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Would you buy Zynga if the shareholders PAID you to take it away?

By on October 25, 2012
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“Zynga is currently trading at a discount to cash”, scream the pundits. “Zynga’s shareholders would like to pay you to it off their hands” say the headlines.

Is it really true? Yesterday’s market value for Zynga was $1.67 billion. They have $1.22 bn in cash or marketable securities (meaning bonds and shares that they could sell at the touch of a button in the market). They have another $426m in long term investments such as corporate bonds. They bought their SF headquarters for $275m in April 2012. So the financial and property assets total realisable assets are $1.92 billion. Based on the share price on Wednesday 24th October (before their third quarter announcement), if you bought all of the shares for $1.67m, you would immediately get cash and property worth $1.92 bn. The shareholders would have paid you $247 million to take Zynga off their hands.

In practice this won’t happen. Firstly, shareholders expect a premium when someone buys the whole of the company. Secondly Mark Pincus has voting rights and could block a deal. Thirdly if the market gets a sniff that a serious buyer is circling, the price will immediately spike. The only person who can take Zynga private is Mark Pincus (with financial help) and I would bet that he is considering it.

The more interesting question for readers of MCV is whether Zynga’s travails reflect the wider free-to-play business. On the way up, Zynga was lauded as the company that embodied the new world of gaming. It had expanding audiences, growing revenues and brought a new category of gamer – the whales – to wider attention. Many pundits, myself included, viewed it as a massive success story.

I still think that any company sitting on $1.6 billion in cash after less than 5 years in business has done something right.

About Nicholas Lovell

Nicholas is the founder of Gamesbrief, a blog dedicated to the business of games. It aims to be informative, authoritative and above all helpful to developers grappling with business strategy. He is the author of a growing list of books about making money in the games industry and other digital media, including How to Publish a Game and Design Rules for Free-to-Play Games, and Penguin-published title The Curve:
  • Zynga has financial debts of $100m, which I should have included. All of its other debts are operation.

    The net value of the company is, in financial terms, about $120m. (Equity of $1.67bn less financial assets of $1.65 bn plus financial obligations of $100m).

    Throw in the real estate, and I still think that current value, as at the date of this article, was at a discount.

  • Mariam

    Zynga was doing well as long as they were innovating with ideas and this we saw with many of their games until….

  • Patrick

    Regardless of the performance of Zynga, unless I missed something in the article, I don’t see how the current value of Zynga is a discount. What are the debts of Zynga? You can’t just compare the valuation of Zynga to its short-term assets. So, the article would be more interesting if you mentioned the net value of the company.

  • Zynga did do things right for its owners. But I use the past tense.

    What Zynga presumed is it needs to do the same things over and over and over again. What Zynga presumed is that repeatedly and unreservedly tricking and manipulating customers is a great strategy.

    I believe nudging customers in a direction of your choice is a good idea. I believe providing customers with new experiences is a good idea. I don’t think treating your customers as permanent addicts who just need more and more fixes it a good idea.

    Free2play system is a legitimate opportunity to better serve people who genuinely want to reward you for good experiences they had. Builders, as proven by Theme Hospital that I picked up off GOG out of nostalgia, are great, great fun. But Zynga missed the opportunity to grow into new directions, to simultaneously pursue its original model of cutesy, exploitative games, as well as exploring themes of classical core games.

    Zynga could have grown into a Valve had it chosen to do so. Zynga could have opened a new studio to be groomed into a new Valve. Instead, when I put on my Customer Hat(tm) instead of a Developer Hat, I see a company that wants to trick me into handing over the money. And I don’t like being tricked.

    Zynga should have and still can grow into multiple directions. I sincerely hope that a portion of their massive assets will go into doing just that.

  • What was it Michael Dell said? Zynga should close everything down and give the money back to the shareholders.

    Zynga’s problem is not lack of sustainable business model. It thought — wrongly — that social games was a winner-takes-all market where the rules were already established. It over invested in aggressive growth, took on too much investment capital, and spread their model too thin.

    I’d still bet on them above Rovio, and thinking that their plight reflects anything about the viability of free2play is like saying Archie’s demise proves there’s no money in search.