So, after all the hype, Zynga – they of Facebook games – finally went from a privately owned company to a publicly traded company on the stock markets.
Shares started at $10 a pop. By the end of the day, those shares had dropped to $9.50.
To put this into some perspective;
Earlier in the year, Stock Traders had predicted that Zynga would be valued at between $14 billion and $20 billion. EA is valued at roughly $9 billion, whilst Activision is worth just shy of $14 billion. Both companies generate more annual income and revenue than Zynga.
After their first public trading, Zynga is worth $8.9 billion, and apparantly on its first day only generated shares totaling $1 billion.
And with that came two worrying statistics; one, the share price was stabilised only by Zynga’s underwriters putting in a bid to prop up the share price. And secondly, the analysts that had once hailed Zynga as so valuable warned that unless Zynga can show valid commercial growth, the share price can only go down.
Also worrying for Zynga is the fact that it is hemorrhaging users, and that it held back 15 million shares, thereby defeating its own stock by not providing enough investment opportunities.
But in laymans terms, the issue is this;
If you invested $10,000 in Zynga, your shares are now only worth $9,500.
I could go on and on about bubbles and optimistic valuations, but the crux of the issue is this – Zynga, for all its comparative success, isn’t as valuable as we were led to believe, and it is not alone in the market for doing this; far too many businesses in the gaming world are starting to realise that those numbers they’ve been relying on to take out credit are just that – numbers. Their actual values are far less than they have convinced themselves they are.
This isn’t usually a problem in a time of economic plenty; when credit is good and freeflowing and people are out there to sell to, you can make projected forecasts above your station. But we’re not in that position. We’re in a time of economic drought; where credit is being restricted, and the general public are tightening their belts. And when you can’t meet your forecasts, you’re in trouble.
Zynga just got served a slice of reality – and the $1 billion PopCap buyout has just as much potential to blow up in EA’s face if they can’t make the business pay its way. As I have stated before, at conservative estimates, it will take PopCap at least 10 years to pay off the money EA spent on them – my sums reckoned that may even be closer to 20 years. That’s an awfully long time when it comes to money, and business. EA may not even be around in that time. You just don’t know.
For all the money being thrown around, the only thing that can really stop bad things happening is growth. The industry and the markets have to grow, increase in value and generate more income. This means Zynga, Popcap, Rovio et al need to spread their wings and broaden their horizons.
Rovio are pinning their hopes on turning Angry Birds into a successful commercial enterprise; toys, games, comics, TV animations and a movie are all being mentioned, in order to increase the value of their property. PopCap could also increase their value in much the same way; Plants vs Zombies is so universally adored, an animated feature film has been rumoured but not confirmed. This could and would increase the value of their stock considerably. Zynga may also need to do the same thing.
It’s not all bleak; but it requires commercialising the games they’ve become known for. And whilst it all has the potential to grow their properties in value, it also carries the inherent risk that a movie may not make back its money and have the opposite effect, or a TV show may get cancelled in one season and damage the property.
It’s time to think outside the box; because games alone will not keep them afloat.