5 ms·

Zynga falters in debut, sheds doubt on IPO market

65 points by jarek 15y ago

simonsarris 15y ago
I don't think it sheds doubt on the IPO market. I think it sheds doubt on Zynga.
- nandemo 15y ago
  That was my first thought. But it doesn't necessarily shed doubt on Zynga either. What happened here is not that the IPO failed, it's "only" that the price went down from the initial offer. Predicting a "good" initial price is hard. I think people commenting here aren't taking that into account. Besides, I bet every pre-IPO investor is still making a lot of money on this.
- OllieJones 15y ago
  Maybe they just priced their IPO shares correctly for a change. When the share price doubles on the first day, it means the offering price was too low. That means Wall Street gets the money, not the company and not the pre-IPO investors. They could have priced it 40% lower, and seen a big runup. But this way the company gets more working capital. That's good. Maybe that's a positive consequence of Zynga's CEO's need to hang on to so much control and equity.
  - jarek 15y ago
    It always amuses me how the avowed capitalist tone of HN changes when it comes to a start-up cashing out. I wonder why "Wall Street" getting the money didn't bother pre-IPO investors and VCs in all the previous tech IPOs or stop them from investing on the same terms again and again. After all, it couldn't be that the same "Wall Street" later rewards those playing by its rules. I'm very skeptical that all participants of this IPO, from the VCs to the CEO and board to the underwriter, weren't on the same page regarding how the system works and how IPOs work in this system.
pagekalisedown 15y ago
Pincus dumping 100M$-worth sure didn't help. I hope the employees' options were priced low enough.
- dwynings 15y ago
  My understanding was that Pincus wasn't selling any shares in the IPO.
  - suking 15y ago
    He didn't - he sold $100mm in a private offering a while ago, not sure what the parent comment is referring to - obviously has his facts wrong.
OzzyB 15y ago
Karma?
- andrewfelix 15y ago
  Wouldn't it be great if capitalism worked that way.
- moocow01 15y ago
  I and many others would probably like to say to Pincus "Karma is a bitch" but I'm sure him becoming a billionaire, despite the lackluster response from the market, would make that point kind of moot.
- redthrowaway 15y ago
  He's got a few billion in the bank, so I'm guessing not.
bitops 15y ago
Is anyone seriously surprised that this is taking place? Zynga runs a business that is, at it's heart, parasitic and predatory. Such businesses may enjoy short term success but cannot be sustainable in the long run.
- andrewfelix 15y ago
  There are plenty of parasitic and predatory businesses making motser.
ryanhuff 15y ago
I don't quite understand the problem. Zynga's closing stock price reflects what the market perceives its value to be at market close. Just because it closed down doesn't mean that the market doubts the company. It simply reflects a difference between what they priced it at and and the closing market price. You could say that this indicates that the bankers did a good job at maximizing the value for the company, and not leaving money on the table for an opening jump in price.
- suking 15y ago
  Problem is - bankers usually price it low expecting a decent pop to keep their big clients that get IPO shares happy. So when one of the hottest companies out there doesn't pop and with Groupon well below their highs - not looking good.
  - fauigerzigerk 15y ago
    I would agree with that if these were normal times. But the world is in desaster mode, there's talk of depression, and we have a mini dot com bust going on right now. I think, pricing an IPO for a pop in this environment means leaving a lot of money on the table.
    - dsl 15y ago
      The scam works something like this: The banks who back the IPO get the right to sell themselves and large institutional investors (who treat the privilege like being handed a giant bag of money) shares before they hit the market. They buy these reserved shares, wait for the "pop up" in price as everyone scrambles to get in on the IPO, and sell at a considerable low risk profit. To put it nicely, Zynga or anyone else in their shoes, doesn't really decide how much money is "left on the table." The adults are in the room, and they are making the decisions. Zynga didn't really "pop" like it was set up to. The banks who had rigged the horse race to be a surefire bet, watched their horse break a leg around the first turn. Sure they still made some money, but nobody involved in inking the deal is looking forward to going into work on Monday.
andrewfelix 15y ago
This says it all: "Zynga's near $9 billion valuation is less than videogame maker Activision Blizzard Inc's $13.6 billion and higher than Electronic Arts Inc's $6.7 billion. In the last four quarters, Activision and Electronic Arts generated more revenue than Zynga." Activision just brought in $1 billion for one game, and EA Just sold 10 million of it's flagship title, while both their markets are expanding. I think the value of social network based games has been somewhat inflated.
- cma 15y ago
  You didn't say otherwise, but to be clear: revenue isn't profit. Somehow I think a failed Activision title costs a lot more to produce than a failed Zynga launch. (I don't know the numbers behind what Zynga is doing well enough to make any judgement on their IPO in general)
  - potatolicious 15y ago
    I'll say this: a company's products are IMO a far better predictor of future success than any of its ledgers and reports. RIM was financially extremely successful for years, even though they were no longer building competitive products. It takes time for the books to catch up to reality. Looking at Zynga's products, and looking at Activision's products, I know who my money is on for still existing in five years. The only thing I hear about Zynga outside of startup-IPO talk is about people quitting their games. Social gaming, in its current incarnation (that dastardly, insidious, vampiric incarnation) experienced a surge of novel popularity, and is quickly fading. Contrast with Activision (and EA, and any of the major publishers) who seem to be selling more and more copies and gathering more and more fans with every iteration of their major franchises. One company stands atop products with increasing popularity and mass-market appeal. The other has ridden past the highs of a fad and is on a slow spiral to irrelevancy. Who else here feels like there are parallels to be drawn between this and Groupon? Companies past their prime, products with dubious futures... and overall widely criticized by industry insiders for being poor bets. Yet IPOed anyways, all smelling like just a way for people to cash out while they still can.
    - 15y ago
Karunamon 15y ago
Knowing Pincus' history and the market they're in, I can't say I'm terribly surprised. Having him manage a company I have any shares in at all would make me awfully skittish.
geuis 15y ago
How does this surprise anyone? It made perfect sense a few years ago for Google to go public. They had at a minimum a successful, growing business. It was also clear that there was plenty of room to grow in the core business (search) and that there were many other markets they could enter. Zynga, to me, is like Groupon. Businesses with no clear foundation. Investing in them is like investing in tulips in Holland in the 1630's. I feel that if Facebook goes public, that will be successful. They offer something very real, in connecting hundreds of millions of people and, eventually, billions. If you're looking at growing markets, there's at least 3-4 billion more on the way in the next few decades. There's lots of ways to build businesses around that. Myspace would never have been successful in an IPO. On the surface, they seem like they did the same thing. But the focus of Myspace was always wrong. They weren't really about connecting people at the core. Facebook has been.
- badclient 15y ago
  Your comment is very hard to interpret without clearly defining what you mean by "clear foundation" and "successful." Overall you seem very down on Zynga and Groupon. Note that they have both IPO'd and have far from tanked. They are both in business with no apparent sign of bankruptcy etc. You make them look bad by comparing them to the biggest tech successes(such as Google). The thing is, you can make vast majority of companies look bad in comparison to Google. But that misses an important point about public markets: there is plenty of room for non-googles in the stock market.
  - tatsuke95 15y ago
    "Overall you seem very down on Zynga and Groupon. Note that they have both IPO'd and have far from tanked. They are both in business with no apparent sign of bankruptcy etc." It's not about bankruptcy. As you say, both Groupon and Zynga will likely continue as profitable businesses for the foreseeable future. But the IPO valuation isn't determined by their ability to stay in business; it's based off their ability to grow. The P/E ratio is close to 80 (Google's is ~20). That means the company is expected to increase earnings dramatically. Do you see that happening? All the data looks like they're plateauing or even trending down. Unless they have something innovative in the pipe, the stock isn't worth the money.
cmcewen 15y ago
This article has usage statistics which explain exactly why: http://www.forbes.com/sites/greatspeculations/2011/12/16/zynga-goes-on-sale-on-first-day-out/ http://www.forbes.com/sites/greatspeculations/2011/12/16/zyn... "Empires & Allies, which was launched in June 2011, peaked soon after its launch at about 48 million monthly active users and has seen a big decline since. Currently, it has around 18 million monthly active users." As andrewfelix said, none of the games Zynga makes has the same lasting potential as World of Warcraft or Call of Duty. When each new COD title is released, a large mass of gamers shift from one title to the next. There isn't the same transition for Zynga, so none of the same virality.
- runako 15y ago
  > As andrewfelix said, none of the games Zynga makes has the same lasting potential as World of Warcraft or Call of Duty. Financially, this needs to be adjusted for cost of production. I'll go out on a limb and say that a Call of Duty costs vastly more to produce than Words With Friends. It's entirely possible that launching 4 titles annually, where each drops off to 18 million users is a good business. In another genre, id Software was able to make a good business releasing essentially a single title every 2-4 years, targeted at a small subset of male computer nerds. So comparing e.g. WoW to Words with Friends may not be a valid direct comparison. Without making a big judgement about Zynga one way or the other, I can say that the social/Facebook aspect is just about distribution of their games. That's just the channel, which also happens to be a good buzzword for pricing the IPO at the top of the range. Zynga's business is casual games, which has been a good business for quite some time. Remember all the pre-Facebook articules on how casual gaming is letting companies make money by including women in gaming? The Sims was often cited in this genre of coverage. But again, I'd put hard money down that The Sims cost vastly more to produce than Words With Friends.
staunch 15y ago
But, but, we're in a bubble!
- tatsuke95 15y ago
  Are you implying that this underwhelming IPO somehow signifies that there is or was no bubble? That messes up cause and effect: Zynga's IPO results don't determine the bubble, the bubble brought us the Zynga IPO.
  - staunch 15y ago
    Why would it require a bubble for a fast-growth company with hundreds of millions in revenue to IPO?
eekfuh 15y ago
There is some real negative sentiment here, that I understand, but don't at the same time. Yes, their growth is flattening, they've done some less than honorable things in the past, but if you look at the big picture, they have some great talent (which may or may not be leaving), they really haven't had any prolific product failures or missteps, and they've made a solid name for themselves in the gaming business. (I doubt many of their users or potential users know about the stock option BS or their past with scammy offers) I'm not saying Zynga is a clear winner, but what I am saying is, they are not a clear loser.
- moocow01 15y ago
  You have a good point but to offer a counterpoint, their many problems probably shine through or will shine through in other unpredictable ways. Its almost like having a friend who has a problem they don't want to talk about - after a while you start to notice some oddities. At the least, I would guess that their reported on behavior will drive away talent from working there and probably as a result the quality and value of their products will suffer.

65 points by jarek 15y ago

simonsarris 15y ago

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

nandemo 15y ago
That was my first thought. But it doesn't necessarily shed doubt on Zynga either. What happened here is not that the IPO failed, it's "only" that the price went down from the initial offer. Predicting a "good" initial price is hard. I think people commenting here aren't taking that into account. Besides, I bet every pre-IPO investor is still making a lot of money on this.
OllieJones 15y ago
Maybe they just priced their IPO shares correctly for a change. When the share price doubles on the first day, it means the offering price was too low. That means Wall Street gets the money, not the company and not the pre-IPO investors. They could have priced it 40% lower, and seen a big runup. But this way the company gets more working capital. That's good. Maybe that's a positive consequence of Zynga's CEO's need to hang on to so much control and equity.
- jarek 15y ago
  It always amuses me how the avowed capitalist tone of HN changes when it comes to a start-up cashing out. I wonder why "Wall Street" getting the money didn't bother pre-IPO investors and VCs in all the previous tech IPOs or stop them from investing on the same terms again and again. After all, it couldn't be that the same "Wall Street" later rewards those playing by its rules. I'm very skeptical that all participants of this IPO, from the VCs to the CEO and board to the underwriter, weren't on the same page regarding how the system works and how IPOs work in this system.

pagekalisedown 15y ago

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

dwynings 15y ago
My understanding was that Pincus wasn't selling any shares in the IPO.
- suking 15y ago
  He didn't - he sold $100mm in a private offering a while ago, not sure what the parent comment is referring to - obviously has his facts wrong.

OzzyB 15y ago

Karma?

andrewfelix 15y ago
Wouldn't it be great if capitalism worked that way.
moocow01 15y ago
I and many others would probably like to say to Pincus "Karma is a bitch" but I'm sure him becoming a billionaire, despite the lackluster response from the market, would make that point kind of moot.
redthrowaway 15y ago
He's got a few billion in the bank, so I'm guessing not.

bitops 15y ago

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

andrewfelix 15y ago
There are plenty of parasitic and predatory businesses making motser.

ryanhuff 15y ago

I don't quite understand the problem. Zynga's closing stock price reflects what the market perceives its value to be at market close. Just because it closed down doesn't mean that the market doubts the company. It simply reflects a difference between what they priced it at and and the closing market price. You could say that this indicates that the bankers did a good job at maximizing the value for the company, and not leaving money on the table for an opening jump in price.

suking 15y ago
Problem is - bankers usually price it low expecting a decent pop to keep their big clients that get IPO shares happy. So when one of the hottest companies out there doesn't pop and with Groupon well below their highs - not looking good.
- fauigerzigerk 15y ago
  I would agree with that if these were normal times. But the world is in desaster mode, there's talk of depression, and we have a mini dot com bust going on right now. I think, pricing an IPO for a pop in this environment means leaving a lot of money on the table.
  - dsl 15y ago
    The scam works something like this: The banks who back the IPO get the right to sell themselves and large institutional investors (who treat the privilege like being handed a giant bag of money) shares before they hit the market. They buy these reserved shares, wait for the "pop up" in price as everyone scrambles to get in on the IPO, and sell at a considerable low risk profit. To put it nicely, Zynga or anyone else in their shoes, doesn't really decide how much money is "left on the table." The adults are in the room, and they are making the decisions. Zynga didn't really "pop" like it was set up to. The banks who had rigged the horse race to be a surefire bet, watched their horse break a leg around the first turn. Sure they still made some money, but nobody involved in inking the deal is looking forward to going into work on Monday.

andrewfelix 15y ago

This says it all: "Zynga's near $9 billion valuation is less than videogame maker Activision Blizzard Inc's $13.6 billion and higher than Electronic Arts Inc's $6.7 billion. In the last four quarters, Activision and Electronic Arts generated more revenue than Zynga." Activision just brought in $1 billion for one game, and EA Just sold 10 million of it's flagship title, while both their markets are expanding. I think the value of social network based games has been somewhat inflated.

cma 15y ago
You didn't say otherwise, but to be clear: revenue isn't profit. Somehow I think a failed Activision title costs a lot more to produce than a failed Zynga launch. (I don't know the numbers behind what Zynga is doing well enough to make any judgement on their IPO in general)
- potatolicious 15y ago
  I'll say this: a company's products are IMO a far better predictor of future success than any of its ledgers and reports. RIM was financially extremely successful for years, even though they were no longer building competitive products. It takes time for the books to catch up to reality. Looking at Zynga's products, and looking at Activision's products, I know who my money is on for still existing in five years. The only thing I hear about Zynga outside of startup-IPO talk is about people quitting their games. Social gaming, in its current incarnation (that dastardly, insidious, vampiric incarnation) experienced a surge of novel popularity, and is quickly fading. Contrast with Activision (and EA, and any of the major publishers) who seem to be selling more and more copies and gathering more and more fans with every iteration of their major franchises. One company stands atop products with increasing popularity and mass-market appeal. The other has ridden past the highs of a fad and is on a slow spiral to irrelevancy. Who else here feels like there are parallels to be drawn between this and Groupon? Companies past their prime, products with dubious futures... and overall widely criticized by industry insiders for being poor bets. Yet IPOed anyways, all smelling like just a way for people to cash out while they still can.
  - 15y ago

Karunamon 15y ago

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

geuis 15y ago

How does this surprise anyone? It made perfect sense a few years ago for Google to go public. They had at a minimum a successful, growing business. It was also clear that there was plenty of room to grow in the core business (search) and that there were many other markets they could enter. Zynga, to me, is like Groupon. Businesses with no clear foundation. Investing in them is like investing in tulips in Holland in the 1630's. I feel that if Facebook goes public, that will be successful. They offer something very real, in connecting hundreds of millions of people and, eventually, billions. If you're looking at growing markets, there's at least 3-4 billion more on the way in the next few decades. There's lots of ways to build businesses around that. Myspace would never have been successful in an IPO. On the surface, they seem like they did the same thing. But the focus of Myspace was always wrong. They weren't really about connecting people at the core. Facebook has been.

badclient 15y ago
Your comment is very hard to interpret without clearly defining what you mean by "clear foundation" and "successful." Overall you seem very down on Zynga and Groupon. Note that they have both IPO'd and have far from tanked. They are both in business with no apparent sign of bankruptcy etc. You make them look bad by comparing them to the biggest tech successes(such as Google). The thing is, you can make vast majority of companies look bad in comparison to Google. But that misses an important point about public markets: there is plenty of room for non-googles in the stock market.
- tatsuke95 15y ago
  "Overall you seem very down on Zynga and Groupon. Note that they have both IPO'd and have far from tanked. They are both in business with no apparent sign of bankruptcy etc." It's not about bankruptcy. As you say, both Groupon and Zynga will likely continue as profitable businesses for the foreseeable future. But the IPO valuation isn't determined by their ability to stay in business; it's based off their ability to grow. The P/E ratio is close to 80 (Google's is ~20). That means the company is expected to increase earnings dramatically. Do you see that happening? All the data looks like they're plateauing or even trending down. Unless they have something innovative in the pipe, the stock isn't worth the money.

cmcewen 15y ago

This article has usage statistics which explain exactly why: http://www.forbes.com/sites/greatspeculations/2011/12/16/zynga-goes-on-sale-on-first-day-out/ http://www.forbes.com/sites/greatspeculations/2011/12/16/zyn... "Empires & Allies, which was launched in June 2011, peaked soon after its launch at about 48 million monthly active users and has seen a big decline since. Currently, it has around 18 million monthly active users." As andrewfelix said, none of the games Zynga makes has the same lasting potential as World of Warcraft or Call of Duty. When each new COD title is released, a large mass of gamers shift from one title to the next. There isn't the same transition for Zynga, so none of the same virality.

runako 15y ago
> As andrewfelix said, none of the games Zynga makes has the same lasting potential as World of Warcraft or Call of Duty. Financially, this needs to be adjusted for cost of production. I'll go out on a limb and say that a Call of Duty costs vastly more to produce than Words With Friends. It's entirely possible that launching 4 titles annually, where each drops off to 18 million users is a good business. In another genre, id Software was able to make a good business releasing essentially a single title every 2-4 years, targeted at a small subset of male computer nerds. So comparing e.g. WoW to Words with Friends may not be a valid direct comparison. Without making a big judgement about Zynga one way or the other, I can say that the social/Facebook aspect is just about distribution of their games. That's just the channel, which also happens to be a good buzzword for pricing the IPO at the top of the range. Zynga's business is casual games, which has been a good business for quite some time. Remember all the pre-Facebook articules on how casual gaming is letting companies make money by including women in gaming? The Sims was often cited in this genre of coverage. But again, I'd put hard money down that The Sims cost vastly more to produce than Words With Friends.

staunch 15y ago

But, but, we're in a bubble!

tatsuke95 15y ago
Are you implying that this underwhelming IPO somehow signifies that there is or was no bubble? That messes up cause and effect: Zynga's IPO results don't determine the bubble, the bubble brought us the Zynga IPO.
- staunch 15y ago
  Why would it require a bubble for a fast-growth company with hundreds of millions in revenue to IPO?

eekfuh 15y ago

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

moocow01 15y ago
You have a good point but to offer a counterpoint, their many problems probably shine through or will shine through in other unpredictable ways. Its almost like having a friend who has a problem they don't want to talk about - after a while you start to notice some oddities. At the least, I would guess that their reported on behavior will drive away talent from working there and probably as a result the quality and value of their products will suffer.