

ZNGA down 35% on surprise loss. - drinkzima
http://blogs.wsj.com/marketbeat/2012/07/25/zynga-posts-surprise-loss-shares-down-more-than-30/?mod=yahoo_hs

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jfb
Good riddance to bad rubbish.

~~~
xianshou
That comparison is insulting to rubbish.

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sp332
Just out of curiosity... How does a software company with >$300MM in revenue
lose money? Is it spent on people, hardware, advertising?

~~~
rokhayakebe
Beagle3, James33 are you saying their model is not sustainable? Do you think
they would be afloat or keep loosing money were they cut their marketing
expenses significantly?

~~~
fallous
I'd say it's not sustainable since there is a limited lifetime value of a user
in their game space. In order to continue increasing revenue you must grow new
users at a rate that exceeds the loss of existing or prior users that have
aged out of that phase of "spend money in game."

I suspect that Zynga IPO'd near the top of their possible revenue and without
the ability to constantly acquire new users and/or re-engage previous users
who have moved past spending money in-game they are going to decline over
time. Even if they establish a stasis between loss of user revenue vs new
revenue their share price will have to drop since the P/E multiplier would be
that of a matured company rather than a growth stock. Share price would be
discounted accordingly.

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cletus
Honestly, it couldn't happen to a more deserving guy (Mark Pincus). I say this
after his extortion racket last year [1]. These kinds of antics (and I include
the Skype clawback scandal [2] in this) threaten to undermine the tech
industry as a whole.

But as far as Zynga goes, I see these "social games" as largely parasitic and
should be regulated in much the same way that gambling is for much the same
reasons. Zynga is struggling in a world where such gamers are going
increasingly mobile.

Zynga is a proxy for Facebook because Facebook's near-term revenue sources are
essentially:

1\. Facebook credits; and

2\. Display advertising.

(1) explains the correlation with Zynga. Apple is really drinking Facebook's
milkshake here.

And I remain skeptical about the value of (2). I continue to believe that
people's behaviour builds a better profile of what they want than what they
tell you (ie look at what they do rather than listen to what they say).
Facebook profiles reflect the human predilection for lying--to oneself and to
others--about who they are and who they appear to be.

Don't get me wrong: Facebook could be a valuable display ad property. That
just doesn't, by itself, make a $100B company.

You can count me as one of those that'll dance on the grave of Zynga however.
The same goes for Groupon.

EDIT: regarding "parasitic", I refer you to Zynga's notion of "whales" [3]
[4]. As much as Zynga might publicly state that these people might just be
rich, I think they well know they're preying on those who are largely without
self-control, intentionally cultivating addictive behaviour.

Some are OK with this. I am not. I see this as no different to encouraging
gambling or drug addicts. YMMV.

[1]:
[http://online.wsj.com/article_email/SB1000142405297020462190...](http://online.wsj.com/article_email/SB10001424052970204621904577018373223480802-lMyQjAxMTAxMDAwOTEwNDkyWj.html)

[2]: [http://www.businessweek.com/technology/silicon-valley-
wakes-...](http://www.businessweek.com/technology/silicon-valley-wakes-up-to-
clawback-culture-06292011.html)

[3]:
[http://articles.businessinsider.com/2012-02-06/tech/31028725...](http://articles.businessinsider.com/2012-02-06/tech/31028725_1_social-
games-social-network-engineer)

[4]:
[http://articles.businessinsider.com/2012-03-05/tech/31123148...](http://articles.businessinsider.com/2012-03-05/tech/31123148_1_of-
zynga-facebook-games-mafia-wars)

~~~
larrys
"I see these "social games" as largely parasitic and should be regulated in
much the same way that gambling is for much the same reasons. "

Do you mean to say "addictive" or do you really mean parasitic?

Both "social games" and "gambling" are addictive. In both you can loose money.

But there are other things that are addictive that you can loose money in as
well (stamp collecting, art collecting, buying and building model helicopters
(great fun btw)).

Where do you draw the line with this?

In any case if you did mean parasitic could you explain further?

~~~
jlgreco
Nobody engineered the hobby of stamp collecting to efficiently separate
addicts from their money.

~~~
larrys
The stamp collecting was tongue and cheek.

But the truth is companies make many products to separate "addicts" from their
money. Women's clothing, electronics, fancy cars, women's shoes. Or take QVC
or HSN. You don't think that the nature of business in general (or food
marketing I mean the list is endless) is engineered to separate people from
their money? (Food obviously is really addicting no question about that).

All off these things share the same thing in common. They engineered and
perfected to get you to spend money or something that gives you enjoyment.
(It's not food though it's a certain type of food. Nobody is getting addicted
to broccoli or boiled potatoes. Fried chicken or Lay's potato chips or things
with MSG? Very possibly.

Obviously not every example I've given has the same degree of addiction.

~~~
jlgreco
I hope you realize that there is quite a difference between simply wanting or
liking something a whole lot, and being addicted to something.

KFC does not seek to prey on the (hypothetical) few who are so addicted to
fried chicken that they lose their families, sell their valuables, lose their
careers, and sell their bodies to get another fix. They "prey" on people who
_like_ their product.

Real addiction (not your perverted sense of "addiction" being merely liking
something intensely) is a hypothetical _side effect_ of the businesses you
give as examples. For the gambling industry and companies like Zynga, it is
the _business model_.

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guyzero
Our main weapon is facebook users and dedicated social gamers. Our two main
weapons are facebook users, dedicated social gamers and micropayments. Our
three main weapons are... I'll come in again.

~~~
xianshou
Nobody expects the underwhelming earnings report!

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staunch
I think they _may_ turn out to be a very good long term bet. Pincus is quite
directly attempting to mimic Bezos' strategy with Amazon. He's in control and
he doesn't care (much) about the short term stock price.

Zynga is in the best position to profit from the rise of social/casual gaming.
It may take 10 years but they could quietly grow into the behemoth of gaming
the way that Amazon did in shopping.

~~~
potatolicious
Bezos has a product that has incredible staying power and enormous
infrastructure and capital-intensive advantages over its competitors, making
it very, very hard to clone. Many have tried, all have failed.

Zynga, in comparison, does not. A 10-person team can execute just as well as
their behemoth of a company, and that makes their market a hell of a lot more
competitive than online retail.

> _"Zynga is in the best position to profit from the rise of social/casual
> gaming. "_

Zynga is not casual gaming. PopCap is casual gaming. Nintendo is casual
gaming. Rovio is casual gaming. Zynga is gambling under a thin veneer. Zynga
is "social gaming" in the way we've redefined it in the last couple of years.

And even there, I'd argue the "rise" of social gaming is already behind us.
Remember when _everyone_ was playing Farmville? Like, _everyone_. Now, it's
completely dropped off the mainstream consciousness. Sure, they have plenty of
players still, but it's a sharp decline in mindshare from just two years ago.

The world had its turn at the "glorified slot machine" formula, and most
people have moved on. I heartily argue that Zynga's best days are already
behind them, short of pivoting into a wildly different formula for social
gaming.

~~~
felipemnoa
>>Remember when everyone was playing Farmville? Like, everyone.

I must be really out of touch. Don't know anybody who plays or has played
Farmville.

~~~
calinet6
There was a time when it was actually popular on Facebook, and many people
were playing it, including myself for a time.

It just got old. You can't spend that kind of time on a single game forever,
and since a significant part of its value was social, once friends stopped
playing, everyone stopped playing.

They were right to buy Draw Something and WWF, because that is truly what
everyone is now playing. But that's all it is—that's just what they're playing
_right now._ Unless they can innovate and come up with or buy a new concept
and monetize on it quickly, they're truly screwed. The popularity cycles of
these things are measured in weeks or months at most. And it's hard to keep
doing the same thing over and over again—it's not a business model I would bet
on. The stock price reflects my opinions quite nicely here.

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drinkzima
From quarterly report: As of June 30, 2012, cash, cash equivalents and
marketable securities were $1.6 billion

This is out of their current market cap of ~2.5B. Facebook down 7% after hours
too. Honestly looks like an over-reaction that shows investor worries about
new business models.

Dangerous time trying to exit a social gaming company methinks.

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beedogs
"surprise" loss? I guess a lot of people are surprised by things that seemed
obvious to me. Zynga's userbase consists of fossilized shut-ins who don't know
they're wasting money buying virtual trinkets online. As they die off, their
revenue stream will too.

~~~
nandemo
As far as Zynga stock owners and traders are concerned, it is by definition a
surprise. If the loss had been expected then the price would have gone down
earlier.

Alternatively, one could argue "hey, I knew that a large loss was possible,
but consider that a large unexpected gain was also possible, so the price I
paid last week as fair". In any case, the loss was not certain.

~~~
nandemo
(typo. I mean "so the price I paid last week _was_ fair")

