August 9, 2012 at 18:23Zynga. Perhaps the worst is yet to come
- Transfer
Last week was lousy enough for Zynga. The decline in earnings and the decrease in forecasts for the upcoming fiscal year resulted in a 40% drop in the company's shares. This event activated the foretellers-fatalists.
Making an obituary for Zynga is somewhat premature, but the company is almost guaranteed to have a worse situation before the light appears at the end of the tunnel.
In an attempt to correct the current state of affairs, Zynga is faced with a huge number of obstacles. The growth of social games is slowing, and the number of players in the company's flagship games is falling. Investors are aware of these events, and have every right to worry. But the biggest impending problem is the expiration of options for employees.
On August 16, the ban on the sale of 150 million shares will expire. This means that employees will be able to sell their shares. Today, the company's shares are not the subject of desire. And real money is better than their absence. And it is safe to say that some employees will cash out their options.
Zynga used the option as one of the main chips when recruiting for work on pre-IPO days. Developers moved from the gaming industry to consoles not so much because they believed in the future of the company (although this should not be discounted), but because of the hope of a quick enrichment as a result of the IPO.
At that time, the explosive growth of Zynga shares was not in doubt. But in this world there is nothing permanent. And those developers who are thinking about the next change of work, before leaving, will transfer a certain number of shares in cash.
The situation is complicated by the number of Zynga shares available for trading. When Zynga became a public company, a total of 100 million shares were available. Between the secondary placement of shares and the expiration of 3 periods of prohibitions on the sale, the number of shares reached 600 million. The last ban on sales expires in August, and the number of shares will rise to 800 million.
A large number of stocks usually makes companies less volatile, but for Zynga the offer begins to exceed demand, which will ensure even greater subsidence of the stock price.
And you can rest assured that Zynga shares are currently falling. Alarmists say Zynga shares sell for half the price of THQ. This is not a very honest comparison, since THQ recently split 10 to 1 shares. But Zynga is increasingly entering Majesco, whose stock price has not exceeded $ 4 over the past 5 years.
In addition to the appearance of options on the stock market, ordinary litigation will lead to poor results. A California-based company filed a class action lawsuit accusing Zynga of hiding information about reducing its user base and revenue. Such cases rarely reach their logical conclusion, but create an unfavorable background and contribute to a fall in stock prices.
And it’s not entirely clear on Tuesday the decision of COO John Scappert (an EA and Microsoft veteran) to increase control over the games. This may be the most armored decision in recent years, which may adversely affect the stock price. Investors will need a scapegoat, but Scappert is one of the most savvy managers in the gaming industry. Mark Prinkus, who is now responsible for the development of games, has practically no experience, and with the deterioration of the situation, confidence in his leadership qualities will decrease.
Zynga's problems are not solely her fault. The company was pulled down and the IPO of Facebook (after which the social network landed with a thud and which postponed other public placements indefinitely). And while Zynga is looking for an opportunity to become less dependent on its largest partner, the stock price will suffer. This process includes the promotion of Zynga.com, the active hiring of partners to develop the site, but it will take some time before the fruits are received.
The mobile application market is another possible source of revenue, but Zynga has not yet learned how to profit from it. And after an overrated purchase by OMGPOP (and the subsequent unsatisfactory Draw Something results), investors will be very skeptical of purchases in this area.
Zynga is in a transitional period, and no one expects her to quickly get out of it. (Investors, of course, did not suspect that such a situation would happen soon after the IPO). If we assume that the company will be able to cope with the brain drain and adjust the course, especially in the context of mobile applications, it will be able to regain the powerful position that it was recently. But until then, investors (including options-oriented developers) will have a thorny path.
Threat. After the article was translated, a video of German Klimenko (owner of liveinternet.ru) caught my eye . Reasonably (pessimistically) outlines the possible future of social networks and game projects.
Making an obituary for Zynga is somewhat premature, but the company is almost guaranteed to have a worse situation before the light appears at the end of the tunnel.
In an attempt to correct the current state of affairs, Zynga is faced with a huge number of obstacles. The growth of social games is slowing, and the number of players in the company's flagship games is falling. Investors are aware of these events, and have every right to worry. But the biggest impending problem is the expiration of options for employees.
On August 16, the ban on the sale of 150 million shares will expire. This means that employees will be able to sell their shares. Today, the company's shares are not the subject of desire. And real money is better than their absence. And it is safe to say that some employees will cash out their options.
Zynga used the option as one of the main chips when recruiting for work on pre-IPO days. Developers moved from the gaming industry to consoles not so much because they believed in the future of the company (although this should not be discounted), but because of the hope of a quick enrichment as a result of the IPO.
At that time, the explosive growth of Zynga shares was not in doubt. But in this world there is nothing permanent. And those developers who are thinking about the next change of work, before leaving, will transfer a certain number of shares in cash.
The situation is complicated by the number of Zynga shares available for trading. When Zynga became a public company, a total of 100 million shares were available. Between the secondary placement of shares and the expiration of 3 periods of prohibitions on the sale, the number of shares reached 600 million. The last ban on sales expires in August, and the number of shares will rise to 800 million.
A large number of stocks usually makes companies less volatile, but for Zynga the offer begins to exceed demand, which will ensure even greater subsidence of the stock price.
And you can rest assured that Zynga shares are currently falling. Alarmists say Zynga shares sell for half the price of THQ. This is not a very honest comparison, since THQ recently split 10 to 1 shares. But Zynga is increasingly entering Majesco, whose stock price has not exceeded $ 4 over the past 5 years.
In addition to the appearance of options on the stock market, ordinary litigation will lead to poor results. A California-based company filed a class action lawsuit accusing Zynga of hiding information about reducing its user base and revenue. Such cases rarely reach their logical conclusion, but create an unfavorable background and contribute to a fall in stock prices.
And it’s not entirely clear on Tuesday the decision of COO John Scappert (an EA and Microsoft veteran) to increase control over the games. This may be the most armored decision in recent years, which may adversely affect the stock price. Investors will need a scapegoat, but Scappert is one of the most savvy managers in the gaming industry. Mark Prinkus, who is now responsible for the development of games, has practically no experience, and with the deterioration of the situation, confidence in his leadership qualities will decrease.
Zynga's problems are not solely her fault. The company was pulled down and the IPO of Facebook (after which the social network landed with a thud and which postponed other public placements indefinitely). And while Zynga is looking for an opportunity to become less dependent on its largest partner, the stock price will suffer. This process includes the promotion of Zynga.com, the active hiring of partners to develop the site, but it will take some time before the fruits are received.
The mobile application market is another possible source of revenue, but Zynga has not yet learned how to profit from it. And after an overrated purchase by OMGPOP (and the subsequent unsatisfactory Draw Something results), investors will be very skeptical of purchases in this area.
Zynga is in a transitional period, and no one expects her to quickly get out of it. (Investors, of course, did not suspect that such a situation would happen soon after the IPO). If we assume that the company will be able to cope with the brain drain and adjust the course, especially in the context of mobile applications, it will be able to regain the powerful position that it was recently. But until then, investors (including options-oriented developers) will have a thorny path.
Threat. After the article was translated, a video of German Klimenko (owner of liveinternet.ru) caught my eye . Reasonably (pessimistically) outlines the possible future of social networks and game projects.