

OMGPOP Draws Zynga’s Daily User Traffic Up By 25% - landonhowell
http://techcrunch.com/2012/03/31/omgpop-draws-up-zyngas-traffic-a-25-increase-in-total-daily-users/

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nextstep
The article buries that caveat about how many players of Draw Something also
play Words with Friends, etc. I would guess it's a significant amount. I play
both games, and many of the friends I play with are playing both too.

So, inaccurate headline with a rather speculative article to follow.

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RichardKim
So when is Zynga's traffic going to normalize? Most of the guys I know have
already stopped playing the game.

I was actually thinking, what about creating the same game except only
obscene/explicit/offensive adult drawings & word choices? There should be
plenty of immature people wanting to play the game with their immature
friends. I would : )

I read the rules on the Apple app stores and it doesn't seem promising to
obtain approval. If someone knows how to find a loophole into getting it
approved, please let me know!

BTW. I think everyone is valuing Zynga incorrectly. Wall street guys and VC
guys alike are looking at Zynga with an incorrect model just like all the
street guys built incorrect assumptions in their models for housing before it
popped.

People should be valuing the company on a risk-adjusted long-term discounted
cash flow basis (similar to an early stage pharmaceutical company) mixed with
sensitized accretion/dilution models as these companies have to continuously
go on acquisition sprees if they do not organically produce good games... But
at one point or another, they're not going to create cool games / there won't
be another OMGPOP available to buy OR what they bought cools down faster than
what they envisioned; and that "RISK" is not currently priced in today's stock
price.

Hot games come and go over time but with very little visibility to know when
it'll get cold. So what would happen if I was able to create OMGPOP2 - adult
version and somehow it was approved and got crazy popular taking market share
from the original game. Then Zynga just wasted a lot of the 200m they just
paid for (I heard it only makes 200k a day on ads)... that's a long ways to go
to make up that 200m watermark to break even, taking into account fairly
strong growth...

GG.

~~~
orijing
If it really made 200k a day on ads, that's 73 million a year. That would be
crazy if true and would justify a 200m valuation.

~~~
RichardKim
True statement. But only if the analysis was that easy... Yes, if that can
continue but the 200m valuation is much more complicated than applying a 3x
multiple on 73m earnings.

You have to model out and do a churn and fatigue analysis to get to your top-
line volume potential over time (meaning, games like this for example, my
friends who used to play 3 hours a day now play 30 minutes a week or just
stopped playing... this is in a span of 3 weeks of playing!). What goes up can
go down. Of course Robryan makes a great point about potential synergies but I
would imagine synergies can't be that great. Who plays these games that
haven't played angry bird or other zynga games? Only a subset of the
population would be incremental new users.

What is the average churn rate per week/month? What is the avg user's playing
time per month and trend (trend should go down over time) and one or both of
the variables drop by 25-50% more than offsetting any new users added. Then
that 2-3 year payback period to break even now turns into 4-5-6 years. So then
would this game be still popular at all for that many years? Maybe. I don't
know.

What I was pointing out was if somehow some new drawing game like my absurd
example becomes more popular over the next 2-4 years then it's got a lot more
binary risk embedded in that 200m valuation that most investors are not
thinking about or priced in.

Now, I don't know how many people are paying members v. ad members. That may
help / not help their case.

Hope that clears up any lack of clarity that I provided in my previous post!

