Zynga stock plummets below value of its cash and real estate
latimes.com
latimes.com
But that's life, right? Counting on equity is, simply, a gamble.
Except when you've rigged the table, as Pincus and his cronies have.
http://www.forbes.com/sites/nathanvardi/2012/10/05/zynga-kee...
They got to play by different rules than the folks whose hard work got them to IPO. Instead of being subject to lockup, like the rest of Zynga, they got to cash out early, before the true state of their company was fully appreciated by the market.
So what's the lesson?
Don't trust people willing to fuck people over to make a buck. You're not special. If there's a buck in it, you'll get fucked too.
http://techcrunch.com/2009/11/06/zynga-scamville-mark-pinkus...
This also isn't all that unusual of an attitude in a hyped startup - management will abuse you (ahem, I mean expose you to a dynamic exciting work environment) and you will take it because your going to be rich in a few years... or not.
NB: Ballisticality isn't a word. Pity.
As a gamer friend always reminds me, "The cake is a lie."
You pretty much know there is no cake. GLaDOS, the malevolent and controlling AI telling you there is cake, lies to you consistently. You catch on quickly that she's lying.
The warning "The cake is a lie" is scrawled in blood inside a hidden antechamber, inside one of the levels.
Somehow I feel like there are parallels here that you stumbled on more or less accidentally. Or maybe I'm being far too literary.
There are a lot of very smart people who are easily blinded to the truth when confronted with the possibility of vast riches. Making the right decision here was less about talent/intelligence and more about wisdom.
Replace sellsword with employee. All these employees got screwed, yet like the sellsword they should have had the power to get a better deal.
It's unfortunate, sure. And quite a few parts of the Zynga story are downright distasteful, especially the options clawback last year.
But let's not get hyperbolic - they played the startup lottery hoping to get rich, and lost.
You take Pincus and company, tie their fates to that of the employees, and everyone loses together? Fine, whatever. Like you said, they played the lottery. But the mismatch of fates is, to me, what makes this story pretty damn sad.
You can argue about why, but I am willing to bet (I don't know anyone working at Zynga) that many of these employees still have tens of thousands of dollars in college loans and seeing the sacrifices they made to get into a position in order to pay them off, erased in a matter of weeks, makes them feel like trapped rats.
I never really like these comparison though because why is a ditch digger better or worse than a computer programmer? Both hold basically the same desires. Why should one's misfortune be less important than another? They both work just as hard?
Which is heartbreaking in itself, on top of the bloody mine crushing on him.
You say it like this argument somehow makes the Zynga case more heartbreaking, instead of less...
>I never really like these comparison though because why is a ditch digger better or worse than a computer programmer? Both hold basically the same desires. Why should one's misfortune be less important than another? They both work just as hard?
No, they don't. And they don't get the same compensation either. Or job satisfaction -- the ditch digger pretty much works that job because he has to support himself / his family and he doesn't have the means to get something different. The computer programmer could have been 10 other things if he wanted, from tech support to floor manager at a Costco.
Really, try ditch digging for a year, and then we'll talk.
And gambling on equity when you get paid well over average with all the options you have for your future is not that bad all considered.
What's that? Is it like "First perform at the Opera House and then we'll talk Mozart"?
Most of the times they do not have same desires. For whatever reasons. Be it the immediate need to support family or the ambition the fire of desire having been lost over the years or fight and struggle to look for a stable mean to live. Or maybe the kind of education/upbringing he received. Or the company he grew up with (well, this is very important). This is also has a lot to do with the genes you were born with.
This is the nature of a capitalist society and other ones are even worse. In a capitalist people are supposed to be of uneven means so they are. In a society like communist societies people are not supposed to be of uneven means (in the usual sense) and still they are and the gap is a lot wider than that in the former society.
Now, this is heartbreaking. Given the fact that most probably not having superior education (or education at all) didn't have anything to do with neglecting studies but simply being born to poor parents.
>why is a ditch digger better or worse than a computer programmer?
It's the society we live in. There are various places on this planet where you are an untouchable by caste the caste you were born in leave alone money and job.
How is that different from 99% of jobs out there? People flipping burgers work crazy shifts with shitty compensation only to watch the franchise owners getting filthy rich.
If you get a minimum wage job, you know what the deal is. If you get equity, it's reasonable to expect that you won't get screwed over completely.
Is it fair? That's a very different question.
This usually happens if your option has a strike price lower than the market price at the time they're issued, in which case depending on jurisdiction they difference will usually be taxed as income on exercise. If you're really unlucky about where you are and how the options are arranged, you might even get taxed based on the market price on exercise. E.g. Norway at least used to be that way a while back unless you took specific precautions to get the options issued under an approved scheme.
It's something to be aware of, as it means a lot of people might not be able to afford to exercise the options before they're ready to sell the shares, which means your total gains gets taxed as income most places (as opposed to if you see the company on a nice upwards trajectory and exercise and wait, in which case you may end up paying only capital gains and in some cases depending on where you are might end up paying reduced capital gains rates on the growth from your exercised onwards). The difference between a good and bad options plan can easily be 50%+ tax (e.g. UK, if you're careless you might pay 53.8% - top rate income tax + national insurance + employers national insurance contributions, vs. 10% if your company qualifies for certain incentive schemes for startups and the options plan is structured right..)
It might seem great to have a really low strike price, but if you expect to be in it for the long haul and might contemplate exercising options before you're ready to sell your shares, talk to a tax lawyer before agreeing to options terms.
Decide.com in 1999 - they farked over the employees and diluted the stock of everyone hoping to cash out in an acquisition - this caused a major meltdown and the company fell apart and nobody received anything.
Savi Technology was acquired by Lockheed - they stated an option price internally which was wildly wrong, granted many many many options to execs and came out and said that anyone who joined in the last 12 months had options worth zero. People who did have common shares got farked over, newer employees even worse. and all employees got ZERO equity in lockheed.
Then Lockheed stock tripled after the acquisition due to the War on Humanity and everyone was still stuck holding the bag.
This is just two direct examples.
Most companies will fuck over their employees. I don't trust ANYONE in the valley.
But don't fret, if (when) Zynga does collapse, it's execs (including the founder, who I hear is a piece of work) will be up to their eyeballs in lawsuits. Ahh the fun, writing checks to your lawyers.
Given how litigious the US is, if I were super rich I could not imagine keeping a significant portion of my assets in the country. If you have a lot of money it makes a lot of sense to not only diversify your investments but your jurisdictional exposure as well.
If you know the lawsuits are going to take forever (time) and cost a bunch (money), not having many assets in the US makes it easy to accept a default judgement, declare bankruptcy and write off the loss entirely without ever paying any lawyers a cent.
In this case, the people being sued seem like they totally deserve a lawsuit, but that doesn't change the fact that it is naive to not diversify jurisdictionally.
You don't even need to be wealthy. The US no longer has the rule of law, so you can now be stripped of your possessions even if you are _accused_ of a crime:
http://en.wikipedia.org/wiki/Asset_forfeiture#The_trend_towa...
I know an employee #3 at a successful startup who was fired two weeks before he would have vested. He got his due but only after legal action.
This is a pretty common story. Probably more common than when the options pay anything. I once worked for a company that acquired another company. We were bigger, our CEO set up the deal, their CEO got paid, etc. But officially it was a "merger of equals". Why? Because if we'd bought them their options would have vested immediately and we would have had to buy up all the stock the employees held.
The way it was worked my company traded their options for options in the new company. Two years later everyone who had worked for the company we acquired was out of a job, and they had to decide whether or not to exercise their options in a company that wasn't publicly traded (which is madness, BTW - never, ever do that). I would have bought one of those mirrors on a stick and checked under my car every day if I'd been the CEO. But eventually he cashed out for a cool $15m.
It is really a problem. People have simply been conditioned to think it is normal. it may be "normal" but it is farked and wrong.
Turns out, though, that the founder was funding payroll out of his own pocket for the last couple of months. Subsequent datapoints suggest he's a good (if occasionally odd) egg.
Trust in the Valley is a very scarce commodity, but it can be found.
Zynga? I have to say I saw it coming from miles away.
A woman in China had an unnecessary, experimental operation done at a hospital, without her consent. It caused kidney failure, and she needed a transplant.
There was a match with a family member, but the hospital refused to pay for it, even though it could have been sued into bankruptcy in the US. For the want of $7,000 USD, she was dying.
Watching her sit with her young children on her lap, deathly sick with her husband by her side, the expression of finality and despair on their faces - I'm not ashamed to admit that it made me tear up.
Now that, to me, is god damn heartbreaking. I don't disagree with the direction of your sentiment, just the magnitude of the word you are using. It's close to the strongest feelings you can have on a subject. Did you really feel a pang in your heart when you read the article?
Because to me, those two stories aren't even on the same planet.
By this stupid logic, you can never be happy, because there's always someone with more reasons to be happy, while the victims of a serial killer probably had it better off than a child who dies of starvation in Africa.
(Of course, you're a smart person, so I'm sure you're aware of how stupid this line of arguing is.)
You seem to be pretty strongly in support of someone who by all means cheated his employees. If that's the case, I certainly hope future employees have the foresight to do some research on who you are before agreeing to work for you.
EDIT: Maybe I should add I am currently in Asia. Many people here probably work harder then the people at Zygna and receive less compensation.
Couldn't find some more official name for the "The "Children Are Starving In Africa!" argument.
Anyone willing to help out?
"Of course, when I were a lad, we had it tough..."
Your tone on other hand is combative and patronizing. The HN guidelines say "When disagreeing, please reply to the argument instead of calling names," and "Be civil."
I tend to agree with reitzensteinm that we in Silicon Valley should remember how good we have it compared to the rest of the world. Our fortune comes not only from hard work and talent, but from being born in the right decade in a prosperous country.
I didn't because every time I went over it and sliced it, there was too much scope to misunderstand what was said.
But there were 2 aspects that I knew were triggers -
1) His underlying assumption that the employees were there for playing the "startup lottery". Firstly this ascribes knowledge of the mind set of the emps. Secondly this ignores the fact that Zynga also was a "safer" firm given its history and at the time, certain prospects.
The employees for that firm which are hurting today aren't necessarily the same as your first batch or second batch hires in an untested startup.
(this is why I didn't comment - there are many ways to slice and dice this further, and suffer from badly drawn edges and subsets)
2) His description of it as startup lottery. The underlying philosophy here on HN, and in most places which discuss startups is strongly merit oriented. His statement carried the implication that all the discussions so far were eye wash - it was a lottery and people lost, bad luck.
His later clarifications were pretty crucial to explain his context, but I can completely see where he ticked people off.
Your assertion that I support cheating employees just because I didn't explicitly say otherwise is quite insulting, and it's what makes me feel the need to reply to you. I think the deal they got it shitty, and I certainly wouldn't start taking money off the table before my employees could.
I think you're reading an attitude into my comments that just isn't there. I suggest we continue this conversation by email, to avoid polluting HN with what will no doubt be a long thread - mine is in my profile if you'd like to.
I think it's very hard to define exactly where your slippery slope of perspective begins and ends. Bottom line is that greater injustice is never an excuse for injustice. Neither are acceptable.
>some Silicon Valley developers, one of the highest paid professions in one of the highest paid areas of the world, only made a decent salary instead of a fantastic total compensation package?
The relevance of the integrity of the managers to the ways people make decisions that determine the course of their lives is not something to be taken lightly. This applies even if the consequences themselves do not appear to be so dire. There is a distinctly painful feeling that comes along with devoting your life to someone who abuses that. For those familiar with this perception, the idea that you could ignore it is preposterous. From your perspective, whatever it may be, it could beyond your imagination and experience.
You might say this:
>Is it really 'heartbreaking' when someone's 17-year-old cat dies? It's a normal and expected outcome; plus, not only were they lucky enough to afford a pet and keep it in good health, the animal itself hasn't lost much, considering it's limited cognitive capacity.
And yet anyone who has been through or even near this situation would find the argument to be incredibly callous, because the formation of human emotion has so much more to it than simply evaluating one's present situation.
I understand the sentiment that perhaps nobody is entitled to a fantastically large amount of money and that people living what we call the good life are a small minority in the world. However, that just isn't the story here.
Connections between humans are what make society possible. It's reasonable to care when they are abused.
It was not meant to be a comment on how it feels today, or to suggest that we shouldn't feel empathy for them because of their future position.
I just meant that in a few years they'll look back on this and laugh, which makes it story much less sad. Do you disagree with that?
Look, I'm coming from the perspective of an outsider. OP seemed to suggest it is heartbreaking to read about Zynga, which is what I was responding to. If one of my close friends was working there, I would absolutely feel a different way.
Similarly, if I read about a kid's cat dying on the internet, it might just make me feel a bit down. When my dog died, heartbroken was exactly how I felt.
Well, okay, maybe some of them might have been under a lot of stress and that might affect their personal life and even health or life expectancy.
Maybe some of the talented people who might have a fantastic career ahead of them won't recover and become jaded or leave the industry altogether.
Maybe none of that is heartbreaking, strictly said. It's "highly unfortunate" or "really sad", perhaps.
What really grates is your decision to nitpick about the choice of words because you saw something that was even sadder on TV.
I have no comment on the issue, I just wanted to point out a terminology confusion.
Without the straw man, reductio ad absurdum alone is just a tool, not a fallacy, as you say.
It wasn't like Zyanga kept them working while they were starving and kept them lured all along that they will be fed once Zynga stock booms up.
They always had the chance to jump ship. Esp. with many small/big ships steadily floating around ready to lift them aboard. It was a gamble for the extra cash (read bonanza) and they lost (just the bonanza).
Using overly emphatic words for not so cruel-bad situations is a bad thing, since you will be at loss for words when something worse happen. That's just a sign of lack of culture. I am not talking about the person who said "heartbreaking" in the first place, just a general observation as to what language is changing into these days.
If you're in America, have $0, can't pay rent, can't buy food for your kids; the fact that kids in Africa are dying from some non-1st world disease is completely irrelevant to the pains you're having.
It's a completely different thing for an impartial third party to say person X's pain is more than person Y's pans (that's relative to the observer).
You don't think Elvis was taking his economic privilege into account when he wrote "Heartbreak Hotel"? Maybe he should have called it "Momentary Romantic Setback Hotel". Or maybe the word "heartbreaking" should be reserved for citizens of the Democratic Republic of the Congo, where, all things considered, things are considerably more dire.
"The National Adjective Council must regrettably inform you that your first world documentary viewing experience was merely 'disheartening'."
That the CEO cashed out before has nothing to do with that fact.
And with
"Pincus has a track record now of big IPO train wrecks. He founded Support.com and took it public for $14 a share during the first Internet bubble in 2000. The stock zoomed up by 133% in its first day of trading. It changed hands for more than $30 per share before tanking below $5 in 2001."
they might have should known what was comming.
Yes they make a mistake. That mistake is to bet on an unethical business man. The point is not that, the point is the CEO set different conditions for him and different for others.
While the senior execs were allowed to cash out, guys down the ladder weren't.
How does the fact that senior execs cashed out relate to the fact that they don't get rich b/c their company has no sustainable business model and the stock crashed?
But didn't hold the employees to have the same right.
Which actually speaks a lot about the intentions of those senior execs, which is clearly to play a hit and run game.
I mean, if the CEO told everyone up front about the tactics he was going to use to allow him to cash out early that also prevented everyone else from doing the same at the same time and also that the future of the company was all downhill; then maybe you have a point.
Maybe saying they were cheated is a better phrase for you?
If you don't agree that that's fine. Which, by the way, I have a bridge for sale you might be interested in...
If we're talking about pay structure and access to the executive washroom, then no.
If we're talking about employees and the CEO having equity in the same company but the CEO can cash his equity any time he feels like it while the employees cannot then there's a problem. Especially when said CEO seems to be doing questionable things to pump up the value of his stock that later collapses so that when employees finally can get money there's no money to be had.
I find it disturbing that you seem to think there's nothing wrong in this situation. There's no way you can say that the actions and behaviors of this CEO and company are the norm. If you don't understand that at this point then I'm unable to explain it to you. In this case we'll just leave it with you have your opinion and I have mine.
And the reason they've lost their "money" is not because of the CEO having different rules.
We put far too much emphasis on prolonging life and not enough on quality of life. I have no clue who this lady was or what her background was, but $7k goes a long ways in China. Imagine if she could have instead guaranteed a solid education for every one of her children.
We spend a ton of money on end of life care that could do much more good spent elsewhere. Which would you rather have- $50k in end of life care or a free college education?
Kidney failure and a transplant, chances that the transplant doesn't work, complications following it, issues remaining for the rest of her life, etc. It's not all roses and medicine isn't as magic as it is in the movies.
I hope they did get the woman the U$ 7.000.
Sadly, there are stories much like that, or worse, every single day. My SO works for the state child care agency here in Uruguay, now that's a thankless job if there is one. She gets to see the worst of human beings (child rape, uncaring mothers, a mother putting her 12 year old girl into prostitution), fortunately balanced by a little of the best too (kindhearted adoptive mothers for example, and lots of supportive people).
More likely, they shut off the cameras, thank the people, and then fly away, shaking their heads that such a tragedy could occur.
Based upon the number of hours the people who I knew at Zynga were putting in - IMHO they were far from receiving a good rate when looked at hourly.
100k at 60-70+ hrs per week in a place with some of the highest living costs is not all that admirable of pay if you ask me. Yes they are not on the street but its not exactly the bees' knees either.
(JK)
"I'm getting an XKCD 303 back from the developer."
You don't think I actually work for Berlin salary, do you?! This is the Internet!
The cost of living in the hip part of Berlin (Kreuzberg/Friedrichshain) has nearly DOUBLED in the last 5 years. You're now looking at nearly $1500 per month for a 900 square foot 2-bedroom. :D
My place a bit farther out is €1000/mo and is 1800 square feet. My office is on one floor (the one with the small balcony) and living quarters upstairs (the big balcony).
Sorry, I'll stop now.
That said, London is more expensive.
The Bay Area is a bigger place BTW.
http://www.rightmove.co.uk/property-to-rent/find.html?locati...
The place I lived in Mountain View was prime real estate. I was on Castro street, one of the only walkable places outside of San Francisco proper. There is plenty of cheaper real estate in MV.
Similarly in Battersea I live near Clapham Junction. I can get to Heathrow in 40, Gatwick in 30, Soho in 25 and Bright on 50! I can also cycle to Trafalgar Sq in 20 mins if the lights are favorable. Again, there are cheaper places around, but not without worse location or other problems with the property.
Also, the first property on the link you listed is £390 a week. You do realize that that is $2700 / month right? And you do realize that in Mountain View when you rent there is no council tax, and you don't pay estate agents any fees at all. In fact there are no estate agents, and property holders often give you some kind of deal like reduced rent for the first month to get you to sign a lease.
That depends a _lot_ on where in London.
My 3 bedroom 1000sqft house with a garden in London has a current rental value of about $1600. That's the difference between living in a leafy, relatively unfashionable suburb in the South of London vs. living in one of the enclaves of rich people or hipsters in the centre of town. I have a 45 minute commute to the centre, door to door.
Everyone I know that worked at a startup has ended up out of a job with little to no payout (beyond their salary). It's a risk.
If you don't want to take that risk, work at a non-startup company.
I found myself nodding along in full agreement with the GP, then doing the same, after reading the top rebuttal.
/enqueues 10 minutes of self-loathing, for being so fickle minded. ;)
They effectively worked two full-time jobs for a year and a half, and got paid for one. Average salary for a programmer at Zynga seems to be around $100k, which is less than I make working 37.5 hour weeks, not 100-hour ones.
So, yes. It's pretty heartbreaking to see them get fucked over after giving their entire life to Zynga for the better part of 2 years. I'm not sure why you think otherwise, frankly.
I don't consider it heartbreaking when someone makes a conscious decision to stick around in a crappy situation in the hopes of striking it rich and it doesn't work out.
What?!? Folks: ZNGA still has a market cap of almost $2 billion. Your average startup engineer is lucky to see any decent and timely exit event. So even at these "low" prices, from where I sit they are still looking better than many of their peers.
"Life's not fair", bellum omnium. But the reason to talk about fairness is that it's something to strive for and insofar as we can make things fairer (like through SEC regulation) we should.
Nobody's saying the losers here are catastrophically equivalent to a war zone. But worthy of sympathy? Sure. Just because you're rich doesn't mean things can't suck for you, subjectively.
If I cried constantly, for the age of the universe, times infinity, it would not be enough to express the sadness I feel.
An infinite number of oceans the size of the Sun would not be enough to capture all our tears.
I think this article makes it clear that the market has _no clue_ what the "true state" of the company is...
Do you find it heartbreaking when a fool throws down $50k on red at the roulette table, and loses?
http://uptownalmanac.com/2012/10/nerds-gone-wild-day-san-fra...
And let's not forget.
“I did every horrible thing in the book just to get revenues,” -Mark Pincus
It's unfortunate the empolyees were not paying attention to what their CEO and Company was saying and doing.
So, sorry folks u got screwed, but it's, literally a house of cards. Everyone early and vc that put their money in, I'd a happy camper..
It's the moral hazard - you work for a boss who acts like that, and they'll throw you under the bus pretty quickly just as well.
And that boss will hire folks who think like (s)he does also.
It's even against your self interest - you work for a boss who acts like that, and they'll throw you under the bus pretty quickly just as well.
And that boss will hire folks who think like (s)he does also.
This. Stop coding for a moment and pay attention to the surroundings.
What makes you think a person that's unethical to their customers is going to be ethical to their employees?
Second, the people who make the company - the early people - are on better terms. The guy who got hired the month before IPO shouldn't be expecting much.
These places employed baristas, waiters, bus boys, burger flippers, sales clerks, stock boys, and such. Such people typically work fixed shifts, and so unlike many developers have time to find people to start families with and have children.
Based on some of the comments here, it would seem that getting by on just a developer's salary in San Francisco is near impossible--you have to have stock money to keep you afloat.
So how come waiters, sales clerks, etc., can work in San Francisco and make ends meet for not only themselves for for a family, but single developers making more than the combined income of that entire working class family cannot? One comment mentioned that the developers might have student loans to pay off, but that's countered by the working class family might have to pay a lot to add their kids to their health insurance.
Same question for New York, and any other place where people consider $100k/year too low to be a living wage for a programmer.
http://peninsulapress.com/2012/08/28/low-wage-jobs-drive-sil...
It's good to keep in mind that the world doesn't owe you much. Where you are would be a massive victory for many. Where you started is where many work their whole lives to get closer to. Perspective plays trick on us. We think where we are is normal, slightly above us is where we ought to be.
'massively' above us is where we ought to be, is the way lots of SV denizens think.
Make ends meet != live well
The Zynga employee who is going to make $0 (or negative if they exercised unvested) options is still much better off: a) they have a job and b) they are still likely very hireable if their job disappears.
The folks at Facebook should probably be a bit more worried - Zynga and Facebook have been close and without the symbiotic relationship, Facebook's appeal is much diminished - lots of my social gaming dev friends are now working on mobile freemium games, for example.
Broader economic arguments aside, I think this diversity is a good outcome and makes urban living more interesting.
Nah. Just like other cities with rent control actually finding a place is pretty much impossible. Demand for housing stock in the city has far outstripped supply, and people who get a controlled place don't leave.
The baristas and such commute into the city from cheaper areas in the east bay.
After this if your income tanks, it hurts hard.
You can very well travel by bus for 20 years of your life, travel a day by car and it will make you feel awesome. Then travel 10 years by car, it just feels normal. Then when you go through a difficult financial, which forces you to take a bus again- This time you will feel like crap.
People whom you are talking about are addicted to changing phones/tablets twice an year. Buying developer toys because they like it, drink latte every 45 mins just because they can. I can go on and on, but if you sit down and jolt down list of things that we do and spend money on, you will realize We are basically addicted to spending money
We just keep buying things. We are told to not do so means not doing better compared to your peers. We are told living frugal means living like a loser and spending money on fun/experiences/<whatever you call it> is what makes you successful.
Net-Net you end spending a lot more on things you don't at all. And expenses go up real high.
I've seen this among my rich friends as a kid, mysteriously they couldn't even live without things which I didn't even know about.
Allowing things like this to happen, accepting that this kind of behavior is okay and enabling these kinds of characters to thrive is exactly why the valley has become so frothy. The transformation of Silicon Valley into Hollywood, where anyone with a big enough mouth and large enough ego can thrive is nearly complete. But I'll sure fight tooth and nail until the day I get squeezed out of this place - voting with my dollars and my labor, and a small but convinced voice in what is right and what is wrong.
Book value (all assets - all liabilities): $2.46 per share
Book value less expected write off of $90M: $2.34
Book value less all intangibles: $2.01
Current Assets (essentially cash) less all liabilities: 0.78
Current market value: $2.35
So, the market is valuing it at exactly next quarter's expected book value. This means that they still believe there is some value in the intangibles (I don't) or the business (I don't).
For giggles, here are the some numbers for Research in Motion.
BV: $18.15 per share
BV less intangibles: 11.81
Current assets less all liabilities: 6.22
Market value: 7.76
What is the "short term investments" line item on the balance sheet under current assets? Are those corporate bonds or other highly liquid assets?
It is always a bit sad when a company is worth less than the sum of its parts. I don't think Zynga is quite there, yet, but I don't think it is worth very much unless and until they sit down and learn how to run a business. I won't be investing in it.
You are correct that short term investments would be stocks or bonds or term deposits or any other highly liquid assets. Generally, they are as good as cash.
Now in reality, that is a very simplistic analysis, and in point of fact, I do perceive some value in the business, just not very much. It is something that is very hard to quantify (as are other intangibles like copyrights and trademarks). In the end, I do have to go with my gut a little bit (as you say "an emotional valuation"). I don't personally have much use for Zynga's games or their business model, so I am aware that I might undervalue them somewhat, but what the the numbers tell me is that they are a poor business to invest in even at this "low" price. Other non-financial comments on this story and elsewhere reinforce my opinion that when it comes to doing business, Zynga has a lot to learn.
Aside from no faith in management, what else could be the reason for the discount? Their business model is so bad that reducing the transaction costs can't fix it? They have hidden liabilities related to their copycat culture that haven't surfaced yet? Shareholder litigation? Or just simply a massive burn rate?
At this point Zynga could be liquidated and still produce value. But the lower-than-book valuation implies the fear that Zynga will eat into its assets (re: cash) before that has a chance of happening, thus lowering its value.
So, basically, no faith in management...
The main problem for them is that they haven't grown their revenues as quickly as they need to. But in order to turn themselves into a profitable business, all they need to do is cut costs. I've been to their offices and talked to friends that worked there, so I know there's plenty of room to cut costs. That being said, if their revenues drop, they could be in for real trouble.
That being said, I just dumped my entire position today (with my luck, right at the very bottom). My biggest fear is that their revenues keep falling, and they die death-by-a-thousand-cuts. If this quarter is a kitchen-sink quarter, then I might pick some up after they release their official numbers.
Did you miss the bit where they use $400M to generate that gross revenue?
How do you think they're going to save > $10M per month to put themselves in to decent profit? Which costs will they cut?
ZNGA could do the same thing. They could cut R&D by 1/3, SG&A by 2/3, and even cut down on things like customer support, etc, and their current earnings for at least a few quarters wouldn't be affected immediately. They still need to create new games to entice those same users
>They could cut R&D by 1/3, SG&A by 2/3, and even cut down on things like customer support, etc //
Sounds great. When you say SGA, isn't that mainly wages. So, lay off most of their staff, do away with a large part of development and still generate the same earnings. Won't that just cause them to fail slowly?
I can see how Yahoo can coast on inertia to some extent but aren't Zynga more reliant on novelty? Yes new people come along, but they're entering - in social gaming terms - a pool of people who've already tired of a particular game/games.
What do you make of reports like this http://arstechnica.com/business/2012/08/as-zynga-stock-price... suggesting that several of the top developers are gone/going. Surely that would make it harder to cut R&D and make great new games.
Will be interesting to see how things progress for sure.
Despite trying to step out from FB's shadow, they are still there- between a rock and a hard place.
Personally, I am stil very happy to be working at Zynga. I enjoy my work and my team, and I am compensated very well. Also, all of the benefits from working at Zynga (the food, the atmosphere, the very good health benefits, etc.) are still available. The only negative I see is that this job might not last for more than a year, and my stock isn't worth very much.
As for everyone hating all of the Zynga employees: everyone I have met and whom I have worked with in my two months at Zynga has been very smart and very nice and incredibly fun to work with. I don't understand why people on Reddit and HN love to demonize the employees of Zynga. I would feel very sad if my friends or I were to be laid off.
That statement is pretty much true for everyone everywhere. People like to pretend that it isn't, but people like to pretend lots of things that give them comfort.
I apologize if I give offense while attempting to shed some light on why people have a problem with your company (and those who choose to work there). It's difficult to be honest about this question without coming across as mean, but I will try.
1) wholesale copying other companies' games (see http://www.scribd.com/doc/101954002/EA-v-Zynga-Complaint-Fin... for a legal complaint and http://news.ycombinator.com/item?id=4335287 for discussion.) From that thread: "they must realize that every day they go to work and rip off someone's original work." It's hard to respect someone who knowingly makes their living this way.
2) The game mechanics of Zynga games often hinge on what might be viewed as "bad" use of psychology -- manipulative, addictive, and in a sense abusive of the friends functionality of facebook. It's hard to respect someone who knowingly treats people so callously.
3) Common opinion is that the games themselves range from mildly awful to completely terrible, and are successful almost entirely due to the "bad" psychology above. It's easy to respect someone like notch, who got rich making an awesome game. It's hard to respect people like Pincus, who got rich by making games that are fundamentally lame.
Again, no offense meant to you or your friends. Maybe you're on a team that doesn't do any of the above bad stuff. But the parts of Zynga most of us are familiar with do all of that bad stuff. I hope this helps clarify why you might see so much hate directed that way.
1. The vast majority of the games industry borrows heavily from titles which have come before, so Zynga isn't unique in this regard, nor should it be singled out.
2. The establishment of addiction-creating feedback loops is practically a games industry science. Again, this is hardly unique to Zynga.
3. Subjective statements about quality aside, I think it's safe to say that Minecraft has highly addictive qualities, and therefore Notch can't really be put on a pedestal here in the context of your second assertion.
Other "addicting" games that Zynga can be compared to are things that have been in the casual space for years, or a decade-plus. Things like Bejeweled and the casual flash-game portals that (used to be) everywhere.
Zynga is in the business of shallow gaming experiences that focus on extracting money from users. I think when most people think of good game companies, they are thinking of companies that make games with depth that don't require a refill (via money) to keep having "fun" or progressing.
2. We call this fallacy "Tu quoque". Yes, other games also have feedback loops. People have been criticizing Everquest and WoW for ages. Zynga has all of the same negatives, but in higher proportion to the total game (ie, there's very little "game" and very much "addictive loop".)
3. Yes, plenty of other games have addictive qualities. But those are typically minor components that go along with excellent gameplay. When notch (and now jeb) make changes to Minecraft, they're not about trying to strengthen addictive feedback loops; they're about trying to put in new cool stuff.
Yes, this is a subjective take. No, this doesn't make it any less valid.
I don't think people are really hating the Zynga employees. They hate the upper management.
I'm being completely serious. When I read headlines like this I just assume this happened at least nine months ago. I'd like to hear some reasoned defense of how this company was going to survive.
How were they going to survive? They aren't dead. Not even close.
Pincus has the same kind of control over Zynga that Zuckerberg has over Facebook, and he's got a mountain of cash in the bank. That means nobody can make him do anything and he has a very long time to get his house in order.
All they would have to do to make Wall Street happy now is lay-off a whole bunch of people and start making 20% profit. The stock would go to $10+ instantly. That's the easy way out, not planning for the long run. Not planning for growth.
Zynga is in a great position for real-money gaming, as just one possible avenue for future growth. The US government is taking longer than expected to regulate that industry but they will get around to it.
Zynga has been public for less than a year and they've got many years of runway left even if things don't improve. People need to slow down on thinking and claiming they are done.
Yes, Zynga has many issues. But before we get all cold-hearted and rejoice at the wonderful invisible hand that will correct all, can we for a moment remember that it's going to affect mostly the people in the trenches? Who often had little to no say in the outcome?
The comment you wrote is something I would have written 17 years ago on a Prodigy bulletin board forum after I just finished reading some selected essays of Ayn Rand.
But anyways, the similarity I see is that in both cases, the individuals would have exercised poor financial decision making by assuming that non-realized or potentially temporary increases in income streams were real/permanent. I'd guess that financial professionals have experienced something similar, by assuming that the year end bonus would be size X when they actually only ended up getting X/2, or making purchases assuming job security until the end of the year but getting laid off.
When I worked for a startup, I only considered my salary in my financial decisions. This also meant that I could switch jobs and be reasonably certain that my standard of living wouldn't change. We were offered equity as well, and the agreement we had to sign had several provisions that I could only describe as being pro-founder/anti-employee. For example:
1. Upon termination of employment (for any reason), the company can buy back your shares at book price, whether you like it or not. In other words: You'll never see a big payout from your work if you go.
2. There should be no expectation of a market for the shares in the company, and there may never be one. Again, good luck selling those shares.
3. The founder has the right to sell his shares, but employees have no tag-along right. So even if the company is sold, you will probably not be able to cash in at that point, since your labor/skill are part of the sale.
4. The employees' shares are subject to dilution. How much dilution? Who knows, maybe 1%, maybe 99%, whatever's good in the view of the founders.
This stuff is pretty standard, too. What I don't get though is how people will make multi-decade (i.e. mortgage, kids) financial decisions on a benefit that's this uncertain. Instead of actual equity, they could just say "we'll give you more money later if we get rich and feel like it". At least it would be more honest.
Please tell me that at least some companies have reasonable agreements with their employees/shareholders. Otherwise it's like someone else said a few months ago, Silicon Valley is just overrun with sleazy leadership types who do their best to screw over their employees.
I hope that this isn't the rule in most places, but I wouldn't know :/
...Who often had little to no say in the outcome?
No Choice? If you are unhappy, find a new job.
Edit: formatting
It sucks to lose your job, but there's a simple and time-honored solution to this problem: savings. It's amazing how much less you're pushed around by life when you have a year's living expenses in the bank. (It's also amazing how fast you can accumulate such a cash hoard when you consistently live below your means.)
All it takes, for example, is a medical tragedy to befall you or your close family - medical costs are one of the biggest reasons for bankruptcy as now insurance companies play fast and loose with who, what and how much they cover.
A side-effect of having a year's living expenses saved up is that you have a measure of self-insurance against medical or legal misfortune. Combined with catastrophic health coverage, this makes it possible to weather even a fairly bad storm.
Beware of believing the party line on medical bills and bankruptcy, by the way. As far as I can tell, surveys showing that medical bills "contribute" to a large fraction of bankruptcies fail to establish causation. What they do show is that people who declare bankruptcy also often have significant medical bills. But of course many people do. I bet lots of people who declare bankruptcy also have car payments, maintenance, and repair bills, but it would be misleading to conclude that car costs are one of the biggest contributors to bankruptcy. Since no one is (yet) advocating for "national car coverage", the political motives are different.
See, e.g., http://content.healthaffairs.org/content/25/2/w74.long for more information.
It's typical for a family of 4 to have 2 new car payments, tens (if not hundreds) of thousands in student loan debt, a $300K mortgage, $20K or more in credit card debt, and all the costs of kids (soccer dues, etc). How long can a family like that do without income or at best lose half? Probably 2-3 months, tops. That's what causes bankruptcy.
Zynga is a well-known name and I'd be shocked if their developers struggle to find work when they are forced to leave.
Troubles seem to be following the struggling game maker, Zynga Inc
(NASDAQ:ZNGA), this time now with the exit of Laurence “Lo” Toney, an executive
who oversaw the company’s hugely popular online poker game.
Tony’s exit was revealed via his LinkedIn profile, where he changed his current
profession to “mentor at MuckerLab,” a Los Angeles startup accelerator, and
lists Zynga Inc (NASDAQ:ZNGA) among his previous professions.
[...]
Tony now joins the list of top-level executives who left Zynga Inc
(NASDAQ:ZNGA) in the past couple of months. In September, Chief technology
officer Allan Leinwand and chief marketing and revenue officer Jeff Karp
resigned, while in August, chief operating officer John Schappert and chief
creative officer Mike Verdu left the company. Not only this, but the game maker
also witnessed the exit of two vice presidents, Bill Mooney and Brian
Birtwistle, at the end of August.There is somethin like $600MM of ST liabilities, though vs $1.2B of cash & equivalents (/securities).
Not sure what that is, but that is (potentially) a big deal.
Although it seems to be on the BS QoQ
http://www.google.com/finance?q=NASDAQ:ZNGA&fstype=ii
LT Debt = $100MM, so not as significant an issue.
-$450MM are deferred revenues (i.e., people bought things in their games but they don't recognize everything as revenue right away, a common procedure with online video games).
-$40MM are customer deposits, which according to them "represent amounts received for unredeemed game cards as well as advanced payments from various customers."
-$120MM are things like transaction taxes, compensation related liabilities and accounts payable.
So, it's not really debt, just working capital.
To the tune of $450, though, these constant amount in deferred revs is reasonably large source of working capital/liquidity @ ~5x their bank line. But valuation of the type implied in the headline should (most likely) be done on some concept of net cash, I would think. It cost you money to liquidate the assets before you get your hands on the cash.
Gross margin less SGA is only 30% of revenues, so maybe only $300mm-ish needs to be shaved off the cash balance from deferred revs. These liabilities must be incurred to realize the future revenues wigthout refunding back the pre-pays, good 1st approximation.
So, $1.0 to 1.1B is closer to the floor value. They are at $1.9B market cap a5 $2.50, so almost 2.0x coverage of this right now. (options, etc might swing this a bit).
In addition, large funds cannot sell their shares instantly, therefore will depress value below net assets, in effect paying a premium to get out of the stock.
Basically, the future value of Zynga's games is worth less than the future revenue, creating an expected net value decrease.
For example, say in an imaginary world I have a piece of real estate and its worth 500k right now but its pretty much assumed that because of X, Y and Z real estate in the area is going down on average 20%. Because of that if you are the buyer you'd argue that a fair price to buy the house is actually 400k. Same thing with companies - on average, investors think Zynga will be a loser down to the point of its current stock price.
If you have an opportunity expected to double your money then it makes sense to sell an asset below 'asset value' to avoid taking on missed opportunity costs.
Example:
You have $1mm in Zynga stock @ $2.35, and no cash on hand.
You expect the stock to trade at $2.85 in 1 year.
You have the opportunity to buy APPL and expect AAPL to double in 1 year.
The EV of AAPL is $2 mm
The EV of Zynga is $1.21 mm
Since you've probably lost heavily on Zynga you can use the tax losses from a sale to offset the gains from the APPL profit, where as holding Zynga for the EV would merely result in a reduced tax loss.
Big error. You can predict a stock doubling in value a year in advance?
Your numbers are less shocking when you plug in more reasonable expectations, say 6% market index instead of 200% home run.
If exaggerated numbers make the hypothetical concept easier to grasp I don't think it detracts from the example to use them.
(I'm prety sure that Appell Pete Corp would be psyched if enough people make this mistake).
Thus I used numbers that would appeal to the type that might hold Zynga stock. The type that had a risk profile involving losing 90% of the stock's value in 6 months.
Then, in order to stay in business, they might need to take on massive debt, or there's a chance of severe dilution, and the likelihood of this will lower the stock value further.
To take an extreme example, if everyone assumed the company was going to run itself into the ground, mortgaging its real estate, etc., until it has zero other options, then the stock would be basically right now $0, no matter how much real estate or cash in the bank in had right now.
As to "why", equity values are often more about emotion than reality (sometimes much more). Sometimes people want to bail from a stock that's become unpopular, and they don't bother to notice that the stock valuation is lower than the value of the buildings and inventory.
As to "how", there's nothing to stop a market valuation from being lower than the most basic assessment of the physical value of a company's assets, separate from present and future business prospects.
The single most important thing to remember about equities is that decisions need to be based to some extent on how stockholders think and behave, not necessarily on what makes sense. A person could on principle hold onto a stock in a company whose assets are very valuable, only to watch the stock drop to $0.01 per share, based on mass psychology rather than common sense.
It's a good headline, buut won't the market correct this naturally to account for the fact it's worth "less" than it's assets or is Zynga going to just keep dropping?
Not unless equities investors decide to act rationally, and there's little evidence for that. Stocks falling below the true value of company assets is such a common occurrence that cagier, usually bigger, players will locate and "greenmail" such a company into buying their own stock with company assets to correct the difference between market valuation and basic value.
http://en.wikipedia.org/wiki/Greenmail
So I guess the answer to your question is "yes" but exactly how this happens is sometimes rather complicated.
Obviously if a company can be located whose physical plant and inventory value is higher than its stock valuation, such a company is vulnerable to a takeover by anyone able to detect this peculiar state of affairs and act on it.
Now all of this is moot if Zynga is making enough money to pay the bills, doesn't matter what their stock price is if they don't have to sell stock to raise money. So the thing to look at is when their obligations exceed their assets, that is when they are 'upside down' in the lingo. Very hard to recover from that because you can't even borrow money temporarily when that happens, you have to save money, then use the money you saved to do the thing you wanted to do, rinse and repeat and that removes your ability to react quickly.
quora discussion on this: http://b.qr.ae/hFgaYd
http://blakemasters.tumblr.com/post/23435743973/peter-thiels...
Worth a read. I think Pincus' overall approach is actually dominant right now in tech, not an outlier. Most people just aren't so crude about discussing it.
My first thought was "Why bother? FB can just wait and pick up the good staff in the wind down." But the exact opposite of that logic has led to acquihires.
Methinks someone has been raiding that bingo variant for phrases.
Vindication is.. kind of lonely and sad, actually.
Facebook is much the same way. Some people have made fortunes. Who cares about public investors, Wall Street and employees? They'll survive.
It's just business.
"Mark -
Can we have a man-to-man? Seriously, please explain to me, a small shareholder in Zynga, exactly what the fuck you have been doing with my investment? Clearly, the answer is not building value in any meaningful way. Any third year entrepreneur will have trouble seeing your performance this year amounting to anything other than a collected check, a leveraged office, a leased plane ($3K a wet flight hour?!? What is that a fucking citation X?!?) and an overpaid security team. If the plan is to ride this thing to the nines, let me know so that I can pull out and forget any thoughts of a really well integrated ecosystem of gaming.
BTW: If you see the OMGPOP/Draw Something team, tell them to get the fuck off of their asses (if they're still around) and do something about long-tail gamification model if they want to do something about user retention.
That's all, k thx bye drops mic."
I hope you are not actually surprised. You've read the email you wrote, right? I know I wouldn't have bothered to answer an email like that.
His investment did not go to zynga, it went to whatever market seller he bought it from. He is more accurately a shareholder - a part owner - rather than an investor.
It is difficult to imagine this email getting a response though.
So Pincus doesn't have any reason to even read your email, much less respond.
However, unless you have a sizable percentage of the shares, management won't give a damn about what you think.