other causesand any newly created directorships resulting from any increase in the number of directors shall, unless the Board of Directors determines by resolution thatany such vacancies or newly created directorships shall be filled by stockholders, be filled only by the affirmative vote of a majority of the directors then inoffice, even though less than a quorum of the Board of Directors or by a sole remaining director. Except (i) as otherwise provided by applicable law or (ii) asmay be otherwise determined by the Board of Directors by resolution and subject to the rights of the holders of any series of Preferred Stock, any directorelected in accordance with the preceding sentence shall hold office for the remainder of the full term of the director for which the vacancy was created oroccurred and until such director’s successor shall have been elected and qualified. A vacancy in the Board of Directors shall be deemed to exist under thisSection 16 in the case of the death, removal or resignation of any director.Section 17. Resignation. Any director may resign at any time by delivering his or her notice in writing or by electronic transmission to the Secretary, suchresignation to specify whether it will be effective at a particular time. If no such specification is made, the Secretary, in his or her discretion, may either (a)require confirmation from the director prior to deeming the resignation effective, in which case the resignation will be deemed effective upon receipt of suchconfirmation, or (b) deem the resignation effective at the time of delivery of the resignation to the Secretary. When one or more directors shall resign from theBoard of Directors, effective at a future date, a majority of the directors then in office, including those who have so resigned, shall have power to fill suchvacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective, and each Director so chosen shall holdoffice for the unexpired portion of the term of the Director whose place shall be vacated and until his successor shall have been duly elected and qualified.Section 18. Removal. Subject to any requirements set forth in the Certificate of Incorporation, the Board of Directors or any individual director may beremoved from office at any time with or without cause by the affirmative vote of the holders of a majority of the voting power of all the then-outstandingshares of capital stock of the corporation, entitled to vote generally at an election of directors.Section 19. Meetings. (a) Regular Meetings. Unless otherwise restricted by the Certificate of Incorporation, regular meetings of the Board of Directors may be held at any time ordate and at any place within or without the State of Delaware which has been designated by the Board of Directors and publicized among all directors, eitherorally or in writing, by telephone, including a voice--6- messaging system or other system designed to record and communicate messages, facsimile, telegraph or telex, or by electronic mail or other electronicmeans. No further notice shall be required for regular meetings of the Board of Directors; provided that each member of the Board of Directors must receivewritten notice of any regular Board meeting at which any CEO Succession Matter is acted upon no less than seventy-two (72) hours prior to such meeting andsuch written notice shall include a detailed description of the CEO Succession Matter; for the purposes of this sentence only, notice shall be deemed“received” by a director when delivered personally, telecopied (with confirmation) or delivered by an overnight courier (with confirmation) to the directors attheir addresses appearing in the books and records of the corporation (the “Succession Matter Notice Requirements”). A “CEO Succession Matter” shallmean any matter before the Board of Directors or any committee thereof concerning the hiring, termination, retention or compensation of the Chief ExecutiveOfficer of the corporation. Without limitation, such matters shall include any action which would (i) interpret any provision of any employment agreementbetween the Chief Executive Officer and the corporation; (ii) approve any action that would constitute a constructive termination of the Chief ExecutiveOfficer or permit the Chief Executive Officer to terminate employment with the corporation for good reason or other similar cause under any employment orother agreement between the Chief Executive Officer and the corporation; (iii) determine that the Chief Executive Officer may be terminated for cause orother similar reason under the terms of any employment or other agreement between the Chief Executive Officer and the corporation, or otherwise; (iv)determine that the Chief Executive Officer is disabled or otherwise unable to perform his or her job functions; (v) determine to withhold any salary, benefits,incentives, equity compensation, termination benefits, retirement benefits, perquisites, change in control payments or other similar payments, or any othercompensation under any agreement between the Chief Executive Officer and the corporation; (vi) terminate the Chief Executive Officer without cause; (vii)reduce the benefits or compensation of the Chief Executive Officer, including bonus target or terms; or (viii) approve of any Chief Executive Officersuccession plan or similar measure.(b) Special Meetings. Unless otherwise restricted by the Certificate of Incorporation, special meetings of the Board of Directors may be held at any time andplace within or without the State of Delaware whenever called by the Chairperson of the Board, the Chief Executive Officer or a majority of the total numberof authorized directors.(c) Meetings by Electronic Communications Equipment. Any member of the Board of Directors, or of any committee thereof, may participate in a meetingby means of conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other, andparticipation in a meeting by such means shall constitute presence in person at such meeting.(d) Notice of Special Meetings. Notice of the time and place of all special meetings of the Board of Directors shall be orally or in writing, by telephone,including a voice messaging system or other system or technology designed to record and communicate messages, facsimile, telegraph or telex, or byelectronic mail or other electronic means, during normal business hours, at least twenty-four (24) hours before the date and time of the meeting; provided thateach member of the Board of Directors must receive written notice that meets the Succession Matter Notice Requirements of any special meeting at which anyCEO Succession Matter is discussed or acted upon no less than seventy-two (72) hours prior to such meeting and such written notice shall include adescription of the CEO Succession Matter. If notice is sent by U.S. mail, it shall be sent by first class mail, charges prepaid, at least three (3) days before thedate of the meeting. Notice of any meeting may be waived in writing, or by electronic transmission, at any time before or after the meeting and will be waivedby any director by attendance thereat, except when the director attends the meeting for the express purpose of objecting, at the beginning of the meeting, tothe transaction of any business because the meeting is not lawfully called or convened.(e) Waiver of Notice. The transaction of all business at any meeting of the Board of Directors, or any committee thereof, however called or noticed, orwherever held, shall be as valid as though it had been transacted at a meeting duly held after regular call and notice, if a quorum be present and if, eitherbefore or after the meeting, each of the directors not present who did not receive notice shall sign a written waiver of notice or shall waive notice byelectronic transmission. All such waivers shall be filed with the corporate records or made a part of the minutes of the meeting.Section 20. Quorum And Voting. (a) Unless the Certificate of Incorporation requires a greater number, and except with respect to questions related to indemnification arising under Section 39for which a quorum shall be one-third of the exact number of directors fixed from time to time, a quorum of the Board of Directors shall consist of a majorityof the exact number of directors fixed from time to time by the Board of Directors in accordance with the Certificate of Incorporation; provided, however, atany meeting whether a quorum be present or otherwise, a majority of the directors present may adjourn from time to time until the time fixed for the nextregular meeting of the Board of Directors, without notice other than by announcement at the meeting.(b) At each meeting of the Board of Directors at which a quorum is present, all questions and business shall be determined by-7- the affirmative vote of a majority of the directors present, unless a different vote be required by law, the Certificate of Incorporation or these Bylaws.Section 21. Action Without Meeting. Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, any action required or permitted to betaken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if all members of the Board of Directors orcommittee, as the case may be, consent thereto in writing or by electronic transmission, and such writing or writings or transmission or transmissions are filedwith the minutes of proceedings of the Board of Directors or committee. Such filing shall be in paper form if the minutes are maintained in paper form andshall be in electronic form if the minutes are maintained in electronic form.Section 22. Fees And Compensation. Directors shall be entitled to such compensation for their services as may be approved by the Board of Directors,including, if so approved, by resolution of the Board of Directors, a fixed sum and expenses of attendance, if any, for attendance at each regular or specialmeeting of the Board of Directors and at any meeting of a committee of the Board of Directors. Nothing herein contained shall be construed to preclude anydirector from serving the corporation as an officer, agent, employee, or otherwise and receiving compensation therefor.Section 23. Committees. (a) Executive Committee. The Board of Directors may appoint an Executive Committee to consist of one (1) or more members of the Board of Directors. TheExecutive Committee, to the extent permitted by law and provided in a resolution of the Board of Directors shall have and may exercise all the powers andauthority of the Board of Directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to beaffixed to all papers that may require it; but no such committee shall have the power or authority in reference to (i) approving or adopting, or recommendingto the stockholders, any action or matter (other than the election or removal of directors) expressly required by the DGCL to be submitted to stockholders forapproval, or (ii) adopting, amending or repealing any Bylaw of the corporation.(b) Other Committees. The Board of Directors may, from time to time, appoint such other committees as may be permitted by law. Such other committeesappointed by the Board of Directors shall consist of one (1) or more members of the Board of Directors and shall have such powers and perform such duties asmay be prescribed by the resolution or resolutions creating such committees, but in no event shall any such committee have the powers denied to theExecutive Committee in these Bylaws.(c) Term. The Board of Directors, subject to any requirements of any outstanding series of Preferred Stock and the provisions of subsections (a) or (b) of thisSection 23, may at any time increase or decrease the number of members of a committee or terminate the existence of a committee. The membership of acommittee member shall terminate on the date of his death or voluntary resignation from the committee or from the Board of Directors. The Board of Directorsmay at any time for any reason remove any individual committee member and the Board of Directors may fill any committee vacancy created by death,resignation, removal or increase in the number of members of the committee. The Board of Directors may designate one or more directors as alternatemembers of any committee, who may replace any absent or disqualified member at any meeting of the committee, and, in addition, in the absence ordisqualification of any member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he orthey constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent ordisqualified member.(d) Meetings. Unless the Board of Directors shall otherwise provide, regular meetings of the Executive Committee or any other committee appointed pursuantto this Section 23 shall be held at such times and places as are determined by the Board of Directors, or by any such committee, and when notice thereof hasbeen given to each member of such committee, no further notice of such regular meetings need be given thereafter. Special meetings of any such committeemay be held at any place which has been determined from time to time by such committee, and may be called by any Director who is a member of suchcommittee, upon notice to the members of such committee of the time and place of such special meeting given in the manner provided for the giving ofnotice to members of the Board of Directors of the time and place of special meetings of the Board of Directors. Notwithstanding the foregoing, each memberof the Board of Directors must receive written notice that meets the Succession Matter Notice Requirements of any regular or special meeting at which anyCEO Succession Matter is discussed or acted upon no less than seventy-two (72) hours prior to such meeting and such written notice shall include adescription of the CEO Succession Matter. Notice of any special meeting of any committee may be waived in writing or by electronic transmission at anytime before or after the meeting and will be waived by any director by attendance thereat, except when the director attends such special meeting for theexpress purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened.Unless otherwise provided-8- by the Board of Directors in the resolutions authorizing the creation of the committee, a majority of the authorized number of members of any such committeeshall constitute a quorum for the transaction of business, and the act of a majority of those present at any meeting at which a quorum is present shall be the actof such committee.Section 24. Organization. At every meeting of the directors, the Chairperson of the Board of Directors, or, if a Chairperson has not been appointed or isabsent, the Chief Executive Officer (if a director), or, if a Chief Executive Officer is absent, the President (if a director), or if the President is absent, the mostsenior Vice President (if a director), or, in the absence of any such person, a chairperson of the meeting chosen by a majority of the directors present, shallpreside over the meeting. The Secretary, or in his absence, any Assistant Secretary or other officer, director or other person directed to do so by thechairperson, shall act as secretary of the meeting.Section 25. Duties of Chairperson of the Board of Directors. The Chairperson of the Board of Directors, when present, shall preside at all meetings of theBoard of Directors. The Chairperson of the Board of Directors shall perform other duties commonly incident to the office and shall also perform such otherduties and have such other powers, as the Board of Directors shall designate from time to time. The Chairperson shall be appointed by the Board of Directorsand may be removed at any time by the Board of Directors.ARTICLE VOFFICERSSection 26. Officers Designated. The officers of the corporation shall include, if and when designated by the Board of Directors, the Chief Executive Officer,the President, one or more Vice Presidents, the Secretary, the Chief Financial Officer, the Chief Technology Officer and the Treasurer. The Board of Directorsmay also appoint one or more Assistant Secretaries and Assistant Treasurers and such other officers and agents with such powers and duties as it shall deemnecessary. The Board of Directors may assign such additional titles to one or more of the officers as it shall deem appropriate. Any one person may hold anynumber of offices of the corporation at any one time unless specifically prohibited therefrom by law. The salaries and other compensation of the officers ofthe corporation shall be fixed by or in the manner designated by the Board of Directors or committee thereof to which the Board of Directors has delegatedsuch responsibility.Section 27. Tenure And Duties Of Officers. (a) General. All officers shall hold office at the pleasure of the Board of Directors and until their successors shall have been duly elected and qualified, unlesssooner removed. Any officer elected or appointed by the Board of Directors may be removed at any time by the Board of Directors. If the office of any officerbecomes vacant for any reason, the vacancy may be filled by the Board of Directors.(b) Duties of Chief Executive Officer. The Chief Executive Officer shall preside at all meetings of the stockholders and at all meetings of the Board ofDirectors (if a director), unless the Chairperson of the Board of Directors has been appointed, is present and has not appointed the Chief Executive Officer aschairperson. The Chief Executive Officer shall, subject to the control of the Board of Directors, have general supervision, direction and control of thebusiness and officers of the corporation. To the extent that a Chief Executive Officer has been appointed and no President has been appointed, all referencesin these Bylaws to the President shall be deemed references to the Chief Executive Officer. The Chief Executive Officer shall perform other duties commonlyincident to the office and shall also perform such other duties and have such other powers, as the Board of Directors shall designate from time to time.(c) Duties of President. The President shall preside at all meetings of the stockholders and at all meetings of the Board of Directors (if a director), unless theChairperson of the Board of Directors or the Chief Executive Officer has been appointed and is present. Unless another officer has been appointed ChiefExecutive Officer of the corporation, the President shall be the chief executive officer of the corporation and shall, subject to the control of the Board ofDirectors, have general supervision, direction and control of the business and officers of the corporation. The President shall perform other duties commonlyincident to the office and shall also perform such other duties and have such other powers, as the Board of Directors (or the Chief Executive Officer, if theChief Executive Officer and President are not the same person and the Board of Directors has delegated the designation of the President’s duties to the ChiefExecutive Officer) shall designate from time to time.(d) Duties of Vice Presidents. The Vice Presidents may assume and perform the duties of the President in the absence or disability of the President orwhenever the office of President is vacant (unless the duties of the President are being filled by the Chief Executive Officer). The Vice Presidents shallperform other duties commonly incident to their office and shall also-9- perform such other duties and have such other powers as the Board of Directors or the Chief Executive Officer, or, if the Chief Executive Officer has not beenappointed, the President shall designate from time to time.(e) Duties of Secretary. The Secretary shall attend all meetings of the stockholders and of the Board of Directors and shall record all acts and proceedingsthereof in the minute book of the corporation. The Secretary shall give notice in conformity with these Bylaws of all meetings of the stockholders and of allmeetings of the Board of Directors and any committee thereof requiring notice. The Secretary shall perform all other duties provided for in these Bylaws andother duties commonly incident to the office and shall also perform such other duties and have such other powers, as the Board of Directors shall designatefrom time to time. The Chief Executive Officer, or if no Chief Executive Officer is then serving, the President, may direct any Assistant Secretary or otherofficer to assume and perform the duties of the Secretary in the absence or disability of the Secretary, and each Assistant Secretary shall perform other dutiescommonly incident to the office and shall also perform such other duties and have such other powers as the Board of Directors or the Chief Executive Officer,or if no Chief Executive Officer is then serving, the President shall designate from time to time.(f) Duties of Chief Financial Officer. The Chief Financial Officer shall keep or cause to be kept the books of account of the corporation in a thorough andproper manner and shall render statements of the financial affairs of the corporation in such form and as often as required by the Board of Directors or theChief Executive Officer, or if no Chief Executive Officer is then serving, the President. The Chief Financial Officer, subject to the order of the Board ofDirectors, shall have the custody of all funds and securities of the corporation. The Chief Financial Officer shall perform other duties commonly incident tothe office and shall also perform such other duties and have such other powers as the Board of Directors or the Chief Executive Officer, or if no ChiefExecutive Officer is then serving, the President, shall designate from time to time. To the extent that a Chief Financial Officer has been appointed and noTreasurer has been appointed, all references in these Bylaws to the Treasurer shall be deemed references to the Chief Financial Officer. The President maydirect the Treasurer, if any, or any Assistant Treasurer, or the controller or any assistant controller to assume and perform the duties of the Chief FinancialOfficer in the absence or disability of the Chief Financial Officer, and each Treasurer and Assistant Treasurer and each controller and assistant controller shallperform other duties commonly incident to the office and shall also perform such other duties and have such other powers as the Board of Directors or thePresident shall designate from time to time.(g) Duties of Chief Technology Officer. The Chief Technology Officer shall have responsibility for the general research and development activities of thecorporation, for supervision of the corporation’s research and development personnel, for new product development and product improvements, foroverseeing the development and direction of the corporation’s intellectual property development and such other responsibilities as may be given to the ChiefTechnology Officer by the Board of Directors, subject to: (a) the provisions of these Bylaws; (b) the direction of the Board of Directors; and (c) thesupervisory powers of the Chief Executive Officer of the corporation.(h) Duties of Treasurer. Unless another officer has been appointed Chief Financial Officer of the corporation, the Treasurer shall be the chief financial officerof the corporation and shall keep or cause to be kept the books of account of the corporation in a thorough and proper manner and shall render statements ofthe financial affairs of the corporation in such form and as often as required by the Board of Directors or the Chief Executive Officer, or if no Chief ExecutiveOfficer is then serving, the President, and, subject to the order of the Board of Directors, shall have the custody of all funds and securities of the corporation.The Treasurer shall perform other duties commonly incident to the office and shall also perform such other duties and have such other powers as the Board ofDirectors, the Chief Executive Officer, or if no Chief Executive Officer is then serving, the President, and the Chief Financial Officer (if not the Treasurer)shall designate from time to time.Section 28. Delegation Of Authority. The Board of Directors may from time to time delegate the powers or duties of any officer to any other officer or agent,notwithstanding any provision hereof.Section 29. Resignations. Any officer may resign at any time by giving notice in writing or by electronic transmission to the Board of Directors or to theChief Executive Officer, or if no Chief Executive Officer is then serving, the President, or to the Secretary. Any such resignation shall be effective whenreceived by the person or persons to whom such notice is given, unless a later time is specified therein, in which event the resignation shall become effectiveat such later time. Unless otherwise specified in such notice, the acceptance of any such resignation shall not be necessary to make it effective. Anyresignation shall be without prejudice to the rights, if any, of the corporation under any contract with the resigning officer.Section 30. Removal. Any officer may be removed from office at any time, either with or without cause, by the affirmative vote of a majority of the directorsin office at the time, or by the unanimous written consent of the directors in office at the time, or by any committee or by the Chief Executive Officer or byother superior officers upon whom such power of removal may have been conferred by the Board of Directors.-10- ARTICLE VIEXECUTION OF CORPORATE INSTRUMENTS ANDVOTING OF SECURITIES OWNED BY THE CORPORATIONSection 31. Execution of Corporate Instruments. The Board of Directors may, in its discretion, determine the method and designate the signatory officer orofficers, or other person or persons, to execute on behalf of the corporation any corporate instrument or document, or to sign on behalf of the corporation thecorporate name without limitation, or to enter into contracts on behalf of the corporation, except where otherwise provided by law or these Bylaws, and suchexecution or signature shall be binding upon the corporation.All checks and drafts drawn on banks or other depositaries on funds to the credit of the corporation or in special accounts of the corporation shall be signedby such person or persons as the Board of Directors shall authorize so to do.Unless authorized or ratified by the Board of Directors or within the agency power of an officer, no officer, agent or employee shall have any power orauthority to bind the corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount.Section 32. Voting Of Securities Owned By The Corporation. All stock and other securities of other corporations owned or held by the corporation for itself,or for other parties in any capacity, shall be voted, and all proxies with respect thereto shall be executed, by the person authorized so to do by resolution ofthe Board of Directors, or, in the absence of such authorization, by the Chairperson of the Board of Directors, the Chief Executive Officer, the President, orany Vice President.ARTICLE VIISHARES OF STOCKSection 33. Form And Execution Of Certificates. The shares of the corporation shall be represented by certificates, or shall be uncertificated if so providedby resolution or resolutions of the Board of Directors. Certificates for the shares of stock, if any, shall be in such form as is consistent with the Certificate ofIncorporation and applicable law. Every holder of stock in the corporation represented by certificate shall be entitled to have a certificate signed by or in thename of the corporation by any two officers of the corporation, representing the number of shares registered in certificate form. Any or all of the signatures onthe certificate may be facsimiles. In case any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed upon a certificateshall have ceased to be such officer, transfer agent, or registrar before such certificate is issued, it may be issued with the same effect as if he were such officer,transfer agent, or registrar at the date of issue.Section 34. Lost Certificates. A new certificate or certificates shall be issued in place of any certificate or certificates theretofore issued by the corporationalleged to have been lost, stolen, or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen, ordestroyed. The corporation may require, as a condition precedent to the issuance of a new certificate or certificates, the owner of such lost, stolen, ordestroyed certificate or certificates, or the owner’s legal representative, to agree to indemnify the corporation in such manner as it shall require or to give thecorporation a surety bond in such form and amount as it may direct as indemnity against any claim that may be made against the corporation with respect tothe certificate alleged to have been lost, stolen, or destroyed.Section 35. Transfers. (a) Transfers of record of shares of stock of the corporation shall be made only upon its books by the holders thereof, in person or by attorney duly authorized,and, in the case of stock represented by certificate, upon the surrender of a properly endorsed certificate or certificates for a like number of shares.(b) The corporation shall have power to enter into and perform any agreement with any number of stockholders of any one or more classes of stock of thecorporation to restrict the transfer of shares of stock of the corporation of any one or more classes owned by such stockholders in any manner not prohibitedby the DGCL.Section 36. Registered Stockholders. The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner ofshares to receive dividends, and to vote as such owner, and shall not be bound to-11- recognize any equitable or other claim to or interest in such share or shares on the part of any other person whether or not it shall have express or other noticethereof, except as otherwise provided by the laws of Delaware.ARTICLE VIIIOTHER SECURITIES OF THE CORPORATIONSection 37. Execution Of Other Securities. All bonds, debentures and other corporate securities of the corporation, other than stock certificates (covered inSection 33), may be signed by the Chairperson of the Board of Directors, the Chief Executive Officer, the President or any Vice President, or such otherperson as may be authorized by the Board of Directors, and the corporate seal impressed thereon or a facsimile of such seal imprinted thereon and attested bythe signature of the Secretary or an Assistant Secretary, or the Chief Financial Officer or Treasurer or an Assistant Treasurer; provided, however, that whereany such bond, debenture or other corporate security shall be authenticated by the manual signature, or where permissible facsimile signature, of a trusteeunder an indenture pursuant to which such bond, debenture or other corporate security shall be issued, the signatures of the persons signing and attesting thecorporate seal on such bond, debenture or other corporate security may be the imprinted facsimile of the signatures of such persons. Interest couponsappertaining to any such bond, debenture or other corporate security, authenticated by a trustee as aforesaid, shall be signed by the Treasurer or an AssistantTreasurer of the corporation or such other person as may be authorized by the Board of Directors, or bear imprinted thereon the facsimile signature of suchperson. In case any officer who shall have signed or attested any bond, debenture or other corporate security, or whose facsimile signature shall appearthereon or on any such interest coupon, shall have ceased to be such officer before the bond, debenture or other corporate security so signed or attested shallhave been delivered, such bond, debenture or other corporate security nevertheless may be adopted by the corporation and issued and delivered as thoughthe person who signed the same or whose facsimile signature shall have been used thereon had not ceased to be such officer of the corporation.ARTICLE IXFISCAL YEARSection 38. Fiscal Year. The fiscal year of the corporation shall be fixed by resolution of the Board of Directors.ARTICLE XINDEMNIFICATIONSection 39. Indemnification of Directors, Executive Officers, Other Officers, Employees and Other Agents. (a) Directors and Executive Officers. The corporation shall indemnify its directors and executive officers (for the purposes of this Article X, “executiveofficers” shall have the meaning defined in Rule 3b-7 promulgated under the 1934 Act) to the extent not prohibited by the DGCL or any other applicablelaw; provided, however, that the corporation may modify the extent of such indemnification by individual contracts with its directors and executive officers;and, provided, further, that the corporation shall not be required to indemnify any director or executive officer in connection with any proceeding (or partthereof) initiated by such person unless (i) such indemnification is expressly required to be made by law, (ii) the proceeding was authorized by the Board ofDirectors, (iii) such indemnification is provided by the corporation, in its sole discretion, pursuant to the powers vested in the corporation under the DGCL orany other applicable law or (iv) such indemnification is required to be made under subsection (d).(b) Other Officers, Employees and Other Agents. The corporation shall have power to indemnify its other officers, employees and other agents as set forth inthe DGCL or any other applicable law. The Board of Directors shall have the power to delegate the determination of whether indemnification shall be givento any such person except executive officers to such officers or other persons as the Board of Directors shall determine.(c) Expenses. The corporation shall advance to any person who was or is a party or is threatened to be made a party to any threatened, pending or completedaction, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he is or was a director or executive officer, of thecorporation, or is or was serving at the request of the-12- corporation as a director or executive officer of another corporation, partnership, joint venture, trust or other enterprise, prior to the final disposition of theproceeding, promptly following request therefor, all expenses incurred by any director or executive officer in connection with such proceeding provided,however, that if the DGCL requires, an advancement of expenses incurred by a director or executive officer in his or her capacity as a director or executiveofficer (and not in any other capacity in which service was or is rendered by such indemnitee, including, without limitation, service to an employee benefitplan) shall be made only upon delivery to the corporation of an undertaking (hereinafter an “undertaking”), by or on behalf of such indemnitee, to repay allamounts so advanced if it shall ultimately be determined by final judicial decision from which there is no further right to appeal (hereinafter a “finaladjudication”) that such indemnitee is not entitled to be indemnified for such expenses under this section or otherwise.Notwithstanding the foregoing, unless otherwise determined pursuant to paragraph (e) of this section, no advance shall be made by the corporation to anexecutive officer of the corporation (except by reason of the fact that such executive officer is or was a director of the corporation in which event thisparagraph shall not apply) in any action, suit or proceeding, whether civil, criminal, administrative or investigative, if a determination is reasonably andpromptly made (i) by a majority vote of directors who were not parties to the proceeding, even if not a quorum, or (ii) by a committee of such directorsdesignated by a majority vote of such directors, even though less than a quorum, or (iii) if there are no such directors, or such directors so direct, byindependent legal counsel in a written opinion, that the facts known to the decision-making party at the time such determination is made demonstrate clearlyand convincingly that such person acted in bad faith or in a manner that such person did not believe to be in or not opposed to the best interests of thecorporation.(d) Enforcement. Without the necessity of entering into an express contract, all rights to indemnification and advances to directors and executive officersunder this Bylaw shall be deemed to be contractual rights and be effective to the same extent and as if provided for in a contract between the corporation andthe director or executive officer. Any right to indemnification or advances granted by this section to a director or executive officer shall be enforceable by oron behalf of the person holding such right in any court of competent jurisdiction if (i) the claim for indemnification or advances is denied, in whole or in part,or (ii) no disposition of such claim is made within ninety (90) days of request therefor. To the extent permitted by law, the claimant in such enforcementaction, if successful in whole or in part, shall be entitled to be paid also the expense of prosecuting the claim. In connection with any claim forindemnification, the corporation shall be entitled to raise as a defense to any such action that the claimant has not met the standards of conduct that make itpermissible under the DGCL or any other applicable law for the corporation to indemnify the claimant for the amount claimed. In connection with any claimby an executive officer of the corporation (except in any action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of thefact that such executive officer is or was a director of the corporation) for advances, the corporation shall be entitled to raise a defense as to any such actionclear and convincing evidence that such person acted in bad faith or in a manner that such person did not believe to be in or not opposed to the best interestsof the corporation, or with respect to any criminal action or proceeding that such person acted without reasonable cause to believe that his conduct waslawful. Neither the failure of the corporation (including its Board of Directors, independent legal counsel or its stockholders) to have made a determinationprior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he has met the applicable standard ofconduct set forth in the DGCL or any other applicable law, nor an actual determination by the corporation (including its Board of Directors, independentlegal counsel or its stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumptionthat claimant has not met the applicable standard of conduct. In any suit brought by a director or executive officer to enforce a right to indemnification or toan advancement of expenses hereunder, the burden of proving that the director or executive officer is not entitled to be indemnified, or to such advancementof expenses, under this section or otherwise shall be on the corporation.(e) Non-Exclusivity of Rights. The rights conferred on any person by this Bylaw shall not be exclusive of any other right which such person may have orhereafter acquire under any applicable statute, provision of the Certificate of Incorporation, Bylaws, agreement, vote of stockholders or disinterested directorsor otherwise, both as to action in his official capacity and as to action in another capacity while holding office. The corporation is specifically authorized toenter into individual contracts with any or all of its directors, officers, employees or agents respecting indemnification and advances, to the fullest extent notprohibited by the DGCL, or by any other applicable law.(f) Survival of Rights. The rights conferred on any person by this Bylaw shall continue as to a person who has ceased to be a director or executive officer orofficer, employee or other agent and shall inure to the benefit of the heirs, executors and administrators of such a person.(g) Insurance. To the fullest extent permitted by the DGCL or any other applicable law, the corporation, upon approval by the Board of Directors, maypurchase insurance on behalf of any person required or permitted to be indemnified pursuant to this section.-13- (h) Amendments. Any repeal or modification of this section shall only be prospective and shall not affect the rights under this Bylaw in effect at the time ofthe alleged occurrence of any action or omission to act that is the cause of any proceeding against any agent of the corporation.(i) Saving Clause. If this Bylaw or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the corporation shallnevertheless indemnify each director and executive officer to the full extent not prohibited by any applicable portion of this section that shall not have beeninvalidated, or by any other applicable law. If this section shall be invalid due to the application of the indemnification provisions of another jurisdiction,then the corporation shall indemnify each director and executive officer to the full extent under any other applicable law.(j) Certain Definitions. For the purposes of this Bylaw, the following definitions shall apply:(i) The term “proceeding” shall be broadly construed and shall include, without limitation, the investigation, preparation, prosecution, defense, settlement,arbitration and appeal of, and the giving of testimony in, any threatened, pending or completed action, suit or proceeding, whether civil, criminal,administrative or investigative.(ii) The term “expenses” shall be broadly construed and shall include, without limitation, court costs, attorneys’ fees, witness fees, fines, amounts paid insettlement or judgment and any other costs and expenses of any nature or kind incurred in connection with any proceeding.(iii) The term the “corporation” shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of aconstituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify itsdirectors, officers, and employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or wasserving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or otherenterprise, shall stand in the same position under the provisions of this section with respect to the resulting or surviving corporation as he would have withrespect to such constituent corporation if its separate existence had continued.(iv) References to a “director,” “executive officer,” “officer,” “employee,” or “agent” of the corporation shall include, without limitation, situations wheresuch person is serving at the request of the corporation as, respectively, a director, executive officer, officer, employee, trustee or agent of another corporation,partnership, joint venture, trust or other enterprise.(v) References to “other enterprises” shall include employee benefit plans; references to “fines” shall include any excise taxes assessed on a person withrespect to an employee benefit plan; and references to “serving at the request of the corporation” shall include any service as a director, officer, employee oragent of the corporation which imposes duties on, or involves services by, such director, officer, employee, or agent with respect to an employee benefit plan,its participants, or beneficiaries; and a person who acted in good faith and in a manner he reasonably believed to be in the interest of the participants andbeneficiaries of an employee benefit plan shall be deemed to have acted in a manner “not opposed to the best interests of the corporation” as referred to inthis section.ARTICLE XINOTICESSection 40. Notices.(a) Notice To Stockholders. Written notice to stockholders of stockholder meetings shall be given as provided in Section 7 herein. Without limiting themanner by which notice may otherwise be given effectively to stockholders under any agreement or contract with such stockholder, and except as otherwiserequired by law, written notice to stockholders for purposes other than stockholder meetings may be sent by U.S. mail or nationally recognized overnightcourier, or by facsimile, telegraph or telex or by electronic mail or other electronic means.(b) Notice To Directors. Any notice required to be given to any director may be given by the method stated in subsection (a), as otherwise provided in theseBylaws, or by overnight delivery service, facsimile, telex or telegram, except that such notice other than one which is delivered personally shall be sent tosuch address as such director shall have filed in writing with the Secretary, or, in the absence of such filing, to the last known post office address of suchdirector.-14- (c) Affidavit Of Mailing. An affidavit of mailing, executed by a duly authorized and competent employee of the corporation or its transfer agent appointedwith respect to the class of stock affected, or other agent, specifying the name and address or the names and addresses of the stockholder or stockholders, ordirector or directors, to whom any such notice or notices was or were given, and the time and method of giving the same, shall in the absence of fraud, beprima facie evidence of the facts therein contained.(d) Methods of Notice. It shall not be necessary that the same method of giving notice be employed in respect of all recipients of notice, but one permissiblemethod may be employed in respect of any one or more, and any other permissible method or methods may be employed in respect of any other or others.(e) Notice To Person With Whom Communication Is Unlawful. Whenever notice is required to be given, under any provision of law or of the Certificate ofIncorporation or Bylaws of the corporation, to any person with whom communication is unlawful, the giving of such notice to such person shall not berequired and there shall be no duty to apply to any governmental authority or agency for a license or permit to give such notice to such person. Any action ormeeting which shall be taken or held without notice to any such person with whom communication is unlawful shall have the same force and effect as if suchnotice had been duly given. In the event that the action taken by the corporation is such as to require the filing of a certificate under any provision of theDGCL, the certificate shall state, if such is the fact and if notice is required, that notice was given to all persons entitled to receive notice except such personswith whom communication is unlawful.(f) Notice to Stockholders Sharing an Address. Except as otherwise prohibited under DGCL, any notice given under the provisions of DGCL, the Certificateof Incorporation or the Bylaws shall be effective if given by a single written notice to stockholders who share an address if consented to by the stockholdersat that address to whom such notice is given. Such consent shall have been deemed to have been given if such stockholder fails to object in writing to thecorporation within sixty (60) days of having been given notice by the corporation of its intention to send the single notice. Any consent shall be revocableby the stockholder by written notice to the corporation.ARTICLE XIIAMENDMENTSSection 41. Amendments. Subject to the limitations set forth in Section 39(h) of these Bylaws or the provisions of the Certificate of Incorporation, the Boardof Directors is expressly empowered to adopt, amend or repeal the Bylaws of the corporation. Any adoption, amendment or repeal of the Bylaws of thecorporation by the Board of Directors shall require the approval of a majority of the authorized number of directors. The stockholders also shall have power toadopt, amend or repeal the Bylaws of the corporation; provided, however, that, in addition to any vote of the holders of any class or series of stock of thecorporation required by law or by the Certificate of Incorporation, such action by stockholders shall require the affirmative vote of the holders of at least amajority of the voting power of all of the then-outstanding shares of the capital stock of the corporation entitled to vote generally in the election of directors,voting together as a single class.ARTICLE XIIILOANS TO OFFICERSSection 42. Loans To Officers . Except as otherwise prohibited by applicable law, the corporation may lend money to, or guarantee any obligation of, orotherwise assist any officer or other employee of the corporation or of its subsidiaries, including any officer or employee who is a director of the corporationor its subsidiaries, whenever, in the judgment of the Board of Directors, such loan, guarantee or assistance may reasonably be expected to benefit thecorporation. The loan, guarantee or other assistance may be with or without interest and may be unsecured, or secured in such manner as the Board ofDirectors shall approve, including, without limitation, a pledge of shares of stock of the corporation. Nothing in these Bylaws shall be deemed to deny, limitor restrict the powers of guaranty or warranty of the corporation at common law or under any statute.-15-Exhibit 10.11ZYNGA INC.NON-EMPLOYEE DIRECTOR COMPENSATION POLICYAS AMENDED APRIL 26, 2018On April 26, 2018, the Compensation Committee of the Board of Directors (the “Board”) of Zynga Inc. (the “Company”) approved this amended andrestated compensation policy (the “Policy”) for non-employee directors of the Company.The Policy will become effective as of the amendment date (set forth above).For purposes of this Policy, a “Non-Employee Director” is a director who is not serving as an employee or executive officer of the Company or itsaffiliates (even if such individual may be otherwise be providing services to the Company or its affiliates in a capacity other than as a director).Each Non-Employee Director will be eligible to receive compensatory equity awards under the Company’s 2011 Equity Incentive Plan (the “Plan”) asconsideration for service on the Board. All compensation payable under this policy (such compensation, “Board Compensation”), including cash payments,grants of restricted stock units of Class A Common Stock of the Company (“ZSUs”) or deferred equity grants will be made automatically in accordance withthe terms of this Policy and the Plan, without the need for any additional corporate action by the Board or the Compensation Committee. Vesting of all ZSUsgranted under this Policy is subject to the Non-Employee Director’s Continuous Service (as defined in the Plan) from the date of grant through eachapplicable vesting date. Each ZSU granted under this Policy will be subject to the Company’s standard form of Restricted Stock Unit Agreement, as mostrecently adopted by the Board for use under this Policy. Each Non-Employee Director will be eligible to defer all or part of his or her Board Compensation inaccordance with Section 4 and forgo all or part of his or her Board Compensation in accordance with Section 5. 1.Base ANNUAL RETAINER. Each year, subject to Section 3, Section 4 and Section 5, each Non-Employee Director will be paid an annualretainer of $250,000 (as may be adjusted pursuant to Section 3, the “Base Annual Retainer”). The Base Annual Retainer will be paid 20%in cash and 80% in ZSUs. Subject to Section 4 and Section 5, the ZSU portion of the Base Annual Retainer will be granted on the date thatsuch Non-Employee Director is elected or appointed to the Board (the “Base Annual Retainer Vesting Start Date”). The number of ZSUsgranted will be calculated using the Fair Market Value (as defined in the Plan) of the Class A common stock of the Company as of the BaseAnnual Retainer Vesting Start Date, rounded down to the nearest whole ZSU. Subject to Section 3, the ZSU portion of the Base AnnualRetainer will vest as follows: 25% of the granted ZSUs will vest every three months from the Base Annual Retainer Vesting Start Date, withthe remainder vesting upon the earlier of (i) the one-year anniversary of the date of the most recent regular annual meeting of the Company’sstockholders (the “Annual Meeting”) or (ii) the date of the next Annual Meeting, subject to the applicable Non-Employee Director’sContinuous Service through each vesting date. The cash portion of the Base Annual Retainer will be paid on a quarterly basis in accordancewith the vesting schedule of the ZSU portion of the Base Annual Retainer and shall also be subject to the applicable Non-EmployeeDirector’s Continuous Service through each vesting date. 2.Additional Annual Retainers.(a)Each year, subject to Section 3, Section 4 and Section 5, each Non-Employee Director who serves in one of the followingroles will be paid the applicable additional annual retainer set forth below:Role of Non-Employee DirectorAmountChairperson of the Audit Committee$50,000Chairperson of the Compensation Committee$30,000Chairperson of the Nominating and Corporate Governance Committee$10,000Lead Independent Director$50,000Chairperson of the Board$100,000Non-Chair Member of the Audit Committee$15,000Non-Chair Member of the Compensation Committee$10,000Non-Chair Member of the Nominating and Corporate Governance Committee$5,000(b)Each of the additional annual retainers set forth above will be paid 100% in cash. Subject to Section 3, each of theadditional annual retainers set forth above will be paid on a quarterly basis as follows: 25% of the annual retainer will be paid every three months from thedate that such Non-Employee Director is appointed, with the remainder be paid upon the earlier of (i) the one-year anniversary of the date of the most recentAnnual Meeting or (ii) the date of the next Annual Meeting, subject to the applicable Non-Employee Director’s Continuous Service through each date. (c)Notwithstanding the foregoing, the Compensation Committee will have the discretion to provide additional compensationto Non-Employee Directors who may be appointed from time to time to serve on any special/non-standing committee of the Board in amounts and form, andon such other terms, as reasonably determined and approved by the Compensation Committee of the Board.3.Pro-Ration of Retainers. (a)BASE ANNUAL RETAINER. If a Non-Employee Director is elected or appointed to the Board at any time other than at anAnnual Meeting, the Base Annual Retainer for the initial term that lasts from the date of election or appointment until the first Annual Meeting to occurthereafter will be reduced on a pro-rata basis, such that the amount payable will be equal to the Base Annual Retainer multiplied by a fraction, the numeratorof which is 12 minus the whole number of months from the date of the preceding Annual Meeting until the date of election or appointment and thedenominator of which is 12. Subject to Section 4 and Section 5, the ZSU portion of the prorated Base Annual Retainer will be granted on the Base AnnualRetainer Vesting Start Date. The number of ZSUs granted will be calculated using the Fair Market Value (as defined in the Plan) of the Class A commonstock of the Company as of the Base Annual Retainer Vesting Start Date, rounded down to the nearest whole ZSU.(b)ADDITIONAL ANNUAL RETAINERS. If a Non-Employee Director is first appointed to serve in any of the roles set forth inSection 2 at any time other than at an Annual Meeting, the applicable annual retainer for the initial term that lasts from the date of appointment until the firstAnnual Meeting to occur thereafter will be reduced on a pro-rata basis, such that the amount payable will be equal to the applicable additional annualretainer multiplied by a fraction, the numerator of which is 12 minus the whole number of months from the date of the preceding Annual Meeting until thedate of appointment and the denominator of which is 12. (c)Vesting Schedule. (i)The ZSU portion of any pro-rated Base Annual Retainer and other pro-rated annual retainer that issubject to vesting requirements (each, a “Vesting Retainer”) will vest as follows. First, calculate the number of ZSUs subject to each “ZSU VestingInstallment”. The ZSU Vesting Installment for a grant of ZSUs for the ZSU portion of a pro-rated Base Annual Retainer to a given Non-Employee Directorshall be equal to 25% of the number of ZSUs (rounded down to the nearest whole ZSU) that would have been granted to the Non-Employee Director if suchNon-Employee Director had been eligible to receive a non-prorated Base Annual Retainer, using the Fair Market Value (as defined in the Plan) of the Class Acommon stock of the Company as of such Non-Employee Director’s Base Annual Retainer Vesting Start Date. A number of ZSUs equal to the ZSU VestingInstallment shall vest on each date that the ZSU portion of a non-prorated Base Annual Retainer vests under Section 1 above during the period commencingon the date of the Non-Employee Director’s election or appointment to the Board and ending on the date of the earlier of (i) the one-year anniversary of themost recent Annual Meeting, or (ii) the next Annual Meeting; provided however, that if the period between the date of election or appointment and the firstvesting date is less than 3 months, the number of ZSUs that vest on such first vesting date will be equal to the total number of ZSUs granted minus the totalnumber of ZSUs that will vest for each subsequent vesting date until (and including) the earlier of (i) the one-year anniversary of the most recent AnnualMeeting, or (ii) the next Annual Meeting. (ii)The cash portion of any Vesting Retainer will be paid as follows: 25% of the value of the portion ofthe full Vesting Retainer paid in cash will be paid on each date that the cash portion of the Vesting Retainer would have been paid if the Vesting Retainerhad not been prorated; provided however, that if the period between the date of election or appointment and the first vesting date is less than 3 months, theamount of cash paid on such first vesting date will be equal to the full amount of the cash portion of the Vesting Retainer minus the aggregate amount ofcash that will be paid for each full three month vesting period until (and including) the earlier of (i) the one-year anniversary of the most recent AnnualMeeting, or (ii) the next Annual Meeting.(d)Notwithstanding the foregoing, the Compensation Committee will have the discretion to adjust the amount of any pro-ratedretainer up to the full value of such retainer if it determines that such adjustment is in the best interest of the Company and its stockholders.4.DEFERRED COMPENSATION. Each Non-Employee Director will be eligible to defer all or a portion of his or her Board Compensation forany term that begins on the date of election or appointment, as applicable, and ends on the first Annual Meeting thereafter (a “Term”). Elections with respectto any Term must be made in writing to the Company prior to the December 31st preceding the beginning of such Term and all such elections will beirrevocable. Notwithstanding the foregoing, if a Non-Employee Director is elected or appointed to the Board at any time other than at an Annual Meeting,he or she may make an initial irrevocable election to defer the Base Annual Retainer or any Additional Annual Retainers during the first 30 days ofeligibility to participate hereunder and such election shall apply only to the Non-Employee Director’s Base Annual Retainer or Additional Annual Retainers earned following the date of the election. If a Non-Employee Director elects to defer all or a portion of his or her BoardCompensation, the deferred compensation will be held by the Company on such Non-Employee Director’s behalf in the form of deferred stock units(“DSUs”). DSUs will be granted (i) with respect to the Base Annual Retainer and Product Committee Retainer, on the date that the ZSU portion of the BaseAnnual Retainer and Product Committee Retainer, as applicable, is granted, and (ii) with respect to any additional annual retainer set forth in Section 2(other than the Product Committee Retainer), on the date that such additional annual retainer is paid. DSUs granted under (i) will vest in accordance with thestandard vesting criteria described in Section 1 and DSUs granted under (ii) will be fully vested upon grant. Vested DSUs will be distributed to aNon-Employee Director on the earliest of (i) the third anniversary of the date of grant, (ii) such Non-Employee Director’s separation from service as a director,or (iii) upon a Change in Control of the Company (as defined in the Plan). Notwithstanding the foregoing, if so elected by the Non-Employee Director inwriting to the Company prior to December 31st of the calendar year prior to the calendar year in which any such DSUs are granted to satisfy such Non-Employee Director’s Board Compensation, the distribution of such DSUs may be deferred until the Non-Employee Director is no longer providing servicesas a director of the Company that constitutes a “separation from service” under Section 409A of the Internal Revenue Code of 1986, as amended.5.Forgo Compensation. Each Non-Employee Director will be eligible to forgo all or a portion of his or her Board Compensationfor any Term. Elections with respect to any Term must be made in writing to the Company prior to the start of such Term and all such elections will beirrevocable. 6.EXPENSE REIMBURSEMENT. All Non-Employee Directors will be entitled to reimbursement from the Company for their reasonabletravel (including airfare and ground transportation), lodging and meal expenses incident to meetings of the Board or committees thereof. The Company willalso reimburse directors for attendance at director continuing education programs that are relevant to their service on the Board and which attendance ispre-approved by the Chairperson of the Nominating and Corporate Governance Committee or Chairperson of the Board. The Company will makereimbursement to a Non-Employee Director in accordance with the foregoing within a reasonable amount of time, but not more than 12 months, followingsubmission by the Non-Employee Director of reasonable written substantiation for the expenses consistent with the Company’s reimbursement policy. Exhibit 10.19 699 Eighth StreetSan FranciscoCalifornia 94103company.zynga.com October 18, 2017 Jeff Ryan[Redacted] Re:Offer of Employment by Zynga Inc. Dear Mr. Jeff Ryan: I am very pleased to conﬁrm our oﬀer to you of full-(cid:35)me employment with Zynga Inc. (the “Company”), in the posi(cid:35)on of ChiefPeople Officer, reporting to Frank Gibeau, Chief Executive Officer. The terms of our oﬀer and the beneﬁts currently provided by the Companyare as follows: 1.Star(cid:17)ng Salary. Your star(cid:35)ng salary will be three hundred ﬁ(cid:53)y-thousand dollars ($350,000) per year, less deduc(cid:35)onsrequired by law, and will be subject to periodic review and adjustment in accordance with the Company’s then-current policies. Salariedemployees are paid on the 15th and the last day of each month. 2.Annual Company Bonus. You will be eligible to par(cid:35)cipate in the Company’s annual bonus program, subject to the terms,condi(cid:35)ons, and eligibility requirements of that program. Your target bonus is equal to 60% of your annual base salary (your “Target Bonus”).If your Start Date falls in the ﬁrst, second, or third quarter of this year, your target bonus, if any, will be pro-rated for the number of days youare employed by Zynga in this year. If your Start Date falls in the fourth quarter, you are not eligible to par(cid:35)cipate in the Company’s bonusprogram for this year. For future years, and condi(cid:35)oned upon your con(cid:35)nued employment, you will be eligible to par(cid:35)cipate in theCompany’s then-applicable bonus program, if any, subject to the terms, condi(cid:35)ons, and eligibility requirements of that program. Whetheryou receive an annual bonus for any given bonus period, and the amount of any such bonus, will be determined by the Company in its solediscretion based upon the terms and conditions set forth in the applicable bonus program. 3.Start Date and Loca(cid:17)on. Your an(cid:35)cipated start date is October 30, 2017, unless otherwise upon with Frank Gibeau. Thedate on which you commence employment, however, shall be your “Start Date” for purposes of this offer letter. You will be located in our SanFrancisco, California office. 4.Signing Bonus. You will also be eligible to receive a one-(cid:35)me signing bonus in the amount of one hundred thousand dollars($100,000), less deduc(cid:35)ons required by law. This bonus will be paid on or before the second regularly scheduled payroll date following yourstart date. Should you leave the Company prior to the one-year anniversary of your start date for any reason, you will be required toreimburse the Company a prorated share of the signing bonus. 5.Benefits. You will be eligible to par(cid:35)cipate in the regular health insurance and other employee beneﬁt plans established bythe Company for its employees as amended from time to time, subject to the terms and conditions of those plans and programs. 6.Zynga Stock Units. Subject to approval of the Board of Directors of the Company (or a commi(cid:67)ee appointed by the Boardof Directors) (the “Board”) and the terms and condi(cid:35)ons of the Company’s applicable equity incen(cid:35)ve plan in eﬀect at the (cid:35)me of grant (the“Plan”), you will be eligible to receive an award of Zynga stock units (“ZSUs”) represen(cid:35)ng the opportunity to acquire 900,000 shares of theCompany’s Class A common stock. The right to ves(cid:35)ng and se(cid:67)lement of the ZSUs will be subject to your con(cid:35)nued service, the restric(cid:35)onsset forth in the Plan, the terms of the ZSU agreement between you and the Company as approved by the Board, compliance with applicablesecuri(cid:35)es and other laws, and sa(cid:35)sfac(cid:35)on of the ZSU Ves(cid:35)ng Criteria. For purposes of the foregoing, the “ZSU Vesting Criteria” means a four(4) year ves(cid:35)ng term with the following condi(cid:35)ons: (x) if your employment Start Date is on or before the 15th day of a month, then theves(cid:35)ng commencement date will be the 15th day of the month in which your Start Date falls, or if your employment Start Date is a(cid:53)er the15th date of a month, then the ves(cid:35)ng commencement date will be the 15th day of the month immediately following the month in whichyour Start Date falls; (y) the award vests as to twenty-ﬁve percent (25%) of the ZSUs (rounded down to the nearest whole number) on theﬁrst anniversary of the ves(cid:35)ng commencement date, with the balance ves(cid:35)ng as to six and one quarter percent (6.25%) of the ZSUs (roundeddown to the nearest whole number except for the last ves(cid:35)ng installment) each three (3) months therea(cid:53)er; and (z) in each case subject toyour con(cid:35)nued service. Each installment of the ZSUs that vests is a “separate payment” for purposes of Sec(cid:35)on 409A of the Internal RevenueCode. Se(cid:67)lement of any vested ZSUs will occur as soon as prac(cid:35)cal a(cid:53)er ves(cid:35)ng occurs (but no later than two and one-half monthsthereafter), subject to the terms of the applicable equity incentive plan and ZSU agreement. 7.Stock Options. Subject to approval of the Board, you will receive an op(cid:35)on to purchase 250,000 shares of the Company’sClass A common stock in the aggregate (the “Options”). If approved, the Op(cid:35)ons will be granted on (i) if your employment Start Date is on orbefore the 15th day of a month, the 15th day of the month in which your Start Date falls, or (ii) if your employment Start Date is a(cid:53)er the15th date of a month, the 15th day of the month immediately following the month in which your Start Date falls, and will have an exerciseprice equal to the fair market value on the date of grant. The Op(cid:35)ons will have a ten (10) year term from the date of grant in which they canbe exercised (subject to your con(cid:35)nued service and the ves(cid:35)ng provisions described below) and will be subject to your con(cid:35)nued service, therestric(cid:35)ons set forth in the Plan, the terms of the op(cid:35)on agreement between you and the Company as approved by the Board, compliancewith applicable securi(cid:35)es and other laws, and sa(cid:35)sfac(cid:35)on of the Op(cid:35)on Ves(cid:35)ng Criteria. For purposes of the foregoing, the “Op(cid:27)on Ves(cid:27)ngCriteria” means a four (4) year ves(cid:35)ng term with the following condi(cid:35)ons: (x) the ves(cid:35)ng commencement date will be the date of grant; (y)the Op(cid:35)ons will vest as to twenty-ﬁve percent (25%) of the Op(cid:35)ons (rounded down to the nearest whole number) on the ﬁrst anniversary ofthe ves(cid:35)ng commencement date, with the balance ves(cid:35)ng as to six and a quarter percent (6.25%) of the Op(cid:35)ons (rounded down to thenearest whole number except for the last vesting installment) each three (3) months thereafter; and (z) in each case subject to your continuedservice. 8.Severance Beneﬁt Plan. Subject to approval of the Board, you will be eligible to par(cid:35)cipate in the Zynga Inc. Change inControl Severance Beneﬁt Plan (or any successor thereto) (the “Severance Beneﬁt Plan”), subject to the terms and condi(cid:35)ons thereof;provided, however, that if the severance beneﬁts you would receive under Sec(cid:35)on 9 are greater than the severance beneﬁts you wouldreceive under the Severance Benefit Plan, you will receive the severance benefits outlined Section 9 in lieu of any severance beneﬁts under theSeverance Benefit Plan. 9.Severance for Non-Change in Control. If you suﬀer a Separa(cid:35)on from Service (within the meaning of Treasury Regula(cid:35)onSection 1.409A-1(h)) due to: (i) the Company terminating your employment without Cause,2 or (ii) your Construc(cid:35)ve Termina(cid:35)on, then subject to your (A) con(cid:35)nuing to comply with your obliga(cid:35)ons under this le(cid:67)er and your EmployeeInven(cid:35)on Assignment and Conﬁden(cid:35)ality Agreement, and (B) delivering to the Company an eﬀec(cid:35)ve general release of claims in favor of theCompany, as to which the seven (7)-day revoca(cid:35)on period has expired (without your having revoked) within 60 days following yourSepara(cid:35)on from Service (the date on which such revoca(cid:35)on period expires, the “Release Revoca(cid:27)on Date”), then the Company will provideyou with the following severance benefits: a.The Company will pay you an amount equal to one (cid:35)mes (1x) your annual base salary at the (cid:35)me of yourtermina(cid:35)on, plus a pro-rated bonus for the ﬁscal year in which your termina(cid:35)on occurs (based on (i) your Target Bonus for the ﬁscal year inwhich you have a Separa(cid:35)on from Service and (ii) the por(cid:35)on of such ﬁscal year during which you were employed by the Company)(collectively, the “Separation Payments”). The Separa(cid:35)on Payments will be subject to applicable payroll deduc(cid:35)ons and tax withholdings andpaid in a lump sum on the ﬁrst regular payroll date which is (A) on or following the Release Revoca(cid:35)on Date, if the 60th day following yourSepara(cid:35)on from Service falls in the same calendar year as your Separa(cid:35)on from Service, or (B) in the calendar year following your Separa(cid:35)onfrom Service, if the Release Revoca(cid:35)on Date occurs in the same calendar year as your Separa(cid:35)on from Service and the 60th day following yourSepara(cid:35)on from Service falls in the calendar year following your Separa(cid:35)on from Service, the Company will pay you in a lump sum theSepara(cid:35)on Payments that you would have received on or prior to such regular payroll date under the original schedule but for the delay whilewaiting for such payment, with the balance of the Separation Payments being paid as originally scheduled.b.If you (cid:35)mely elect con(cid:35)nued coverage under COBRA, the Company will pay the COBRA premiums to con(cid:35)nueyour coverage (including coverage for your eligible dependents, if applicable) for twelve (12) months following your Separa(cid:35)on from Service(with such payments to end if you become eligible for group health insurance coverage through a new employer or you cease to be eligible forCOBRA con(cid:35)nua(cid:35)on coverage for any reason), provided that the cost of such coverage will be reported to the tax authori(cid:35)es as taxableincome to you.c.The Company will accelerate the ves(cid:35)ng of the ZSUs and the Op(cid:35)ons such that the ZSUs and Op(cid:35)ons that wouldhave vested in the twelve (12) months following your Separa(cid:35)on from Service had your employment not been terminated, if any, shall bedeemed fully vested on your termina(cid:35)on date, and you shall have three months following your Separa(cid:35)on from Service to exercise yourvested Options.d.Definitions. For purposes of this Sec(cid:35)on 10, the deﬁni(cid:35)ons of “Cause” and “Construc(cid:35)ve Termina(cid:35)on” shall beas follows:“Cause” means, with respect to you (i) any willful, material viola(cid:35)on of any law or regula(cid:35)onapplicable to the business of the Company, convic(cid:35)on for, or guilty plea to, a felony or a crime involving moralturpitude, or any willful perpetra(cid:35)on of a common law fraud; (ii) commission of an act of personal dishonesty thatinvolves material personal proﬁt in connec(cid:35)on with the Company or any other en(cid:35)ty having a business rela(cid:35)onshipwith the Company; (iii) any material breach of any provision of any agreement between the Company and youregarding the terms of service as an employee, oﬃcer, director, or consultant to the Company, including withoutlimita(cid:35)on, the willful and con(cid:35)nued failure or refusal to perform the material du(cid:35)es required an employee, oﬃcer,director or consultant of the Company, or a breach of any applicable inven(cid:35)on assignment and conﬁden(cid:35)alityagreement or similar agreement between the Company and you; (iv) willful disregard of a material policy of theCompany so as to cause material loss, damage, or injury to the property, reputa(cid:35)on, or employees of the Company;or (v) any other misconduct that is materially injurious to the ﬁnancial condi(cid:35)on or business reputa(cid:35)on of, or isotherwise materially injurious to, the Company. An event, ac(cid:35)on, or omission by you will not give the Companygrounds to3 involuntarily terminate your employment for Cause unless (A) the Company gives you wri(cid:67)en no(cid:35)ce within 30 daysa(cid:53)er the ini(cid:35)al existence of such event, ac(cid:35)on, or omission that the event, ac(cid:35)on, or omission by you would give theCompany grounds to terminate your employment for Cause, and (B) if capable of being reversed, remedied or cured,such event, ac(cid:35)on or omission is not reversed, remedied or cured, as the case may be, by you within 30 days ofreceiving such written notice from the Company.“Construc(cid:27)ve Termina(cid:27)on” means the voluntary termina(cid:35)on of employment with the Company byyou resul(cid:35)ng in a Separa(cid:35)on from Service a(cid:53)er one of the following is undertaken without your wri(cid:67)en consent: (i)the assignment to you of any du(cid:35)es or responsibili(cid:35)es that results in a material diminu(cid:35)on in your employment roleas the Chief People Oﬃcer of the Company as in eﬀect immediately prior to the date of such ac(cid:35)ons; (ii) theCompany changes its Chief Execu(cid:35)ve Oﬃcer within the ﬁrst two anniversary years immediately following your StartDate; or (iii) a non-temporary reloca(cid:35)on of your business oﬃce to a loca(cid:35)on that increases your one way commuteby more than 35 miles from the primary loca(cid:35)on at which you perform du(cid:35)es as of immediately prior to the date ofsuch ac(cid:35)on. An event or ac(cid:35)on by the Company will not give you grounds to voluntarily terminate employment as aConstruc(cid:35)ve Termina(cid:35)on unless (A) you give the Company wri(cid:67)en no(cid:35)ce within 30 days a(cid:53)er the ini(cid:35)al existence ofsuch event or ac(cid:35)on that the event or ac(cid:35)on by the Company would give you such grounds to so terminateemployment, (B) such event or ac(cid:35)on is not reversed, remedied or cured, as the case may be, by the Company assoon as possible but in no event later than within 30 days of receiving such wri(cid:67)en no(cid:35)ce from you, and (C) youterminate employment within 90 days following the end of the cure period.10.Potential Code Section 280G Reductionsa.Anything to the contrary herein notwithstanding, in the event that it shall be determined that any payment,distribu(cid:35)on, or other ac(cid:35)on by the Company or any of its aﬃliates to or for your beneﬁt (whether paid or payable or distributed ordistributable pursuant to the terms of this le(cid:67)er or otherwise) (a “Payment”), would result in an “excess parachute payment” within themeaning of Sec(cid:35)on 280G(b)(i) of the Code, and the value determined in accordance with Sec(cid:35)on 280G(d)(4) of the Code of the Payments,net of all taxes imposed on you (the “Net After-Tax Amount”) that you would receive would be increased if the Payments were reduced, thenthe Payments shall be reduced by an amount (the “Reduc(cid:27)on Amount”) so that the Net A(cid:53)er-Tax Amount a(cid:53)er such reduc(cid:35)on isgreatest. For purposes of determining the Net A(cid:53)er-Tax Amount, you shall be deemed to (i) pay federal income taxes at the highest marginalrates of federal income taxa(cid:35)on for the calendar year in which the Payment is to be made, and (ii) pay applicable state and local income taxesat the highest marginal rate of taxa(cid:35)on for the calendar year in which the Payment is to be made, net of the maximum reduc(cid:35)on in federalincome taxes which could be obtained from deduction of such state and local taxes.b.Subject to the provisions of this Sec(cid:35)on 10(b), all determina(cid:35)ons required to be made under this Sec(cid:35)on 10,including the Net A(cid:53)er-Tax Amount and the Reduc(cid:35)on Amount pursuant to Sec(cid:35)on 10(a), and the assump(cid:35)ons to be u(cid:35)lized in arriving atsuch determina(cid:35)ons, shall be made by a na(cid:35)onally recognized accoun(cid:35)ng ﬁrm selected by the Company prior to a “Change in Control” asdeﬁned in the Severance Beneﬁt Plan (the “Accounting Firm”), which shall provide detailed suppor(cid:35)ng calcula(cid:35)ons both to the Company andyou within ﬁ(cid:53)een (15) business days of the receipt of no(cid:35)ce from you that there has been a Payment, or such earlier (cid:35)me as is requested bythe Company. Anything in this le(cid:67)er to the contrary notwithstanding, the Reduc(cid:35)on Amount shall not exceed the amount of the Paymentsthat the Accoun(cid:35)ng Firm determines reasonably may be characterized as “parachute payments” under Sec(cid:35)on 280G of the Code. Paymentswith respect to ZSUs shall be reduced ﬁrst, followed by Op(cid:35)ons and then any cash payments (with the reduc(cid:35)on occurring ﬁrst with respectto amounts that4 are not “deferred compensa(cid:35)on” within the meaning of Sec(cid:35)on 409A of the Code and then with respect to amounts that are). Anydetermination by the Accounting Firm shall be binding upon the Company and you.11.409A. It is intended that all of the beneﬁts and payments under this le(cid:67)er sa(cid:35)sfy, to the greatest extent possible, theexemptions from the application of Code Section 409A provided under Treasury Regulations 1.409A 1(b)(4), 1.409A 1(b)(5) and 1.409A 1(b)(9), and this le(cid:67)er will be construed to the greatest extent possible as consistent with those provisions. If not so exempt, this le(cid:67)er (and anydeﬁni(cid:35)ons hereunder) will be construed in a manner that complies with Sec(cid:35)on 409A, and incorporates by reference all required deﬁni(cid:35)onsand payment terms. For purposes of Code Sec(cid:35)on 409A (including, without limita(cid:35)on, for purposes of Treasury Regula(cid:35)on Sec(cid:35)on 1.409A2(b)(2)(iii)), your right to receive any installment payments under this letter (whether severance payments, reimbursements or otherwise) willbe treated as a right to receive a series of separate payments and, accordingly, each installment payment hereunder will at all (cid:35)mes beconsidered a separate and dis(cid:35)nct payment. Notwithstanding any provision to the contrary in this le(cid:67)er, if you are deemed by the Companyat the (cid:35)me of your Separa(cid:35)on from Service to be a “speciﬁed employee” for purposes of Code Sec(cid:35)on 409A(a)(2)(B)(i), and if any of thepayments upon Separa(cid:35)on from Service set forth herein and/or under any other agreement with the Company are deemed to be “deferredcompensa(cid:35)on”, then if delayed commencement of any por(cid:35)on of such payments is required to avoid a prohibited distribu(cid:35)on under CodeSec(cid:35)on 409A(a)(2)(B)(i) and the related adverse taxa(cid:35)on under Sec(cid:35)on 409A, the (cid:35)ming of the payments upon a Separa(cid:35)on from Service willbe delayed as follows: on the earlier to occur of (i) the date that is six months and one day a(cid:53)er the eﬀec(cid:35)ve date of your Separa(cid:35)on fromService, and (ii) the date of the your death (such earlier date, the “Delayed Ini(cid:27)al Payment Date”), the Company will (A) pay to you a lumpsum amount equal to the sum of the payments upon Separa(cid:35)on from Service that you would otherwise have received through the DelayedIni(cid:35)al Payment Date if the commencement of the payments had not been delayed pursuant to this paragraph, and (B) commence paying thebalance of the payments in accordance with the applicable payment schedules set forth above. No interest will be due on any amounts sodeferred.12.Confidentiality. As an employee of the Company, you will have access to certain conﬁden(cid:35)al informa(cid:35)on of theCompany and you may, during the course of your employment, develop certain informa(cid:35)on or inven(cid:35)ons that will be the property of theCompany. To protect the interests of the Company, this oﬀer of employment is con(cid:35)ngent upon your signing the Company’s standardEmployee Inven(cid:35)on Assignment and Conﬁden(cid:35)ality Agreement. We wish to impress upon you that we do not want you to, and we directyou not to, bring with you any conﬁden(cid:35)al or proprietary informa(cid:35)on of any former employer or other en(cid:35)ty or to violate any otherobliga(cid:35)ons you may have to any former employer or other en(cid:35)ty. You represent that your signing of this oﬀer le(cid:67)er, any agreementconcerning ZSUs or stock op(cid:35)ons granted to you under the Plan (as deﬁned herein), and the Company’s Employee Inven(cid:35)on Assignment andConﬁden(cid:35)ality Agreement, and your employment with the Company, will not violate any agreement currently in place between you andcurrent or past employers or other entities.13.Conﬂict of Interest. During your employment, you will be required to comply with Zynga’s Conﬂict of Interest Policy,which means that you will not engage in any employment, business, or ac(cid:35)vity that is in any way compe(cid:35)(cid:35)ve with or otherwise creates aconﬂict or poten(cid:35)al conﬂict of interest with Zynga’s business or proposed business, which materially interferes with the performance of yourjob du(cid:35)es, or might lead to the disclosure of Zynga conﬁden(cid:35)al informa(cid:35)on. You also may not assist any other person or organiza(cid:35)on incompeting with the Company or in preparing to engage in competition with the business or proposed business of the Company. Prior to star(cid:35)ng employment, you will be asked to complete an Outside Ac(cid:35)vity Disclosure Form and to list any other employment,business, or ac(cid:35)vity that you are currently associated with or par(cid:35)cipate in and which you intend to engage in during your employment withZynga. You will be required to update any such disclosures of such outside activities at all times during employment.5 14.At Will Employment. While we look forward to a long and productive relationship, should you decide to accept our offer,you will be an at-will employee of the Company, which means the employment rela(cid:35)onship can be terminated by either of us for any reason,at any (cid:35)me, with or without prior no(cid:35)ce, and with or without cause. You will be expected to comply with all of the Company’s policies,including, but not limited to, its Employee Handbook and Code of Business Conduct and Ethics. In addi(cid:35)on, the Company may change yourcompensa(cid:35)on, beneﬁts, du(cid:35)es, assignments, repor(cid:35)ng line, responsibili(cid:35)es, loca(cid:35)on of your posi(cid:35)on (including any ability to work remotely),or any other terms and condi(cid:35)ons of your employment at any (cid:35)me, to adjust to the changing needs of our dynamic company. Anystatements or representa(cid:35)ons to the contrary (and any statements contradic(cid:35)ng any provision in this le(cid:67)er) are ineﬀec(cid:35)ve. Further, yourpar(cid:35)cipa(cid:35)on in any stock incen(cid:35)ve or beneﬁt program is not to be regarded as assuring you of con(cid:35)nued employment for any par(cid:35)cularperiod of (cid:35)me. Any modiﬁca(cid:35)on or change in your at-will employment status may only occur by way of a wri(cid:67)en employment agreementsigned by you and the Chief Executive Officer of the Company. 15.Background Check. This oﬀer of employment is con(cid:35)ngent upon successful comple(cid:35)on of a background and referencecheck. 16.Authorization to Work. This oﬀer is also con(cid:35)ngent upon proof of iden(cid:35)ty and work eligibility. Please note that becauseof employer regula(cid:35)ons adopted in the Immigra(cid:35)on Reform and Control Act of 1986, within three (3) business days of star(cid:35)ng your newposi(cid:35)on you will need to present documenta(cid:35)on demonstra(cid:35)ng that you have authoriza(cid:35)on to work in the United States. If you havequestions about this requirement, which applies to U.S. citizens and non-U.S. citizens alike, you may contact your recruiter or People Ops. 17.En(cid:17)re Agreement. This oﬀer le(cid:67)er and the documents referred to in it, including the Employee Inven(cid:35)on Assignmentand Conﬁden(cid:35)ality Agreement, cons(cid:35)tute our en(cid:35)re agreement and understanding with respect to the terms and condi(cid:35)ons of this oﬀer andyour employment with Zynga, and supersede any and all prior understandings and agreements, whether oral or wri(cid:67)en, between or amongyou and Zynga with respect to these subjects. If any term in this oﬀer le(cid:67)er is unenforceable in whole or in part, the remainder shall remainenforceable to the extent permitted by law. 18.Acceptance. This oﬀer will remain open un(cid:35)l October 18, 2017. If you decide to accept our oﬀer, and I hope you will,please sign the enclosed copy of this letter in the space indicated and return it to me. Should you have anything else that you wish to discuss, please do not hesitate to call me. We look forward to the opportunity towelcome you to the Company. Very truly yours, /s/ Frank Gibeau___________________Frank GibeauChief Executive Officer I have read and understood this offer letter and hereby acknowledge, accept and agree to the terms as set forth above and furtheracknowledge that no other commitments were made to me as part of my employment offer except as specifically set forth in this offer letter.6 /s/ Jeff Ryan October 20, 2017 Jeff Ryan Date signed: 7 Exhibit 21.1SUBSIDIARIES OF ZYNGA INC.Rising Tide Games, Inc. (Delaware)PuzzleSocial, Inc. (Delaware)Spooky Cool Labs LLC (Delaware)Town’s End Studios LLC (Delaware)650 Townsend Systems LLC (California)650 Townsend Facility Company, LLC (California)Big Dog Holdings LLC (California)Zynga Game Canada Ltd. (Canada)Zynga Game Ireland Limited (Ireland)Zynga Game International Limited (Ireland/Jersey)Zynga Game Network India Private Limited (India)NaturalMotion Limited (United Kingdom)NaturalMotion Games Limited (United Kingdom)NaturalMotion Software Limited (United Kingdom)Gram Games Limited (United Kingdom)Zynga Finland Oy (Finland)Small Giant Games Oy (Finland)Gram Games Teknoloji A.S. (Turkey)Zynga Turkey Oyun Anonim Şirketi (Turkey)Exhibit 23.1Consent of Ernst & Young LLP, Independent Registered Public Accounting FirmWe consent to the incorporation by reference in the following Registration Statements:(1)Registration Statement (Form S-3ASR No. 333-193889) of Zynga Inc.,(2)Registration Statement (Form S-8 No. 333-223109) pertaining to the 2011 Equity Incentive Plan and 2011 Employee Stock Purchase Plan of ZyngaInc.,(3)Registration Statement (Form S-8 No. 333-217752) pertaining to the 2011 Equity Incentive Plan and 2011 Employee Stock Purchase Plan of ZyngaInc.,(4)Registration Statement (Form S-8 No. 333-211201) pertaining to the 2011 Equity Incentive Plan and 2011 Employee Stock Purchase Plan of ZyngaInc.,(5)Registration Statement (Form S-8 No. 333-206185) pertaining to the 2011 Equity Incentive Plan and 2011 Employee Stock Purchase Plan of ZyngaInc.,(6)Registration Statement (Form S-8 No. 333-199959) pertaining to the 2011 Equity Incentive Plan and 2011 Employee Stock Purchase Plan of ZyngaInc.,(7)Registration Statement (Form S-8 No. 333-193914) pertaining to the Zynga Inc. 2011 Equity Incentive Plan (as successor to the NaturalMotion LimitedOption Plan and the NaturalMotion Limited Enterprise Management Incentive Scheme),(8)Registration Statement (Form S-8 No. 333-188282) pertaining to the 2011 Equity Incentive Plan and 2011 Employee Stock Purchase Plan of ZyngaInc.,(9)Registration Statement (Form S-8 No. 333-183406) pertaining to the 2011 Equity Incentive Plan and 2011 Employee Stock Purchase Plan of ZyngaInc., and(10)Registration Statement (Form S-8 No. 333-178529) pertaining to the 2007 Equity Incentive Plan, 2011 Equity Incentive Plan and 2011 EmployeeStock Purchase Plan of Zynga Inc.;of our reports dated February 27, 2019, with respect to the consolidated financial statements and schedule of Zynga Inc. and the effectiveness of internalcontrol over financial reporting of Zynga Inc. included in this Annual Report (Form 10-K) of Zynga Inc. for the year ended December 31, 2018./s/ Ernst & Young LLPSan Jose, CAFebruary 27, 2019 Exhibit 31.1 CERTIFICATIONSI, Frank Gibeau, certify that:1.I have reviewed this Annual Report on Form 10-K of Zynga Inc.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a–15(e) and 15d–15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others withinthose entities, particularly during the period in which this report is being prepared; b.Designed such internal control over financial reporting, or cause such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statement forexternal purposes in accordance with generally accepted accounting principles; c.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s mostrecent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely tomaterially affect, the registrant’s internal control over financial reporting; and5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internalcontrol over financial reporting. Date: February 27, 2019 By:/s/ Frank Gibeau Frank Gibeau Chief Executive Officer (Principal Executive Officer) Exhibit 31.2 CERTIFICATIONSI, Gerard Griffin, certify that:1.I have reviewed this Annual Report on Form 10-K of Zynga Inc.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a–15(e) and 15d–15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others withinthose entities, particularly during the period in which this report is being prepared; b.Designed such internal control over financial reporting, or cause such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statement forexternal purposes in accordance with generally accepted accounting principles; c.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s mostrecent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely tomaterially affect, the registrant’s internal control over financial reporting; and5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internalcontrol over financial reporting. Date: February 27, 2019 By:/s/ Gerard Griffin Gerard Griffin Chief Financial Officer (Principal Financial Officer) Exhibit 32.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICERPURSUANT TO18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002Pursuant to the requirement set forth in Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, (the “Exchange Act”) and Section 1350 ofChapter 63 of Title 18 of the United States Code (18 U.S.C. §1350), Frank Gibeau, Chief Executive Officer of Zynga Inc. (the “Company”), and GerardGriffin, Chief Financial Officer of the Company, each hereby certifies that, to the best of his knowledge:1.The Company’s Annual Report on Form 10-K for the year ended December 31, 2018, to which this Certification is attached as Exhibit 32.1 (the“Report”), fully complies with the requirements of Section 13(a) or Section 15(d) of the Exchange Act; and2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.In Witness Whereof, the undersigned have set their hands hereto as of the 27th day of February, 2019. /s/ Frank Gibeau /s/ Gerard GriffinFrank Gibeau Gerard GriffinChief Executive Officer Chief Financial Officer “This certification accompanies the Form 10-K to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to beincorporated by reference into any filing of Zynga Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended(whether made before or after the date of the Form 10-K), irrespective of any general incorporation language contained in such filing.”

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