Zynga stock plummets below value of its cash and real estate

http://www.latimes.com/entertainment/envelope/cotown/la-et-ct-zynga-stock-plummets-20121005,0,5240403.story?twitter

by sbierwagen • 14 years ago

343 292 14 years ago

kitcar• 14 years ago

... according to one analyst. Paraphrased from the article: J.P. Morgan analyst Doug Anmuth wrote (Zynga's) assets are worth $2.46 per share... In afternoon trading Friday, Zynga stock was at $2.35.

JumpCrisscross• 14 years ago

Zynga stock is trading 9.6% below book value.

khuey• 14 years ago

Totally reasonable thing to trade at if investors believe the company is destroying value instead of creating it.

SwearWord• 14 years ago

Bazynga

sbierwagen• 14 years ago

    Troubles seem to be following the struggling game maker, Zynga Inc 
    (NASDAQ:ZNGA), this time now with the exit of Laurence “Lo” Toney, an executive 
    who oversaw the company’s hugely popular online poker game.

    Tony’s exit was revealed via his LinkedIn profile, where he changed his current 
    profession to “mentor at MuckerLab,” a Los Angeles startup accelerator, and 
    lists Zynga Inc (NASDAQ:ZNGA) among his previous professions.

    [...]

    Tony now joins the list of top-level executives who left Zynga Inc 
    (NASDAQ:ZNGA) in the past couple of months. In September, Chief technology 
    officer Allan Leinwand and chief marketing and revenue officer Jeff Karp 
    resigned, while in August, chief operating officer John Schappert and chief 
    creative officer Mike Verdu left the company. Not only this, but the game maker 
    also witnessed the exit of two vice presidents, Bill Mooney and Brian 
    Birtwistle, at the end of August.

benguild2• 14 years ago

Damn

halis• 14 years ago

Sometimes this is a good opportunity to invest BUT in this case I would steer clear. I think their business model is questionable which brings into question their profitability. If they continue losing money, they could burn through their book value in no time.

s_baby• 14 years ago

Can someone explain to me why a company would be priced below its "fundamentals"?

andreyon2• 14 years ago

fundamentals are subject to change. What the market looks at is it's future value. Right now, Zynga's future value is low and dark

nicholas73• 14 years ago

Commonly, in addition to cash burn, a company's assets are a) overstated b) will not fetch fair market value in a firesale c) have many additional costs during the bankruptcy process.

In addition, large funds cannot sell their shares instantly, therefore will depress value below net assets, in effect paying a premium to get out of the stock.

potatolicious• 14 years ago

They may have $X of cash or close-to-cash assets, but the company also isn't shutting down tomorrow and liquidating. They will continue to spend into the foreseeable future, making its probably future value something less than $X.

Basically, the future value of Zynga's games is worth less than the future revenue, creating an expected net value decrease.

moocow013• 14 years ago

The expectation is that it will continually lose money down to the point of the valuation.

For example, say in an imaginary world I have a piece of real estate and its worth 500k right now but its pretty much assumed that because of X, Y and Z real estate in the area is going down on average 20%. Because of that if you are the buyer you'd argue that a fair price to buy the house is actually 400k. Same thing with companies - on average, investors think Zynga will be a loser down to the point of its current stock price.

fleitz2• 14 years ago

The price of a stock as with any other price merely reflects supply and demand and not it's intrinsic value which is generally unknowable.

If you have an opportunity expected to double your money then it makes sense to sell an asset below 'asset value' to avoid taking on missed opportunity costs.

Example:

  You have $1mm in Zynga stock @ $2.35, and no cash on hand.
  You expect the stock to trade at $2.85 in 1 year.
  You have the opportunity to buy APPL and expect AAPL to double in 1 year.

  The EV of AAPL is $2 mm
  The EV of Zynga is $1.21 mm

Therefore excluding transaction costs it's the smart play to sell Zynga stock for any price above $1.87.

Since you've probably lost heavily on Zynga you can use the tax losses from a sale to offset the gains from the APPL profit, where as holding Zynga for the EV would merely result in a reduced tax loss.

nnnnnnnn• 14 years ago

"buy APPL and expect AAPL to double in 1 year."

Big error. You can predict a stock doubling in value a year in advance?

Your numbers are less shocking when you plug in more reasonable expectations, say 6% market index instead of 200% home run.

crazygringo• 14 years ago

The "fundamentals" in this example are static. But presumably they're not going to fire everyone tomorrow, so at least a good proportion of their cash on hand is as good as spent.

Then, in order to stay in business, they might need to take on massive debt, or there's a chance of severe dilution, and the likelihood of this will lower the stock value further.

To take an extreme example, if everyone assumed the company was going to run itself into the ground, mortgaging its real estate, etc., until it has zero other options, then the stock would be basically right now $0, no matter how much real estate or cash in the bank in had right now.

lutusp2• 14 years ago

Do you mean why, or how?

As to "why", equity values are often more about emotion than reality (sometimes much more). Sometimes people want to bail from a stock that's become unpopular, and they don't bother to notice that the stock valuation is lower than the value of the buildings and inventory.

As to "how", there's nothing to stop a market valuation from being lower than the most basic assessment of the physical value of a company's assets, separate from present and future business prospects.

The single most important thing to remember about equities is that decisions need to be based to some extent on how stockholders think and behave, not necessarily on what makes sense. A person could on principle hold onto a stock in a company whose assets are very valuable, only to watch the stock drop to $0.01 per share, based on mass psychology rather than common sense.

joelrunyon• 14 years ago

My thoughts exactly.

It's a good headline, buut won't the market correct this naturally to account for the fact it's worth "less" than it's assets or is Zynga going to just keep dropping?

lutusp2• 14 years ago

> It's a good headline, buut won't the market correct this naturally to account for the fact it's worth "less" than it's assets or is Zynga going to just keep dropping?

Not unless equities investors decide to act rationally, and there's little evidence for that. Stocks falling below the true value of company assets is such a common occurrence that cagier, usually bigger, players will locate and "greenmail" such a company into buying their own stock with company assets to correct the difference between market valuation and basic value.

http://en.wikipedia.org/wiki/Greenmail

So I guess the answer to your question is "yes" but exactly how this happens is sometimes rather complicated.

Obviously if a company can be located whose physical plant and inventory value is higher than its stock valuation, such a company is vulnerable to a takeover by anyone able to detect this peculiar state of affairs and act on it.

jchung• 14 years ago

Actually, it's quite a rational approach. As an equity investor, you have to articulate a certain expectation for cashflow. If you believed that Zynga would give up the game and liquidate itself now, you might price it to net assets. However, the expectation is that although they may have $X in net assets available, they're going to keep bleeding that out until they have less than $X. Basically, you've got a CEO with a dollar, and you don't even believe s/he is going to earn enough to make back that dollar after all the money s/he wastes.

trhtrsh3• 14 years ago

Stock price is the price of the last share sold, not every share. If someone tried to raid Zynga for its cash, buying up all the shares, they would buy all the shares offered at $2.35, then all the shares offered at $2.45, ... until they end up paying $3 or $5 or $100 for the 50% ownership they need to take over the company and shut it down. The total cost of the company would be more than (last share sale price) * (# of shares)

andreyon2• 14 years ago

they said the same with Nokia about valuation. They were saying only it's patents are worth 7 B ... but at some point all NOK was valued at 6.1 B . It has recovered since, but the idea is that you can burn your cash real quickly if you're not earning new income

outside12342• 14 years ago

who could have seen this coming? :)

sbashyal2• 14 years ago

I believe that those who cared about company values did see this coming. See this one comment in Hacker News about a year ago: http://news.ycombinator.com/item?id=3225688

outside12342• 14 years ago

yeah, sorry, behind the sarcasm that was my point.

MartinCron4• 14 years ago

For years I argued with people at companies who wanted to be more like Zynga while I was saying that it was an unsustainable bubble.

Vindication is.. kind of lonely and sad, actually.

dfc• 14 years ago

Why is there no discussion of obligations? A company could have a lot of cash and real estate, but debt obligations could wipe out a ton of that value. I realize the discussion is about Zynga's deteriorating future but it seems that in order to draw any conclusioons from the stock price being lower than cash+real-estate a discussion of obligations is required.

danilocampos2• 14 years ago

So heartbreaking. The front-line folks at Zynga were worked to the bone, by so many insider accounts. Now all the stock they were counting on has had most of its value evaporate.

But that's life, right? Counting on equity is, simply, a gamble.

Except when you've rigged the table, as Pincus and his cronies have.

http://www.forbes.com/sites/nathanvardi/2012/10/05/zynga-kee...

They got to play by different rules than the folks whose hard work got them to IPO. Instead of being subject to lockup, like the rest of Zynga, they got to cash out early, before the true state of their company was fully appreciated by the market.

So what's the lesson?

Don't trust people willing to fuck people over to make a buck. You're not special. If there's a buck in it, you'll get fucked too.

http://techcrunch.com/2009/11/06/zynga-scamville-mark-pinkus...

w1ntermute3• 14 years ago

Any developer with a moderate amount of common sense who chose to work for Zynga should've seen this coming. Zynga has been criticized for its business model and the way it treats its employees for a long time now.

moocow013• 14 years ago

While I have never worked there, I think the assumption pre-IPO was that yes you might get abused but it will all be worth it in the end because of the equity - remember Zynga according to tech blogs was the hottest thing coming out of the oven a couple years ago.

This also isn't all that unusual of an attitude in a hyped startup - management will abuse you (ahem, I mean expose you to a dynamic exciting work environment) and you will take it because your going to be rich in a few years... or not.

andrewfelix• 14 years ago

While I agree with this statement somewhat, I can't imagine the talented devs at Zynga didn't have common sense. Seems harsh to write those people off with essentially 'you only have yourselves to blame'. That attitude also removes some of the responsibility from the folks at the top.

kevingadd• 14 years ago

Lots of Zynga employees ended up there due to acquisitions. It's not their fault if their employer got bought and their equity (if any) at the old company became Zynga equity...

barce• 14 years ago

This reminds me of the riddle Varys poses Tyrion in "Game of Thrones": Three great men sit in a room, a king, a priest and the rich man. Between them stands a common sellsword. Each great man bids the sellsword kill the other two. Who lives? Who dies?

Replace sellsword with employee. All these employees got screwed, yet like the sellsword they should have had the power to get a better deal.

reitzensteinm5• 14 years ago

Is it really heartbreaking that some Silicon Valley developers, one of the highest paid professions in one of the highest paid areas of the world, only made a decent salary instead of a fantastic total compensation package?

It's unfortunate, sure. And quite a few parts of the Zynga story are downright distasteful, especially the options clawback last year.

But let's not get hyperbolic - they played the startup lottery hoping to get rich, and lost.

danilocampos2• 14 years ago

I think that's easy for you to say. But I bet it really, really hurts for the many folks who genuinely worked their asses off to see Zynga succeed. You put in that kind of effort only to watch your boss get rich while you get screwed?

You take Pincus and company, tie their fates to that of the employees, and everyone loses together? Fine, whatever. Like you said, they played the lottery. But the mismatch of fates is, to me, what makes this story pretty damn sad.

moocow013• 14 years ago

"Silicon Valley developers, one of the highest paid professions"

Based upon the number of hours the people who I knew at Zynga were putting in - IMHO they were far from receiving a good rate when looked at hourly.

100k at 60-70+ hrs per week in a place with some of the highest living costs is not all that admirable of pay if you ask me. Yes they are not on the street but its not exactly the bees' knees either.

wamatt• 14 years ago

And this is why I love HN.

I found myself nodding along in full agreement with the GP, then doing the same, after reading the top rebuttal.

/enqueues 10 minutes of self-loathing, for being so fickle minded. ;)

whyenot• 14 years ago

What about all the people that work at Zynga who are not developers? The artist, the people in Q/A, and the rest? In many cases they are working just as hard without the compensation packages or virtual guarantee of another job if Zynga goes under. To me, it really is heartbreaking.

beedogs2• 14 years ago

> Is it really heartbreaking that some Silicon Valley developers, one of the highest paid professions in one of the highest paid areas of the world, only made a decent salary instead of a fantastic total compensation package?

They effectively worked two full-time jobs for a year and a half, and got paid for one. Average salary for a programmer at Zynga seems to be around $100k, which is less than I make working 37.5 hour weeks, not 100-hour ones.

So, yes. It's pretty heartbreaking to see them get fucked over after giving their entire life to Zynga for the better part of 2 years. I'm not sure why you think otherwise, frankly.

Reebz• 14 years ago

Like the old poker adage: if you can't recognize the sucker, then it's you.

dribnet• 14 years ago

> they played the startup lottery hoping to get rich, and lost.

What?!? Folks: ZNGA still has a market cap of almost $2 billion. Your average startup engineer is lucky to see any decent and timely exit event. So even at these "low" prices, from where I sit they are still looking better than many of their peers.

crasshopper• 14 years ago

So rich people never deserve sympathy? It's got to hurt when people close to you, whom you see as peers, make off like bandits whilst you're left relatively a lot worse off.

"Life's not fair", bellum omnium. But the reason to talk about fairness is that it's something to strive for and insofar as we can make things fairer (like through SEC regulation) we should.

Nobody's saying the losers here are catastrophically equivalent to a war zone. But worthy of sympathy? Sure. Just because you're rich doesn't mean things can't suck for you, subjectively.

theorique4• 14 years ago

Not only heartbreaking, it's literally the worst thing that has ever happened in the history of humankind.

If I cried constantly, for the age of the universe, times infinity, it would not be enough to express the sadness I feel.

An infinite number of oceans the size of the Sun would not be enough to capture all our tears.

jfb2• 14 years ago

This is deplorable, of course, but that's the way the scam works. It's only remarked upon when the short position of the executive team is so obvious.

madrona• 14 years ago

It's heartening that their business model is failing. I hope it means that it keeps ever more developers from falling into that short-term trap of extracting value through psychological manipulation instead of creating things that are useful or enriching.

tylermenezes2• 14 years ago

I've heard from a lot of people that your reputation means everything. It's a shame that Pincus's didn't catch up with him sooner, since he hardly deserves anything he's getting.

jarvuschris• 14 years ago

"... before the true state of their company was fully appreciated by the market."

I think this article makes it clear that the market has _no clue_ what the "true state" of the company is...

SeoxyS• 14 years ago

I don't find it heartbreaking at all, actually. While it may be a bummer for those who lost the gamble; it was probably a valuable life lesson. Surely they'll think twice about buying into unfounded hype, and depending on the promise of a paycheck later, someday.

Do you find it heartbreaking when a fool throws down $50k on red at the roulette table, and loses?

astrodust• 14 years ago

Heartbreaking? I feel about as bad for people working at Zynga, where they spend day and night copying other web properties, as I do for those working on the Death Star when it exploded.

nkoren• 14 years ago

"You know, any contractor willing to work on that Death Star knew the risks. If they were killed, it was their own fault. A roofer listens to this... [taps his heart] not his wallet."

http://www.whysanity.net/monos/clerks5.html

lrobb• 14 years ago

I'd say I'm living from paycheck to paycheck.... "Except I'm not getting a paycheck!"

http://uptownalmanac.com/2012/10/nerds-gone-wild-day-san-fra...

rockarage• 14 years ago

Totally, and there was a familiar line, around tech circles, it goes like this "Friends don't let friends work at Zynga".

And let's not forget.

“I did every horrible thing in the book just to get revenues,” -Mark Pincus

It's unfortunate the empolyees were not paying attention to what their CEO and Company was saying and doing.

equalarrow• 14 years ago

100% spot on. Yah, super sux that (as usual) the top execs ride on the backs of everyone else, cash out, and buy fat crib in Pac Heights. But then again, what do you expect when the ceo is so blatant about the culture there? That sentence says it all, anyone can see it.

So, sorry folks u got screwed, but it's, literally a house of cards. Everyone early and vc that put their money in, I'd a happy camper..

r00fus5• 14 years ago

Let's not get caught up in the morals of what Pincus said.

It's the moral hazard - you work for a boss who acts like that, and they'll throw you under the bus pretty quickly just as well.

And that boss will hire folks who think like (s)he does also.

r00fus5• 14 years ago

Let's not get caught up in the morals of what Pincus said.

It's even against your self interest - you work for a boss who acts like that, and they'll throw you under the bus pretty quickly just as well.

And that boss will hire folks who think like (s)he does also.

infinii• 14 years ago

When your project manager shows you a Top 25 game from the AppStore and tells you to Zynga-ify (blatantly copy it), you should know you're dealing with scum of the earth.

raverbashing• 14 years ago

It's unfortunate the employees were not paying attention to what their CEO and Company was saying and doing.

This. Stop coding for a moment and pay attention to the surroundings.

What makes you think a person that's unethical to their customers is going to be ethical to their employees?

dj2stein9• 14 years ago

This is like feeling sorry for people who work overtime for telemarketers. Oh poor them. Zynga was a cheesy business to begin with, and absolutely every employee there knew it.

witoldc• 14 years ago

Anyone worth their salt could've Googled their leaderships history of creating big IPOs that end up crushing and burning. Most were complicit in it, or just rationalized it to themselves that it was different.

Second, the people who make the company - the early people - are on better terms. The guy who got hired the month before IPO shouldn't be expecting much.

uvTwitch• 14 years ago

I have no pity for them. They'd have to be terminally ignorant not to realize they were building scumware.

sbashyal2• 14 years ago

Stock price plummeting below asset value indicates that investors believe that Zynga is now in the business of burning money instead of making money.

benguild2• 14 years ago

Didn't they try to ease stock away from those who owned it pre-IPO? How has that panned out now? … Was it converted to less valuable cash at the time, or is the cash more valuable now? (or was it that they got nothing in exchange for losing the stock)

philwelch• 14 years ago

So when do the corporate raiders come to perform a hostile takeover and liquidate Zynga for the cash and real estate?

ChuckMcM• 14 years ago

Not exactly the way it would work, basically the way things are valued you can't necessarily get that much money for them. In the ideal world there would be a business there too.

Now all of this is moot if Zynga is making enough money to pay the bills, doesn't matter what their stock price is if they don't have to sell stock to raise money. So the thing to look at is when their obligations exceed their assets, that is when they are 'upside down' in the lingo. Very hard to recover from that because you can't even borrow money temporarily when that happens, you have to save money, then use the money you saved to do the thing you wanted to do, rinse and repeat and that removes your ability to react quickly.

_delirium2• 14 years ago

I don't think it's undervalued by enough for that to work, yet. According to this report, the stock is currently priced 9.5% below book value, but in a hostile takeover the acquirer typically needs to pay a significant premium over current share price, in the range of 10-25%, in order to rapidly acquire a bunch of shares.

tayl0r• 14 years ago

I don't think this works with Zynga since Pincus's shares have so much extra voting power.

jstanderfer• 14 years ago

Zynga is structured such that Mark Pincus has a majority of the voting shares (50.15% to be exact). This means he cannot be fired nor can any takeover occur without his consent.

mratzloff4• 14 years ago

And he's already cashed out a significant portion of his stock, so he has no personal motivation to ever sell.

AlexMuir• 14 years ago

Should FB buy them? Much of Zynga's trouble has been that their interests and Facebook's didn't align.

My first thought was "Why bother? FB can just wait and pick up the good staff in the wind down." But the exact opposite of that logic has led to acquihires.

esusatyo• 14 years ago

I don't think Facebook is much interested in gaming. If anything they'd buy another social network company.

MartinCron4• 14 years ago

I think that Facebook gets that the current batch of skinner-box games have a limited lifespan as users (and Facebook itself) build up their immunities to them.

bigohms• 14 years ago

I have held Zynga throughout the year. The extent of leadership fail here is unprecedented. n number of remediation tactics should have taken hold early to prevent where we are now. Here is a copy of my e-mail to Pincus (still gone unanswered):

"Mark -

Can we have a man-to-man? Seriously, please explain to me, a small shareholder in Zynga, exactly what the fuck you have been doing with my investment? Clearly, the answer is not building value in any meaningful way. Any third year entrepreneur will have trouble seeing your performance this year amounting to anything other than a collected check, a leveraged office, a leased plane ($3K a wet flight hour?!? What is that a fucking citation X?!?) and an overpaid security team. If the plan is to ride this thing to the nines, let me know so that I can pull out and forget any thoughts of a really well integrated ecosystem of gaming.

BTW: If you see the OMGPOP/Draw Something team, tell them to get the fuck off of their asses (if they're still around) and do something about long-tail gamification model if they want to do something about user retention.

That's all, k thx bye drops mic."

unoti• 14 years ago

At least this letter gives some insight into why there's a highly paid security team.

sliverstorm• 14 years ago

(still gone unanswered)

I hope you are not actually surprised. You've read the email you wrote, right? I know I wouldn't have bothered to answer an email like that.

moot• 14 years ago

This reads like most of the e-mail I get, and I don't even run a publicly traded company!

thaumaturgy2• 14 years ago

Hah. I'm sure that's got nothing to do with what you're most famous for.

AgentConundrum• 14 years ago

I don't even want to know what most of your email looks like, although I can't say I'm not at least a little curious.

thaumaturgy2• 14 years ago

Your "investment" doesn't obligate Mark Pincus into answering a stupid email. You gave them money entirely out of self-interest -- a gamble that you would somehow get more money back -- and they spent it. There are all of the answers you deserve.

nerfhammer2• 14 years ago

The directors do have a fiduciary responsibility to their shareholders. It's reasonable for an investor to expect directors not to waste money.

His investment did not go to zynga, it went to whatever market seller he bought it from. He is more accurately a shareholder - a part owner - rather than an investor.

It is difficult to imagine this email getting a response though.

r00fus5• 14 years ago

Assuming the investment was bought on the open market, Zynga probably didn't see a penny of it (though it might have helped to raise or stabilize the stock price in a miniscule way).

So Pincus doesn't have any reason to even read your email, much less respond.

supersaiyan2• 14 years ago

I think you should go back to playing call of duty

DanBlake• 14 years ago

Article does not mention debt- Does Zynga have any? If so, it explains some of this.

mey• 14 years ago

I expect investors are expecting lawsuits or other losses in the near term that could easily reduce their assets.

001sky3• 14 years ago

This is a good question.

There is somethin like $600MM of ST liabilities, though vs $1.2B of cash & equivalents (/securities).

Not sure what that is, but that is (potentially) a big deal.

Although it seems to be on the BS QoQ

http://www.google.com/finance?q=NASDAQ:ZNGA&fstype=ii

LT Debt = $100MM, so not as significant an issue.

rjtavares• 14 years ago

Those $600MM are detailed in their Quarterly report:

-$450MM are deferred revenues (i.e., people bought things in their games but they don't recognize everything as revenue right away, a common procedure with online video games).

-$40MM are customer deposits, which according to them "represent amounts received for unredeemed game cards as well as advanced payments from various customers."

-$120MM are things like transaction taxes, compensation related liabilities and accounts payable.

So, it's not really debt, just working capital.

beatpanda• 14 years ago

Awesome. Let them collapse, and may a hundred new and better companies bloom in the exodus.

groby_b• 14 years ago

Yep. And maybe a few hundred devs will struggle to pay their mortgage.

Yes, Zynga has many issues. But before we get all cold-hearted and rejoice at the wonderful invisible hand that will correct all, can we for a moment remember that it's going to affect mostly the people in the trenches? Who often had little to no say in the outcome?

hkmurakami2• 14 years ago

The idea of getting into a mortgage based on non-vested or non-lockup-expired stock options reminds me of Japanese professionals getting into mortgages based on their salary + overtime pay (overtime was effectively eliminated during and after the financial crisis, which left these people unable to meet their monthly mortgage payments).

kika2• 14 years ago

devs? struggle? in the valley, for the gods sake? In what exact moment they're going to struggle with their mortgages, in these precise six minutes twenty four seconds that would pass between they get their notices from HR and they land the next job in the company next door?

tetomb• 14 years ago

If you are not happy with being in the trenches, it is simple, get out of the trenches.

...Who often had little to no say in the outcome?

No Choice? If you are unhappy, find a new job.

Edit: formatting

jfb2• 14 years ago

If the devs were using unvested stock options to back a mortgage … well, they all make enough money for a single hour long consultation with a tax accountant who would have told them what a stupid idea that is. If they're paying out their mortgage from salary, well then, there's nothing particularly notable about their situation, is there?

danielweber• 14 years ago

I wonder if some people would cheer at the sinking of the Titanic because all the rich people lost their stuff that they couldn't take with them in the lifeboats.

mhartl2• 14 years ago

And maybe a few hundred devs will struggle to pay their mortgage.

It sucks to lose your job, but there's a simple and time-honored solution to this problem: savings. It's amazing how much less you're pushed around by life when you have a year's living expenses in the bank. (It's also amazing how fast you can accumulate such a cash hoard when you consistently live below your means.)

EnderMB• 14 years ago

I'm a modest Web Developer with a few years experience at a good agency in the UK. If I were to leave my company I know I'd be able to land a job somewhere fairly easily for similar pay.

Zynga is a well-known name and I'd be shocked if their developers struggle to find work when they are forced to leave.

mratzloff4• 14 years ago

Yeah, I think they'll be OK. They're software developers. They probably have to fend off recruiters with a stick on the street.

goodcanadian4• 14 years ago

OK, I have done a bit of math:

Book value (all assets - all liabilities): $2.46 per share

Book value less expected write off of $90M: $2.34

Book value less all intangibles: $2.01

Current Assets (essentially cash) less all liabilities: 0.78

Current market value: $2.35

So, the market is valuing it at exactly next quarter's expected book value. This means that they still believe there is some value in the intangibles (I don't) or the business (I don't).

For giggles, here are the some numbers for Research in Motion.

BV: $18.15 per share

BV less intangibles: 11.81

Current assets less all liabilities: 6.22

Market value: 7.76

asdf333• 14 years ago

I also agree it should be at current assets as well. no one should really count on the intangibles (particularly not goodwill)

What is the "short term investments" line item on the balance sheet under current assets? Are those corporate bonds or other highly liquid assets?

goodcanadian4• 14 years ago

I don't know if I would go as low as net-net (current assets less all liabilities). The building is probably worth approximately what they paid for it. There is probably some furniture and computers and things that may or may not be worth their carrying value (depreciation is supposed to account for the decline in resale value).

It is always a bit sad when a company is worth less than the sum of its parts. I don't think Zynga is quite there, yet, but I don't think it is worth very much unless and until they sit down and learn how to run a business. I won't be investing in it.

You are correct that short term investments would be stocks or bonds or term deposits or any other highly liquid assets. Generally, they are as good as cash.

steve89185• 14 years ago

You don't perceive value the business? They still generate $300M in revenues per quarter. That sounds more like an emotional valuation rather than an objective valuation.

goodcanadian4• 14 years ago

Yes, and they spend nearly $400M per quarter to generate that revenue. Using more precise numbers, their net loss over the last 4 quarters was about $0.73 per share. By my rule of thumb of awarding a P/E of 10, that makes the business worth -$7.30 per share.

Now in reality, that is a very simplistic analysis, and in point of fact, I do perceive some value in the business, just not very much. It is something that is very hard to quantify (as are other intangibles like copyrights and trademarks). In the end, I do have to go with my gut a little bit (as you say "an emotional valuation"). I don't personally have much use for Zynga's games or their business model, so I am aware that I might undervalue them somewhat, but what the the numbers tell me is that they are a poor business to invest in even at this "low" price. Other non-financial comments on this story and elsewhere reinforce my opinion that when it comes to doing business, Zynga has a lot to learn.

crag2• 14 years ago

The problem with Zynga is that they are dependent on FB (who takes a share of their revenue - which is even worse). That's a huge risk.

Despite trying to step out from FB's shadow, they are still there- between a rock and a hard place.

aaronmarks• 14 years ago

Does this mean they're undervalued and it's a good time to buy Zynga?

supersaiyan2• 14 years ago

there expected to have a low quarter coming up, the price will most likely drop then, but they're mau has been fairly consistent so it might not be too bad

crugej• 14 years ago

I have been waiting to see this company die and I hope the end is near. They may try and save it with virtual currency gambling as their next con on the human brain but it is inevitable.

mullingitover• 14 years ago

Aren't they something like 15% of FB's revenue, and FB is more like 85% of theirs? Seems like FB would just keep on screwing with their visibility on the site to drag their numbers down to the muck, then buy Zynga with change they find between their couch cushions.

state• 14 years ago

Could someone who didn't see this coming please explain to me how there was another outcome for this company?

I'm being completely serious. When I read headlines like this I just assume this happened at least nine months ago. I'd like to hear some reasoned defense of how this company was going to survive.

pbreit• 14 years ago

Well, it makes a _ton_ of money ($1.3b ttm revs). Is, by far, the leading web-based/social gaming company. Is an excellent acquisition target. Has, by far, the most DAUs/MAUs. Is in an easy-to-monetize industry. Would be in the best position to take advantage of relaxed gambling laws. And on and on. What don't you get?

wilfra• 14 years ago

"Could someone who didn't see this coming please explain to me...how this company was going to survive"

How were they going to survive? They aren't dead. Not even close.

Pincus has the same kind of control over Zynga that Zuckerberg has over Facebook, and he's got a mountain of cash in the bank. That means nobody can make him do anything and he has a very long time to get his house in order.

All they would have to do to make Wall Street happy now is lay-off a whole bunch of people and start making 20% profit. The stock would go to $10+ instantly. That's the easy way out, not planning for the long run. Not planning for growth.

Zynga is in a great position for real-money gaming, as just one possible avenue for future growth. The US government is taking longer than expected to regulate that industry but they will get around to it.

Zynga has been public for less than a year and they've got many years of runway left even if things don't improve. People need to slow down on thinking and claiming they are done.

VSerge• 14 years ago

It is baffling that analysts can essentially divide their guidance by 2 overnight. With such "guidance", it's easy for small investors to get fleeced. And with everyone in the industry gloating about how we saw it coming, it's only going to make us all look a little less trustworthy. It's a shame too, because many called out Zynga's business model as unsustainable, even though that didn't get much coverage in the financial or mainstream press.

timpeterson• 14 years ago

fitting fate for the CEO, Mark Pincus, whose been quoted as saying he "doesn't want to fucking innovate. You're not smarter than your competitor. Just copy what they do and do it until you get their numbers."

quora discussion on this: http://b.qr.ae/hFgaYd

erichocean• 14 years ago

Peter Thiel discussed the underlying worldview for why people think and act like Pincus at his startup class, which Blake Masters wrote up here:

http://blakemasters.tumblr.com/post/23435743973/peter-thiels...

Worth a read. I think Pincus' overall approach is actually dominant right now in tech, not an outlier. Most people just aren't so crude about discussing it.

trhtrsh3• 14 years ago

Where is the mention of Pincus or Zynga? I couldn't find it.

trhtrsh3• 14 years ago

Marc Pincus already sold enough shares to get his FU money.

lsteam• 14 years ago

this is really sad

xenen• 14 years ago

I really really hope that results like this will serve as a wake-up call to the community that is the valley. We've gone from creating microchips, putting a PC on every desk, opening up and connecting the web to the whole world with pioneers and visionaries, to nowadays creating low-quality browser games which are used to scam users out of private information/money led by ex-wall-street banker deploying sweatshop-like environments, and stealing stock back from employees while scamming public investors at the same time.

Allowing things like this to happen, accepting that this kind of behavior is okay and enabling these kinds of characters to thrive is exactly why the valley has become so frothy. The transformation of Silicon Valley into Hollywood, where anyone with a big enough mouth and large enough ego can thrive is nearly complete. But I'll sure fight tooth and nail until the day I get squeezed out of this place - voting with my dollars and my labor, and a small but convinced voice in what is right and what is wrong.

tzs• 14 years ago

I'm curious. It's been a long time since I visited San Francisco, so maybe things have massively changed, but I recall that it used to have things like coffee shops, restaurants, fast food places, bookstores, groceries, movie theaters, and all the other kinds of things you'll find in pretty much any city in the US.

These places employed baristas, waiters, bus boys, burger flippers, sales clerks, stock boys, and such. Such people typically work fixed shifts, and so unlike many developers have time to find people to start families with and have children.

Based on some of the comments here, it would seem that getting by on just a developer's salary in San Francisco is near impossible--you have to have stock money to keep you afloat.

So how come waiters, sales clerks, etc., can work in San Francisco and make ends meet for not only themselves for for a family, but single developers making more than the combined income of that entire working class family cannot? One comment mentioned that the developers might have student loans to pay off, but that's countered by the working class family might have to pay a lot to add their kids to their health insurance.

Same question for New York, and any other place where people consider $100k/year too low to be a living wage for a programmer.

johnpowell• 14 years ago

The people at Burger King spend two hours getting to work on public transportation and two hours getting back home. And you have six people in a two bedroom apartment.

doomlaser• 14 years ago

A lot of lower wage people commute from a distance to work those jobs. There have been articles about this phenomenon for years:

http://peninsulapress.com/2012/08/28/low-wage-jobs-drive-sil...

netcan• 14 years ago

You are probably technically correct, but missing the point of the parent comment. The point is that this thread seems to see developers as the little guy getting screwed by circumstances & The Powerful while from a different (more "average") perspective these are relatively well off people that earned very well complaining that they didn't do outrageously well.

It's good to keep in mind that the world doesn't owe you much. Where you are would be a massive victory for many. Where you started is where many work their whole lives to get closer to. Perspective plays trick on us. We think where we are is normal, slightly above us is where we ought to be.

citricsquid• 14 years ago

because how a barista lives is not how a well paid programmer lives. Yes, you can exist on $15k/year, but if you're used to living on $100k/year it may as well be homelessness. If you're someone that provides value to a company you come to expect to live like you provide value. Quality of life matters, a lot.

Make ends meet != live well

fusiongyro• 14 years ago

Of course you're right overall, but if you're paying $12K/year in rent for one room in a shared apartment that still leaves only $250/month for all your other expenses, and I'm not convinced it's workable at that extreme.

twakefield• 14 years ago

Not sure if the parent comment is tongue in cheek but I genuinely wonder this myself. I don't know that this is the answer but San Francisco seems to be committed to offering lower income earners more affordable housing through rent control. Since housing is often the biggest expense this may explain why a barista making $25k and a developer making $80k may live in the same city, happily.

Broader economic arguments aside, I think this diversity is a good outcome and makes urban living more interesting.

tsotha2• 14 years ago

>I don't know that this is the answer but San Francisco seems to be committed to offering lower income earners more affordable housing through rent control.

Nah. Just like other cities with rent control actually finding a place is pretty much impossible. Demand for housing stock in the city has far outstripped supply, and people who get a controlled place don't leave.

The baristas and such commute into the city from cheaper areas in the east bay.

kamaal3• 14 years ago

When your income increases your spending increases, more like you get tempted to spend money buying things and that temptation then turns in an habit. Then what happens is law of diminishing utility kicks in. You just get used to things and it becomes a norm in your life.

After this if your income tanks, it hurts hard.

You can very well travel by bus for 20 years of your life, travel a day by car and it will make you feel awesome. Then travel 10 years by car, it just feels normal. Then when you go through a difficult financial, which forces you to take a bus again- This time you will feel like crap.

People whom you are talking about are addicted to changing phones/tablets twice an year. Buying developer toys because they like it, drink latte every 45 mins just because they can. I can go on and on, but if you sit down and jolt down list of things that we do and spend money on, you will realize We are basically addicted to spending money

We just keep buying things. We are told to not do so means not doing better compared to your peers. We are told living frugal means living like a loser and spending money on fun/experiences/<whatever you call it> is what makes you successful.

Net-Net you end spending a lot more on things you don't at all. And expenses go up real high.

I've seen this among my rich friends as a kid, mysteriously they couldn't even live without things which I didn't even know about.

theorique4• 14 years ago

Good point. The hedonic treadmill and adaptation is a beast.

zynga_employee• 14 years ago

I read HN all the time, but I have never commented before. I am a (relatively new) Zynga employee and I wanted to add my thoughts.

Personally, I am stil very happy to be working at Zynga. I enjoy my work and my team, and I am compensated very well. Also, all of the benefits from working at Zynga (the food, the atmosphere, the very good health benefits, etc.) are still available. The only negative I see is that this job might not last for more than a year, and my stock isn't worth very much.

As for everyone hating all of the Zynga employees: everyone I have met and whom I have worked with in my two months at Zynga has been very smart and very nice and incredibly fun to work with. I don't understand why people on Reddit and HN love to demonize the employees of Zynga. I would feel very sad if my friends or I were to be laid off.

MartinCron4• 14 years ago

this job might not last for more than a year

That statement is pretty much true for everyone everywhere. People like to pretend that it isn't, but people like to pretend lots of things that give them comfort.

languagehacker• 14 years ago

Well put. It's good to hear you're enjoying your time, and tempering it with some pragmatism probably helps a lot. I'd rather be working for a well-known company in a bit of trouble than one in trouble for fostering a hostile work environment.

lotharbot2• 14 years ago

> " I don't understand why people on Reddit and HN love to demonize the employees of Zynga."

I apologize if I give offense while attempting to shed some light on why people have a problem with your company (and those who choose to work there). It's difficult to be honest about this question without coming across as mean, but I will try.

1) wholesale copying other companies' games (see http://www.scribd.com/doc/101954002/EA-v-Zynga-Complaint-Fin... for a legal complaint and http://news.ycombinator.com/item?id=4335287 for discussion.) From that thread: "they must realize that every day they go to work and rip off someone's original work." It's hard to respect someone who knowingly makes their living this way.

2) The game mechanics of Zynga games often hinge on what might be viewed as "bad" use of psychology -- manipulative, addictive, and in a sense abusive of the friends functionality of facebook. It's hard to respect someone who knowingly treats people so callously.

3) Common opinion is that the games themselves range from mildly awful to completely terrible, and are successful almost entirely due to the "bad" psychology above. It's easy to respect someone like notch, who got rich making an awesome game. It's hard to respect people like Pincus, who got rich by making games that are fundamentally lame.

Again, no offense meant to you or your friends. Maybe you're on a team that doesn't do any of the above bad stuff. But the parts of Zynga most of us are familiar with do all of that bad stuff. I hope this helps clarify why you might see so much hate directed that way.

irreverentbits• 14 years ago

Honestly, this is ridiculous.

1. The vast majority of the games industry borrows heavily from titles which have come before, so Zynga isn't unique in this regard, nor should it be singled out.

2. The establishment of addiction-creating feedback loops is practically a games industry science. Again, this is hardly unique to Zynga.

3. Subjective statements about quality aside, I think it's safe to say that Minecraft has highly addictive qualities, and therefore Notch can't really be put on a pedestal here in the context of your second assertion.

mratzloff4• 14 years ago

> As for everyone hating all of the Zynga employees

I don't think people are really hating the Zynga employees. They hate the upper management.

anewguy• 14 years ago

I'm glad you've found a pocket of the company that you enjoy working in. But the CEO is a sociopath, and that's bound to cause some trickle-down unpleasantness in the future. It already has, the company just changed its ways when it got bad press.

seivan• 14 years ago

Developers and Designers getting screwed over by the business monkeys and other scum... as usual. Further fuelling my hate for non-creative garbage.

dasil0035• 14 years ago

It's unfortunate that you cherry-pick Zynga as representatives of "non-creatives".

bookworm_• 14 years ago

Who cares about unsophisticated investors who buy at the IPO or employees, or long-term stability? This company was a short term deal like many others in the web startup space. Hype worked. Virtual goods? It makes me laugh everytine I say it. Pincus and other investors made heaps of cash from this, no doubt. Mission accomplished. Call it sa success. Time to close up shop and on to the next one.

Facebook is much the same way. Some people have made fortunes. Who cares about public investors, Wall Street and employees? They'll survive.

It's just business.

tatsuke952• 14 years ago

You realize that capitalism can't function when people keep stealing capital, right?

shimsham• 14 years ago

"We're addressing these near-term challenges by targeted cost reductions and focusing our new game pipeline to reflect our strategic priorities."

Methinks someone has been raiding that bingo variant for phrases.

bad_user• 14 years ago

It's some kind of poetic justice that Zynga before the IPO was compared to game makers that have historically produced kickass games, like Blizzard.

kellybrooke• 14 years ago

Are they renting any co-working space? Heard the offices are nice.

Zynga stock plummets below value of its cash and real estate

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