
Zynga Valuation Rises to Over $7 Billion - jamesjyu
http://online.wsj.com/article_email/SB10001424052748703515504576142693408473796-lMyQjAxMTAxMDEwMzExNDMyWj.html
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patio11
What is the fair valuation of a company which produces smokeless cigarettes
which don't cause cancer, are virtually immune to regulation, and don't even
require tobacco farms? Pretty high. Distasteful, but high.

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tomjen3
Why are you so angry at them?

If the cigarettes don't cause cancer and aren't dangerous, what reason is
there to ban them?

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patio11
I think you're reading something I didn't say -- I'm not sure I'm even on
board with banning the actual deathsticks (I could probably persuaded to go
either way).

I find Zynga distasteful -- and I say this as someone who has paid them money
because they push my buttons very successfully -- for social justice reasons.
Basically, I think their entire business model is targeting weak people and
extracting large amounts of money out of them in return for very little value.
It is no skin off my nose that I spent $150 -- I knew what I was doing and I
can make that much in my sleep -- but it distresses me to think about who is
actually paying $600 million a year. I rather suspect that comfortably well
off software entrepreneurs make up no significant percentage, and that more
vulnerable members of society are getting taken to the virtual cleaners.

There are quite a few businesses with similar models. I find them pretty much
universally distasteful. That doesn't mean I'd necessarily illegalize them.

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il
The question is, how does Zynga compare to Facebook? If they have huge growth
and half as many users and revenue, why aren't they valued at $25B?

It seems that, even for bubble Web 2.0 startups, Facebook is overvalued.

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Cushman
The quasi-fraudulent nature of their business may be depressing their
valuation somewhat.

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radicaldreamer
I think this is a biased reaction because of HN's nature.

While most visitors to HN aren't fans of Zynga's products, there are millions
of people for whom FarmVille et al. are large and truly enjoyable parts of
their lives.

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electromagnetic
Those people who like Zynga aren't the same people who are to invest in it.

Personally I would pass on Zynga because I know they're in a precarious
position. They're purposely addictive, which means legislation against it is
always a potential. They're hugely dependent on Facebook to supply its users
and Facebook will want more of that cash flowing right past them to someone
else, meaning FB could cut them off anywhere or at least take a chunk out of
their profits by forcing them to accept giving out a cut - which again if it
ever happened would set a dangerous precedent across the board for Zynga.

Then, I just flat-out dislike Zynga. They're a parasite, they steal other
peoples ideas and simply dump more cash into a game than the original creator
can and market massively within their own games to out compete the people
they're ripping off. They're like the mother of all leeches, they only win
because they can suck the cash out of everyone faster than anyone else and
that lets them grow and suck even more cash out of the next target they get.

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il
If there's a case study for how execution trumps ideas, it's Zynga.

"They only win because they can execute better than their competitors" is kind
of a silly statement to make.

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electromagnetic
If you word it like that, yes it sounds silly. If you word it like the truth
that a $7 billion company can execute an idea better than the $0 dollar
startup in a teenagers bedroom they just ripped off, then Zynga looks like
what it really is: an uncreative bootleg factory.

The funny thing is, Zynga can't execute better. Their knock off games usually
have inferior graphics and worse gameplay mechanisms, but they can exclusively
advertise to everyone on Farmville and make the original developers look like
the knock off.

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jacques_chester
My gut feeling -- without delving into the numbers -- is that this is a
sensible valuation based on future earnings. Zygna are in a similar financial
position to a casino. They make money based on addiction and those sorts of
money flows are relatively predictable into the future.

Their major problem is that Facebook is an uneasy partner. Zygna make far more
per-user than Facebook do and if they could, FB would almost certainly cut
them out tomorrow.

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cjlars
The numbers: WSJ reports $400 million in profits on $850 million in revenue.
$7 billion puts them at a 17.5 p/e ratio, or about in line with 3M, Pepsi and
McDonalds. Netflix and Amazon, by comparison, are trading at a p/e of over 70.
Facebook is around 50. Activision Blizzard - 34. Electronic Arts has about
$3.6 billion in revenue, is losing money, and is valued at about $6 billion.

I'd say it's fair compared to the rest of the market.

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jacques_chester
P/E is a good start and theirs looks good next to the others you listed. But
I'd be more interested in profit-per-user and profit-per-employee.

I think they had 200 million unique players, that puts profit-per-player at
around $2/year. With 1500 employees it's ~$266,000 profit per employee per
year. Very respectable, given that Google gets around $120,000/emp/year.

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cjlars
I agree and I'm not entirely sure that the company can sustain the same level
of profitability, given the fickleness of gamers.

My big worry is that their profit margins return to industry average levels.
There's plenty of reason to believe that they would earn closer to 5 or 10
percent vs. the ~%45 they currently get as time goes on. In that case, the
company needs to grow to several billion dollars in revenue and become one of
the largest game publishing companies in the world to support this valuation.
I'm not entirely sure I see that happening for Zynga.

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jacques_chester
I'm not so sure. Zygna's model is less like conventional computer games (once-
off payment or lately recurring payment) and much more like slots machine
gambling. People get a little rush from their pointless achievements _and are
prepared to pay for it_. Given that the product has almost zero distribution
costs, I expect profits to remain high.

Even competition is going to struggle to bring down those profits, because of
the same network effects Facebook now enjoys over competitors.

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tmekjian
Fully agree with this valuation. They are similar to Groupon in that they
actually have REVENUE! When you talk about the "bubble" it is really referring
to the astronomical valuations of companies that have no current revenue and
no long term model of making money other than "advertising."

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Charuru
Uh, Zynga has been mostly advertising for a long time. I don't know the ratio
now but I would not be surprised if it's still the majority of their revenue.
Advertising is also money you know.

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knowsnothing613
This makes no sense @ all.

The entire virtual currency market worldwide is 5B.

So Zynga is valued at 1.4 times the global annual sale for virtual currency.
One company! That's insane, and makes me question who's still pumping up Zynga
on second market.

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electromagnetic
From what I've seen in company valuations is that they (very) generally hit
10x revenue, at least for well established companies.

Last I saw Zynga was posting $600 million revenue, which lands Zynga at around
$6 billion from the last figures I saw.

