Zynga's troubling free fall# Stock
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Zynga, so recently trumpeted as San Francisco's fastest-growing startup and
a poster child of the social media age, is now a cautionary tale.
In early April, Zynga Chief Executive Officer Mark Pincus dumped 15 percent
of his shares for about $198 million, in an unusual secondary stock offering
that came almost two months before the official selling lockup for insiders
ended. It turned out to be spectacular timing - at least for Pincus and
other executives and early investors. They unloaded big portions of their
holdings for $12 per share. By the end of July, after the social gaming
company whiffed on second-quarter analyst expectations and sliced forecasts
for the year roughly in half, the stock had dipped below $3.
Earlier that month, a flush Pincus reportedly closed on a $12 million, seven
-bedroom mansion in Pacific Heights. In sharp contrast, anyone who bought in
at Zynga's initial public offering price had by that point lost about half
of their money. Likewise, many rank-and-file employees who logged brutal
work hours on the promise of Internet riches were - and are - staring at
restricted stock worth far less than what had been expected. It's at least
another glaring example of a financial system rigged in favor of executives
and venture capitalists at the expense of average investors and employees.
And if Zynga doesn't stage a remarkable turnaround, it could end up as one
of the most high-profile flameouts of the Web 2.0 era.
Analysts have turned incredibly negative, shareholders have filed insider
trading lawsuits, and the market is betting the company has almost no long-
term value.
Shares plummet
On Friday, Zynga's market cap stood at $2.28 billion. That's less than the
company's assets, including cash, receivables and real estate, which totaled
$2.7 billion at the end of the second quarter - and only marginally higher
than its assets minus liabilities, which stood at $1.86 billion.
A company spokeswoman didn't make anyone available for this story before
press time.
Zynga, the maker of popular Facebook games such as "CityVille" and "
FarmVille," went public at $10 a share in December. Shares peaked at almost
$16 in early March but have traded downward since.
Shares went into free fall in late July, after the company announced deeply
disappointing quarterly results. Its 1-cent earnings per share missed
analyst estimates by a nickel, and the company came up $12 million short on
revenue.
The core problem is user fatigue: People are playing Zynga's premier games
less and spending less on virtual goods such as digital tractors, guns and
cows when they do.
Drastic revision
But the extent of the company's challenges was laid out most clearly in its
outlook for the year. Zynga slashed its so-called EBITDA projections (
earnings before interest, taxes, depreciation and amortization) from a range
of $400 million to $450 million, to $180 million to $250 million.
Zynga said the drastic change reflected delays in new games, declining
engagement with existing games in part because of changes in the way
Facebook promotes apps, and reduced expectations for "Draw Something." Zynga
acquired that flash in the pan with its purchase of New York's OMGPOP for $
180 million in March, managing to buy at the peak of the game's popularity.
The revised 2012 forecast was particularly troubling to analysts because it
came after the company had raised annual expectations in its first-quarter
announcement. In fact, Zynga emphasized at the time that most of its growth
would happen in the second half of the year.
The wildly different assessment in a three-month period revealed a stunning
lack of insight into the state of the business - or something worse.
'A disaster'
Analysts pounded the company, using language of a sort rarely seen on Wall
Street.
Sterne Agee's Arvind Bhatia and Wedbush's Michael Pachter both called the
July announcement a "disaster."
Read more: http://www.sfgate.com/technology/dotcommentary/article/Free-falling-Zynga-needs-fast-turnaround-3796892.php#ixzz242J8EceQ
a poster child of the social media age, is now a cautionary tale.
In early April, Zynga Chief Executive Officer Mark Pincus dumped 15 percent
of his shares for about $198 million, in an unusual secondary stock offering
that came almost two months before the official selling lockup for insiders
ended. It turned out to be spectacular timing - at least for Pincus and
other executives and early investors. They unloaded big portions of their
holdings for $12 per share. By the end of July, after the social gaming
company whiffed on second-quarter analyst expectations and sliced forecasts
for the year roughly in half, the stock had dipped below $3.
Earlier that month, a flush Pincus reportedly closed on a $12 million, seven
-bedroom mansion in Pacific Heights. In sharp contrast, anyone who bought in
at Zynga's initial public offering price had by that point lost about half
of their money. Likewise, many rank-and-file employees who logged brutal
work hours on the promise of Internet riches were - and are - staring at
restricted stock worth far less than what had been expected. It's at least
another glaring example of a financial system rigged in favor of executives
and venture capitalists at the expense of average investors and employees.
And if Zynga doesn't stage a remarkable turnaround, it could end up as one
of the most high-profile flameouts of the Web 2.0 era.
Analysts have turned incredibly negative, shareholders have filed insider
trading lawsuits, and the market is betting the company has almost no long-
term value.
Shares plummet
On Friday, Zynga's market cap stood at $2.28 billion. That's less than the
company's assets, including cash, receivables and real estate, which totaled
$2.7 billion at the end of the second quarter - and only marginally higher
than its assets minus liabilities, which stood at $1.86 billion.
A company spokeswoman didn't make anyone available for this story before
press time.
Zynga, the maker of popular Facebook games such as "CityVille" and "
FarmVille," went public at $10 a share in December. Shares peaked at almost
$16 in early March but have traded downward since.
Shares went into free fall in late July, after the company announced deeply
disappointing quarterly results. Its 1-cent earnings per share missed
analyst estimates by a nickel, and the company came up $12 million short on
revenue.
The core problem is user fatigue: People are playing Zynga's premier games
less and spending less on virtual goods such as digital tractors, guns and
cows when they do.
Drastic revision
But the extent of the company's challenges was laid out most clearly in its
outlook for the year. Zynga slashed its so-called EBITDA projections (
earnings before interest, taxes, depreciation and amortization) from a range
of $400 million to $450 million, to $180 million to $250 million.
Zynga said the drastic change reflected delays in new games, declining
engagement with existing games in part because of changes in the way
Facebook promotes apps, and reduced expectations for "Draw Something." Zynga
acquired that flash in the pan with its purchase of New York's OMGPOP for $
180 million in March, managing to buy at the peak of the game's popularity.
The revised 2012 forecast was particularly troubling to analysts because it
came after the company had raised annual expectations in its first-quarter
announcement. In fact, Zynga emphasized at the time that most of its growth
would happen in the second half of the year.
The wildly different assessment in a three-month period revealed a stunning
lack of insight into the state of the business - or something worse.
'A disaster'
Analysts pounded the company, using language of a sort rarely seen on Wall
Street.
Sterne Agee's Arvind Bhatia and Wedbush's Michael Pachter both called the
July announcement a "disaster."
Read more: http://www.sfgate.com/technology/dotcommentary/article/Free-falling-Zynga-needs-fast-turnaround-3796892.php#ixzz242J8EceQ