

Zynga falters in debut, sheds doubt on IPO market - jarek
http://www.reuters.com/article/2011/12/16/us-zynga-idUSTRE7BE26O20111216

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andrewfelix
This says it all:

 _"Zynga's near $9 billion valuation is less than videogame maker Activision
Blizzard Inc's $13.6 billion and higher than Electronic Arts Inc's $6.7
billion. In the last four quarters, Activision and Electronic Arts generated
more revenue than Zynga."_

Activision just brought in $1 billion for _one_ game, and EA Just sold 10
million of it's flagship title, while both their markets are expanding.

I think the value of social network based games has been somewhat inflated.

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blake8086
How sure are you? You can short the stock if you really believe that.

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knowsnothing613
The float is too thin to short. That is why all new web 2.0 IPO have thin
floats. It's easier for larger stake holders to push the price around, and
sucker in ma & pa, and momentum traders. But if you look @ ICI data, common
folk are getting out of equities. If you own risk in this market, going into
2012, you are a fool. There's a high probability of a financial collapse in Q1
2012.

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donkeymonkey
sounds like you got your economics degree from wikipedia

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jodrellblank
Please read "how to disagree" - <http://www.paulgraham.com/disagree.html>

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simonsarris
I don't think it sheds doubt on the IPO market.

I think it sheds doubt on Zynga.

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OllieJones
Maybe they just priced their IPO shares correctly for a change. When the share
price doubles on the first day, it means the offering price was too low. That
means Wall Street gets the money, not the company and not the pre-IPO
investors.

They could have priced it 40% lower, and seen a big runup. But this way the
company gets more working capital. That's good.

Maybe that's a positive consequence of Zynga's CEO's need to hang on to so
much control and equity.

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jarek
It always amuses me how the avowed capitalist tone of HN changes when it comes
to a start-up cashing out. I wonder why "Wall Street" getting the money didn't
bother pre-IPO investors and VCs in all the previous tech IPOs or stop them
from investing on the same terms again and again. After all, it couldn't be
that the same "Wall Street" later rewards those playing by its rules.

I'm very skeptical that all participants of this IPO, from the VCs to the CEO
and board to the underwriter, weren't on the same page regarding how the
system works and how IPOs work in this system.

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bitops
Is anyone seriously surprised that this is taking place? Zynga runs a business
that is, at it's heart, parasitic and predatory. Such businesses may enjoy
short term success but cannot be sustainable in the long run.

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andrewfelix
There are plenty of parasitic and predatory businesses making motser.

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ryanhuff
I don't quite understand the problem. Zynga's closing stock price reflects
what the market perceives its value to be at market close. Just because it
closed down doesn't mean that the market doubts the company. It simply
reflects a difference between what they priced it at and and the closing
market price.

You could say that this indicates that the bankers did a good job at
maximizing the value for the company, and not leaving money on the table for
an opening jump in price.

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suking
Problem is - bankers usually price it low expecting a decent pop to keep their
big clients that get IPO shares happy. So when one of the hottest companies
out there doesn't pop and with Groupon well below their highs - not looking
good.

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fauigerzigerk
I would agree with that if these were normal times. But the world is in
desaster mode, there's talk of depression, and we have a mini dot com bust
going on right now. I think, pricing an IPO for a pop in this environment
means leaving a lot of money on the table.

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dsl
The scam works something like this: The banks who back the IPO get the right
to sell themselves and large institutional investors (who treat the privilege
like being handed a giant bag of money) shares before they hit the market.
They buy these reserved shares, wait for the "pop up" in price as everyone
scrambles to get in on the IPO, and sell at a considerable low risk profit.

To put it nicely, Zynga or anyone else in their shoes, doesn't really decide
how much money is "left on the table." The adults are in the room, and they
are making the decisions.

Zynga didn't really "pop" like it was set up to. The banks who had rigged the
horse race to be a surefire bet, watched their horse break a leg around the
first turn. Sure they still made some money, but nobody involved in inking the
deal is looking forward to going into work on Monday.

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fauigerzigerk
Or maybe this story has simply ceased to be true because everybody knows it
and investment bankers have come under intense criticism for it. Google held a
dutch auction and still apparently left quite a lot of money on the table.

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pagekalisedown
Pincus dumping 100M$-worth sure didn't help. I hope the employees' options
were priced low enough.

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dwynings
My understanding was that Pincus wasn't selling any shares in the IPO.

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suking
He didn't - he sold $100mm in a private offering a while ago, not sure what
the parent comment is referring to - obviously has his facts wrong.

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cmcewen
This article has usage statistics which explain exactly why:
[http://www.forbes.com/sites/greatspeculations/2011/12/16/zyn...](http://www.forbes.com/sites/greatspeculations/2011/12/16/zynga-
goes-on-sale-on-first-day-out/)

"Empires & Allies, which was launched in June 2011, peaked soon after its
launch at about 48 million monthly active users and has seen a big decline
since. Currently, it has around 18 million monthly active users."

As andrewfelix said, none of the games Zynga makes has the same lasting
potential as World of Warcraft or Call of Duty. When each new COD title is
released, a large mass of gamers shift from one title to the next. There isn't
the same transition for Zynga, so none of the same virality.

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runako
> As andrewfelix said, none of the games Zynga makes has the same lasting
> potential as World of Warcraft or Call of Duty.

Financially, this needs to be adjusted for cost of production. I'll go out on
a limb and say that a Call of Duty costs vastly more to produce than Words
With Friends. It's entirely possible that launching 4 titles annually, where
each drops off to 18 million users is a good business. In another genre, id
Software was able to make a good business releasing essentially a single title
every 2-4 years, targeted at a small subset of male computer nerds. So
comparing e.g. WoW to Words with Friends may not be a valid direct comparison.

Without making a big judgement about Zynga one way or the other, I can say
that the social/Facebook aspect is just about distribution of their games.
That's just the channel, which also happens to be a good buzzword for pricing
the IPO at the top of the range. Zynga's business is casual games, which has
been a good business for quite some time. Remember all the pre-Facebook
articules on how casual gaming is letting companies make money by including
women in gaming? The Sims was often cited in this genre of coverage. But
again, I'd put hard money down that The Sims cost vastly more to produce than
Words With Friends.

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Karunamon
Knowing Pincus' history and the market they're in, I can't say I'm terribly
surprised. Having him manage a company I have any shares in at all would make
me awfully skittish.

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eekfuh
There is some real negative sentiment here, that I understand, but don't at
the same time. Yes, their growth is flattening, they've done some less than
honorable things in the past, but if you look at the big picture, they have
some great talent (which may or may not be leaving), they really haven't had
any prolific product failures or missteps, and they've made a solid name for
themselves in the gaming business. (I doubt many of their users or potential
users know about the stock option BS or their past with scammy offers)

I'm not saying Zynga is a clear winner, but what I am saying is, they are not
a clear loser.

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moocow01
You have a good point but to offer a counterpoint, their many problems
probably shine through or will shine through in other unpredictable ways. Its
almost like having a friend who has a problem they don't want to talk about -
after a while you start to notice some oddities. At the least, I would guess
that their reported on behavior will drive away talent from working there and
probably as a result the quality and value of their products will suffer.

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geuis
How does this surprise _anyone_? It made perfect sense a few years ago for
Google to go public. They had at a minimum a successful, growing business. It
was also clear that there was plenty of room to grow in the core business
(search) and that there were many other markets they could enter.

Zynga, to me, is like Groupon. Businesses with no clear foundation. Investing
in them is like investing in tulips in Holland in the 1630's.

I feel that if Facebook goes public, that will be successful. They offer
something very real, in connecting hundreds of millions of people and,
eventually, billions. If you're looking at growing markets, there's at least
3-4 billion more on the way in the next few decades. There's lots of ways to
build businesses around that.

Myspace would never have been successful in an IPO. On the surface, they seem
like they did the same thing. But the focus of Myspace was always wrong. They
weren't really about connecting people at the core. Facebook has been.

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tatsuke95
The surprise, to me at least, is that the stock dipped on _day one_ of
trading. Even us negative nellies assumed that Zynga would follow the
traditional arc: IPO, hype, price spike, slow fall into obscurity.

But, yeah, overall it's not really surprising. I'm a reasonably young man, but
I don't recall another IPO with so much hype _and_ disdain over the company
behind it. True, they're printing money at the moment, but that's slowing. The
obsession with "social gaming" will not disappear, but it will diminish. No
one knows what will happen with Zynga's relationship to Facebook. Combine all
that with the fact that Mr. Pincus doesn't come off as a very likable guy but
still controls the company, and, well...

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moocow01
Agreed but just a small quible - Zynga just recently became mildly profitable
- 25m on 500m revenue which is not exactly a stellar profit margin. So I guess
the analogy might rather be they aren't printing money or rather they are
printing money that immediately drops into a shredder. I agree though that I
would not get my money anywhere close to this place.

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OzzyB
Karma?

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moocow01
I and many others would probably like to say to Pincus "Karma is a bitch" but
I'm sure him becoming a billionaire, despite the lackluster response from the
market, would make that point kind of moot.

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staunch
But, but, we're in a bubble!

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tatsuke95
Are you implying that this underwhelming IPO somehow signifies that there is
or was no bubble? That messes up cause and effect: Zynga's IPO results don't
determine the bubble, the bubble brought us the Zynga IPO.

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staunch
Why would it require a bubble for a fast-growth company with hundreds of
millions in revenue to IPO?

