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OK, I have done a bit of math: Book value (all assets - all liabilities): $2.46 per share Book value less expected write off of $90M: $2.34 Book value less a

OK, I have done a bit of math: 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

asdf333 14y ago
I also agree it should be at current assets as well. no one should really count on the intangibles (particularly not goodwill) What is the "short term investments" line item on the balance sheet under current assets? Are those corporate bonds or other highly liquid assets?
- goodcanadian 14y ago
  I don't know if I would go as low as net-net (current assets less all liabilities). The building is probably worth approximately what they paid for it. There is probably some furniture and computers and things that may or may not be worth their carrying value (depreciation is supposed to account for the decline in resale value). 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.
steve8918 14y ago
You don't perceive value the business? They still generate $300M in revenues per quarter. That sounds more like an emotional valuation rather than an objective valuation.
- goodcanadian 14y ago
  Yes, and they spend nearly $400M per quarter to generate that revenue. Using more precise numbers, their net loss over the last 4 quarters was about $0.73 per share. By my rule of thumb of awarding a P/E of 10, that makes the business worth -$7.30 per share. 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.
  - firebones 14y ago
    The most damning thing in all of this is that while the obvious salvation for Zynga is to be a roadkill acquisition by Facebook (where immediately much of their overhead is removed through reduced transaction costs), the market is placing a negative expected value on it. 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?
    - coliveira 14y ago
      Wall street assigns a lot of value to management. And with reason - it is the management that has turned over companies such as IBM and GE over the years. The departure of basically the whole upper management of the company is the most ominous sign in this story.
    - tatsuke95 14y ago
      >"Aside from no faith in management, what else could be the reason for the discount?" 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...

asdf333 14y ago

I also agree it should be at current assets as well. no one should really count on the intangibles (particularly not goodwill) What is the "short term investments" line item on the balance sheet under current assets? Are those corporate bonds or other highly liquid assets?

goodcanadian 14y ago
I don't know if I would go as low as net-net (current assets less all liabilities). The building is probably worth approximately what they paid for it. There is probably some furniture and computers and things that may or may not be worth their carrying value (depreciation is supposed to account for the decline in resale value). 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.

steve8918 14y ago

You don't perceive value the business? They still generate $300M in revenues per quarter. That sounds more like an emotional valuation rather than an objective valuation.

goodcanadian 14y ago
Yes, and they spend nearly $400M per quarter to generate that revenue. Using more precise numbers, their net loss over the last 4 quarters was about $0.73 per share. By my rule of thumb of awarding a P/E of 10, that makes the business worth -$7.30 per share. 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.
- firebones 14y ago
  The most damning thing in all of this is that while the obvious salvation for Zynga is to be a roadkill acquisition by Facebook (where immediately much of their overhead is removed through reduced transaction costs), the market is placing a negative expected value on it. 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?
  - coliveira 14y ago
    Wall street assigns a lot of value to management. And with reason - it is the management that has turned over companies such as IBM and GE over the years. The departure of basically the whole upper management of the company is the most ominous sign in this story.
  - tatsuke95 14y ago
    >"Aside from no faith in management, what else could be the reason for the discount?" 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...