Zynga About to File for IPO | Hacker News Reader

Zynga About to File for IPO

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61 pointsignifero66 comments

At some value in excess of ten billion dollars? I won't be buying.

Sure, they're making huge profits right now. But prices should reflect future earnings potential, and what are they going to be doing in ten, twenty, thirty years from now?

They were the first folks to stumble across the secret of making addictive social games. But I see these as a fad, not a long-term trend. There's only so many variations on [ * ]ville you can play before you get bored of it, and only so many times you can be talked into spamming all your friends.

Sure, maybe they'll keep on adapting and having hit after hit. But what are their real advantages? A few programmers who sort-of know how to make a sort-of good game, and some rather nebulous slice of social graph. Compare to some game publishers who have a lot of experience in making many profitable games instead of a little bit of experience making a couple of variations on just one:

Activision/Blizzard: $12.87 billion

Electronic Arts: $7.75 billion

Take Two Interactive: $1.38 billion

If it's 1967, you might want to buy RCA Records, but you don't want to buy The Monkees. The record company can keep on adapting to changing fashions and business conditions and will keep putting out hits for decades to come, but the band will have a brief revenue spike and then vanish.

I think your argument is that Zynga, essentially being a video game company like the other three you mentioned, can innovate itself out of the -ville space once people start getting bored out of it. While this is certainly possible, we haven't seen any hint of innovation from Zynga remotely at the level of Blizzard, etc. This makes their long term prospects questionable, and thus I would be wary of their IPO.

I also would be extremely wary of a company that is so reliant on a fickle third party for its very existence. Unless of course all this Zynga exuberance is at the prospect of a Facebook buyout...

My argument isn't that they can, it's just that they'll have to. I don't see any particular reason to suppose that they actually will, though, and that's why I personally wouldn't touch this deal with a ten-foot pole.

Unless of course all this Zynga exuberance is at the prospect of a Facebook buyout...

Does facebook have enough cash to buy Zynga at these valuations? I doubt it. (But they do have programmers who could clone Cityville in two weeks, and the ability to ban Zynga from their system with a few keystrokes if they felt like it...)

Another thing relevant to your argument is the brand value of the companies you mention. People initially buy Blizzard games, because they are Blizzard games.

Will it ever be possible for a company like Zynga to do the same? I generally find it hard to promote the company brand in browser- or mobile-based games.

Zynga has proven their ability to cross-promote new games to their existing userbase again and again, most recently with FrontierVille and CityVille (although these games were - and still are - also bolstered by extensive advertising through Facebook ads, CPI campaigns, etc). They currently run 3 of the top 5 apps by MAU - CityVille, FrontierVille, & Texas HoldEm Poker, at about 90MM, 46MM, and 35MM MAU respectively. Even their "customer loyalty" Facebook Connect site (RewardVille) is a top-25 FB app (about 25MM MAU).

In my own experience, it's also the only FB games company that most laypeople (people who neither work in tech/social games nor play Facebook games) recognize.

It's hard to say whether they'll ever achieve the stature or reputation of a Blizzard, but I can't even think of many traditional game companies that enjoy the same type and intensity of customer loyalty that Blizzard does. Maybe Valve? Very few people buy every EA title but the Madden franchise has incredible loyalty... where does something like that fit into a comparison like this?

The thing with Zynga, is they have zero innovation and zero IP capital. You might as well invest in a chinese ripoff and it would be the same. Sure they make tons of profits but they will never earn my respect. They stole everyone else's ideas, continuously spammed and manipulated their users, and did every horrible trick in the book. That's not hacker attitude; that's borderline criminal. To illustrate, here is a post in facebook's forum from Pincus himself, trying to make excuses for gambling ads they'd been running on games: http://forum.developers.facebook.net/viewtopic.php?pid=12983...

I would buy. I would sell before the end of the day though.

IMHO, Zynga's moto should be "There's a lot of money in stupid".

I'm not saying that they're a paragon of virtue or anything, but if you don't have respect for Zynga's abilities then you're missing some really valuable insights. Sure, they "ripped off" the idea for almost every game they've ever made, but as many commenters here love to point out, it's not just the idea that matters, but the execution (setting aside for now the point that everyone steals ideas - remember when those jerks at Google "ripped off" the idea of a search engine?).

Zynga didn't just make another farm game, they used their familiarity with FB's viral channels to make it the biggest silly little farm game on the platform. Then they turned around and used that audience as a springboard for a number of other games that, while derivative, were simply the strongest distillations of their respective types.

I get it, everyone loves to hate Zynga, but the fact is that they are really good at what they do, and lots of people out there enjoy their games.

As an indie fb game developer, i 've been following zynga over the years. Their spam tactics were the reason that facebook started changing their platform policies every month. Zynga took advantage of the fact that facebook at the time was not enforcing its app policies (remember forced invites?) so they maxed out their reach by using shady tricks and consistently breaking or bending the ToS. I remember me and other devs complaining to facebook for months and nothing was ever done. When facebook started limiting viral channels, zynga was already too big to be touched.

In the process, they destroyed many indie developers and the fear of being wiped by zynga is still everpresent. Personally, i find it hard to love anything about them, even after years. I 'm not jealous of them or their profits, but i find it hard to wish them "good luck". Maybe if they had started their own social gaming network i'd give them some credit. Zynga is still a parasite on facebook.

Here is a relevant answer from a former facebook engineer: http://www.quora.com/Will-Zynga-leave-Facebook

Here's them posting fake reviews of their games: http://forum.developers.facebook.net/viewtopic.php?id=41577

I 'm not jealous of them or their profits

Y'know, I think it's perfectly legitimate to be jealous of their profits.

The thing with Zynga, is they have zero innovation

From a technical perspective, that's true. The innovation is the application of psychology to extract money from their customers via software Skinner boxes. Arguably evil, definitely profitable.

But still hardly innovative behaviorism

It's hard to believe a company that only a couple of years ago was relying on scammy CPA deals to float itself and mostly churns out formulaic gamified skinner boxes for facebook users is looking at a public valuation north of $10B. I've been wrong plenty of times before, but I certainly won't be a buyer here, especially considering Eric Tilenius' comments last week that an appreciating IPO is a sign of a poorly priced IPO. Given lofty private valuations compared to existing gaming properties, the apparently opportunistic timing and a stated propensity to price at the top of the market it's hard for me to believe Zynga will even manage to keep pace with the S&P.

What Zynga, Facebook, LinkedIn, Groupon (and other current hits) have in common is that they have found a way to serve customers all around the world. How many business can really do that? It's easy to underestimate them because we forget to multiply the value created times 6 billion (or whatever the current world population is).

Groupon isn't reaching people like Zynga, Facebook, and LinkedIn can. Those three sites are, at their core, web-based through the entire business.

Groupon requires sales people linking with local businesses to offer coupons. Groupon cannot scale like those other companies. Anyone in Uganda can access Facebook by just going to Facebook.com, logging in, and start finding people. The same people in Uganda can look at the Groupon site, but they'd get no use out of it because the coupons aren't local.

True - but a sales office is all they have to add. There's no shipping of inventory that Apple or Honda have to deal with.

Zynga has already innovated outside of the ville games, since Farmville was their second big hit after Texas Hold'em. Texas Hold'em is still ranked 4th[1], and if you look at who the developers are of the top games, Zynga completely kills the competition.

They were not the first company with simulation games either, which suggests that they have a secret formula figured out for how to build and market these games. The restrictions Facebook places on viral marketing hurt everybody else and only put Zynga further ahead.

As for IP, the reason why Pincus is a shareholder in Facebook, along with Reid Hoffman, is because Facebook licensed social networking patents from him. He has been in the field for a long time, long before the mainstream press was hot on 'social', and he has significant IP holdings in the space, which are with Zynga.

The other companies you point out are now being prices in the same way music and movie studios are - ie. as hit-based businesses. Gaming budgets have become so large, and so much of it is tie-ins and licensing, that for each of these companies it is one or two big hits or franchises plus dozens of big misses. They are all big, large and inefficient companies - again, no different to the music and movie studios.

The only one of the three performing well is Activision, and that is mostly because of the recurring revenue from the Blizzard merger. Prior to that they were also in a lot of trouble (at the time of the merger they were worth $18B, now $12B). EA has been bleeding money for years and unsure what to do - even their big old hits such as Guitar Hero and the FIFA franchise are costing them money. Take-Two hasn't made a profit in 3 of the past 4 years, and is currently valued at less than the revenue it receives from a single release of GTA - so the market has no confidence in them at all.

It is actually the traditional gaming houses who are having trouble producing constant hits. If Activision lost World of Warcraft tomorrow they would be in a world of trouble. EA and Take-Two already are. The virtual goods market is showing no signs of slowing down, $2B last year and growing at 50%+. This is as big a shift in the gaming market as arcades to consoles was, with EA being the only one of the three making a decent effort in the new market (4th largest, but almost 10 times smaller than Zynga)

Zynga, which represents the 'new model' is over 1,000 employees (vs 7,600, 7,600 and 2202 respectively) and near $2B this year in revenue (vs 4.47B, 3.5B and 0.7B respectively), and while there is a chance that their valuation will enter over-blown territory, there is little doubt that they are absolutely killing the old gaming companies atm. It might not be Zynga that is #1 in 10 years time, but it will be somebody - and atm nobody is even challenging Zynga in this space - but you seem to be arguing against a shift that is by all accounts very real.

Edit: and on the issue of Hold'em - with the government shutting down the online poker sites in the USA it has seen a spike in play, which means it will be in a very good position if UEGA is repealed or if poker is found by a court decision to not be gambling.

[1] http://www.appdata.com/

The only innovation zynga did was changing the logos of other games (Farmville=Farm town, mafia wars=mobwars, cafe world=restaurant city, it's as if there's mass brain damage in that company and they can't come up with a single original idea). They are also among the most aggressive game euthanizers: they have shut down all their games that did not generate tons of cash, much to the chagrin of their players.

Let's not forget they have an exclusive agreement with facebook, the terms of which we don't know; not a very fair advantage.

Also, zynga and old gaming houses have different audiences, so i 'm not sure they're killing anyone

I think what you're saying is that Zynga is so good at business it succeeds fantastically despite its products. That translates to a great company in Wall Street terms.

Look at McDonalds. McDonalds certainly didn't invent the hamburger. McDonalds probably never made the best hamburger. But it sure as hell found a way to make money off hamburgers like nobody before.

Those other companies, those are the less capable small fries with handfuls of loyal customers while Zynga is busy expanding its empire to every street corner.

That's a good analogy. But McDonald's has a couple of huge advantages that Zynga doesn't.

The first is physical space - they are omnipresent. On the internet, everyone can be everywhere. The second is branding. People know FarmVille. Do they know Zynga? Probably not.

In Zynga's market, anyone could release a great game and have a massive success with little investment. McDonald's has serious momentum; it's utterly impossible to imagine a scenario where a competitor shows up and quickly puts them out of business. Same thing applies to Facebook. Does it apply to FarmVille? Again, I'd say no.

If you see this type of game as a fad, or a mere precursor to much better games that will be offered for the same price (free), Zynga's position is quite precarious.

The fact that people know Farmville, but not Zynga, doesn't actually mean much. Zynga has been able to shuttle players on to new games and releases very successfully just from advertisements in their then-current swath of properties.

You could play their games and probably never give two shits about the company behind it.

Yeah, but how long can they really keep that up? You can shuffle people from Sim-farm to Sim-town to Sim-restaurant to Sim-space-station to Sim-mafia to Sim-factory-that-makes-little-models-of-factories but someday they're gonna stop paying attention. Games come and go, game genres come and go on a somewhat longer but still finite timescale.

I'm not debating you on that, since I agree with you. I simply wanted to point out the issue with your point about people not knowing Zynga and that possibly being an issue for them (i.e, it's by and large not).

Even if people knew Zynga I get the sense it wouldn't make a huge difference; their games aren't quite immersive enough to inspire the type of brand loyalty you'd see with Nintendo/Blizzard/etc.

I hate analogies, but i have to note that McDonalds invented the fastfood business. Zynga has shown inability to demonstrate innovation and acts opportunistically. If they shut down today, they 'd be instantly replaced by other existing social games. "A business that makes nothing but money is a poor business".

That's just the view i have of them. It would be nice if we could have the opinions of a Zynga employee.

> McDonalds invented the fastfood business.

It can be argued that Zynga invented the new freemium and social gaming model - ie. pay for the entertainment you get. They also pioneered a lot of the marketing and the in-game viral aspects.

This is why they can release average or even clone games and still find hits - in the same way McDonalds can release a bad burger but because of their model still be a success.

No, no and no. Games like mob wars, farm town etc had these features already. If they pioneered something, it's "pushing facebook's communication channels to their limits"; I honestly cannot remember anything else.

To be fair with the analogy, McDonalds did not invent fast food. Drive ins and walk up fast food burger joints were everywhere before McDonalds started.

McDonalds just took efficiency to a whole new level. It used processes that pushed modern cooking equipment to its limits and invented a few new tools to fill the gaps. One store could serve and reach so many more customers every day for so much less than the competition. Combine that with repeatable best practices and an expansionist vision and you've got an empire.

By the same analogy, Zynga took that same social game model and jacked up conversion rates to the max. It pushed social networks to the limits and invented new tools to fill the gaps. It got more money from each user and had more users than anyone else. It took this formula and repeated it again and again with an expansionist vision.

Mob wars, farm town, etc looked the part, but the way those businesses operate isn't in the same league. Talk about physical presence, Zynga has multi-millions of users in 100% Zynga owned virtual real estate every day. All it needs to do is mention a new game to its millions of users and that game has an instant million user base. For a no-name competitor to do the same would require millions in marketing or a miracle.

I would normally chime in but this thread feels like a witch hunt with a lot of people who don't know what they are talking about pretending to be experts.

"People who don't know what they're talking about pretending to be experts" pretty much sums up Hacker News.

having an opinion hardly makes one expert

World of Warcraft is an Everquest knockoff. From an investment perspective, I am mixed about whether Zynga's lack of originality is a positive or a negative.

"It's not who does it first, it's who does it second."

Zynga has already innovated outside of the ville games, since Farmville was their second big hit after Texas Hold'em.

Texas Hold 'em is a pretty minimalist form of "innovation". Take a popular card game and put it on facebook? Brilliant!

The virtual goods market is showing no signs of slowing down, $2B last year and growing at 50%+.

This is exactly what I don't believe can be sustained. There's only so long that people are willing to keep buying things that don't actually exist (hey, speaking of which, we haven't had a bitcoin article in a while...)

It might not be Zynga that is #1 in 10 years time, but it will be somebody - and atm nobody is even challenging Zynga in this space - but you seem to be arguing against a shift that is by all accounts very real.

Lots of folks are challenging Zynga in this space. Any one of 'em could have the next big hit, the thing that grabs the attention of a bunch of kids bored with clicking on cows... something with gameplay elements that are actually fun -- a game rather than a Skinner box.

> There's only so long that people are willing to keep buying things that don't actually exist

The same argument was made about digital music, digital movie distribution, etc. ie. people want to buy 'real' things. All that virtual goods means for Zynga is that they have established a freemium model for gaming. It has come full circle from the shareware days - where the first x levels or episodes were free while playing the game further and deeper involved paying for it.

It means that gamers no longer have to pay out $50-100 for a game that they might not even enjoy, it gets a lot closer to paying for the direct entertainment the user receives.

Agree to that, the virtual goods economy is here to stay.

Zynga, FB, Groupon are the big ones besides LinkedIn... who else? I've heard Twitter, but perhaps they won't yet, they have a huge valuation but little in the way of a business plan. I've also heard Yelp and Pandora. Anyone else?

Seeing how well LinkedIn did, I am very tempted to try and daytrade these stocks, buying at release then selling about lunchtime.

I'm only interested in trying it with about $200.

This would be my first time trading. Does anyone know which service would be good for this? ETrade?

With $200 you will not have the ability to purchase shares at the IPO price (or if it's anything like LNKD anywhere near the IPO price).

You can't really daytrade with $200, most brokers require at least $1000 to start an account. You'll also be limited to 4 or 5 roundtrips until you get dinged by an SEC rule that limits day trading to accounts with at least 25k equity and margin capabilities.

Don't start trading with an IPO stock or anything that's bound to be volatile, it's just a bad idea in general.

Bummer. My Get-Marginally-Richer-Very-Quickly scheme is ruined!

It's really for the best. Trading like that it's much easier to end up on the wrong side of than it appears from the outside. Take that $200 and put it in a roth ira or similar - you 20 years from now will appreciate it.

This is generally good advice, but I'd point out two things:

1) It's only $200. Even the most conservative investors will often put aside 5% or 10% of their portfolio for active investing.

2) 10 years ago, the S&P 500 was around $125 a share, and is now about $130. If we have another decade like that, $200 invested in the S&P 500 10 years ago will be a whopping $216 after being invested 20 years -- barely keeping ahead of inflation.

I agree it's not always good advice, but I do think it's good advice for someone without investing experience and of limited means when they ask about day trading a stock on its IPO day. You can of course actively manage your investments in a roth just fine, but cap gains don't incur a tax liability.

This infographic is so good I just can't resist whipping it out every time it's even remotely related to the conversation: http://www.nytimes.com/interactive/2011/01/02/business/20110...

Fantastic link, thanks! I'm amazed that money invested in 1928 was negative in real dollars if withdrawn in 2011. It's also interesting how devastating inflation can be -- notice how the great depression and the dot com bubble look mild compared to stagflation in the 1970s.

the easiest way is to find a CFD provider. It is like trading options with large leverage except that it is a contract with another party. CFD's are also a lot more expensive than the usual derivatives, but are a lot easier to trade and are a lot more accessible (you have two buttons to press and a chart)

When you open an account, they will start you on a 2:1 or 10:1 margin, and over time you can have this increased. You will need to link a source of funds to the account, and they will ask you a lot of questions in setting up the account.

You will likely blow the entire $200, but it will be a fun learning experience. The large trading firms out there have algorithms that look for trades just like the type that you will be making, and they intentionally shift the price around with large orders (that usually are not completed) in order to wip out your position.

Google up about it and read as much as you can. It is a dirty industry - many affiliate marketers who make good money sending new users to one of the large trading sites, which can afford to make large affiliate payments because they make a ton of money on these trades.

I have accounts with three different providers, and I get decent rates - but I opened the accounts ~10 years ago in one of the only jurisdictions where it was legal at the time, and had to lose a bit of money and establish a good relationship with them before they would give me a decent spread, interest rate, price, margin and access to some stocks etc.

Chances are if you open an account now they won't give you access to LNKD or Zynga and only the top ~30 NYSE and NASDAQ stocks until you have some trading history. post-IPO isn't the best time because you have a lot of latent demand to enter the stock from indexed funds and others - so you might want to wait for it to settle

I became disillusioned with it all since it is an insurmountable task. better to find stocks and companies you believe in and go long by buying them up on margin

Edit: forgot to mention that minimum deposits are usually $10k, but that might be different now. there is currently no traditional options market for LNKD, but there will be soon

tl;dr: google for CFD providers, game is rigged, watch out

At best, it would cost you $7 to buy and $7 to sell in commission fees. That means $14 round trip or 7% of your initial investment just to break even.

Respectfully, the above is a very basic concept. Not knowing that means you're new to investing. In that case, don't even think about day trading until you've had many years of investment experience. Even with that, people still get killed day trading.

It was sorta obvious after the success of LNKD last week that they were all going to pile in now. Profitable and related to social? By all means, after you..

Somebody had to test the market out.

If LNKD hit $12B then Zynga will hit .... a lot more.

What makes you think so (the balance sheets maybe?). I think it's gonna be a hit-and-run.

Zynga has 5x the revenue of LinkedIn and will likely file already showing 30-40% net profit.

But what about long-term value? It may hit tens of billions the first day, but what happens in a few months?

Most people will be thinking: "who cares."

I like it when that happens, it creates an opportunity for those who do think ahead to profit.

I don't usually dabble in options, but if Zynga is at some crazy valuation shortly after the IPO then I just might acquire some long-term puts. (Or is it calls? I forget, I don't usually dabble in options...)

the barrier of entry to derivatives is simply knowing what they are, which thankfully is often high enough for most people not to face a margin call and lose everything

Puts, but I don't think you'll be able to. Type LNKD into finance.yahoo.com and notice how the options tab is greyed out.

When the economy picks up again it will likely go on for a while. Zynga built a multi-billion dollar business in a recession.

I wouldn't go short on either of those stocks, especially considering how much demand there is in the public markets for something new. We are witnessing a 5-year backlog of public listings

I wouldn't dismiss the idea that Zynga is only popular because of the recession. After all, their userbase is the same as the daytime soap opera watchers - people without jobs.

Revenue schmevenue. I'm not one hundred percent sure about LNKD, but I'd rather own them than Zynga any day. Linkedin has the potential to create something really valuable, if it manages to do for networking-among-colleagues the same thing that Facebook has done for networking-among-friends. They're not quite there yet -- it seems that most people I know have a linkedin account but barely use it -- but if they start providing people with a reason to look at linkedin every day then I think there really are prospects to turn that into a lot of money.

But Zynga? Well, my comments on the long-term prospects of Zynga are elsewhere in this thread.

Go public before people get bored with social networking as a whole! I think that's what we are seeing now -- people actually seeing a slowdown in the explosive segment.

Is there a valid estimate between time to file and time to trading? Or is this always on a case-by-case basis?

From a couple months ago, their estimated revenues for 2011 are $1.8 billion [1]. This is a completely different beast to linked in. I'm very interested in seeing how it goes.

[1] http://blogs.forbes.com/afontevecchia/2011/03/02/zynga-revea...

I smell something; maybe it's the smell of freshly cooked books? That article raises some questions for me in the context of Zynga (which, I'm pretty sure, has for its motto: "Evil is fine, as long as it pays."). Why would a company with $630 million in profits need to raise $500 million? Where is the revenue really coming from (maybe tit-for-tat deals like the ones Enron made to make profits look huge)? How will they sustain that revenue?

Zynga is mostly a modern spammer, as far as I can tell, and the spam business is a constant arms race. They can't win it forever, unless facebook remains mostly complicit in the process (which would hurt facebook in the long run, even if it is profitable for them in the short run).

So, I'd believe that Zynga is making money, even a lot of money, but I have a hard time believing they can sustain that level of profitability as people's tolerance for facebook spam declines. And, I have a really hard time believing those specific numbers. I guess there really is a lot of money in stupid.

I 'd actually bet their profitability is even higher than that. You have no idea how much revenue these games generate, and we 're talking about massive user base. Just consider the fact that they have foregone display advertising in their apps - which should be a huge extra pile of cash. They really hit a gold vein.

I unfortunately know very little about their business model (advertising? pay-to-play? gifts/items?), but would be very curious to see how it all breaks down. Specifically, where their special-ness lies, and how high the barriers to competition really are.

I want to criticize the high valuation, but in fairness I don't know enough about the company or industry.

And let the web 2.0 stock bubble begin.

People are just buying up these stocks cause they are cool, no thought to value.

Ok.. I gotta get in on this! I totally flaked on LinkedIN

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