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Please do not be a contrarian who buys ZNGA. You will probably lose money. They have 3,000 employees,[1] even though their business model revolves largely arou

Please do not be a contrarian who buys ZNGA. You will probably lose money. They have 3,000 employees,[1] even though their business model revolves largely around cloning[a] games that are simple enough for very small teams to create.[2] They're losing money; their EPS is -1.30.[3][4] Just because they have cash from investors doesn't mean that the business model will make significant money in the long run and it's made more complicated by the fact that they have a very heavy dependence on Facebook.[5] They're also dependent on casual gamers (who don't have much loyalty or will to pay) and current trends.[b] Apparently, only 2% of their customers pay for their games.[5] Their stock market valuation seems largely mapped to their active user count[6] (and also Facebook's share prices[5]) rather than their financials.[c] In fact, I can't even say that they're overvalued because that involves looking at the P/E and with a negative EPS, I can't really do an apples-to-apples P/E comparison of Zynga against companies that are actually listed as profitable. Is a -3.8 P/E overvalued?[4] It certainly is risky! ----- [a] They also buy some companies behind popular games too, like OMGPOP. This isn't necessarily a good idea.[7] [b] The use of the term "game craze" in the title of the parent article implies that part of the reason ZNGA has a valuation in the billions is because of the current trendiness of Facebook games. The problem with relying on trendiness for investments is that when there's something even trendier (i.e. mobile apps), all the investor money that chases trendy stuff could simply go there instead. [c] It was a popular dot-com bubble plan to focus on market share with a free product at a sustained financial loss.[8] Of course, it's too early to tell if ZNGA will sustain its losses in the long run because its stock is too young. Still, it's very risky. ----- [1] https://en.wikipedia.org/wiki/Zynga https://en.wikipedia.org/wiki/Zynga [2] https://s3.amazonaws.com/nbpromo/dearzynga.jpg https://s3.amazonaws.com/nbpromo/dearzynga.jpg [3] http://www.google.com/finance?q=NASDAQ:ZNGA http://www.google.com/finance?q=NASDAQ:ZNGA [4] http://data.cnbc.com/quotes/ZNGA http://data.cnbc.com/quotes/ZNGA [5] http://beta.fool.com/buffettbeater/2012/06/11/dont-get-zynged-zynga/5571/ http://beta.fool.com/buffettbeater/2012/06/11/dont-get-zynge... [6] http://www.marketwatch.com/story/zynga-falls-on-ugly-facebook-trend-2012-06-12 http://www.marketwatch.com/story/zynga-falls-on-ugly-faceboo... [7] http://www.forbes.com/sites/insertcoin/2012/05/04/draw-something-loses-5m-users-a-month-after-zynga-purchase/ http://www.forbes.com/sites/insertcoin/2012/05/04/draw-somet... [8] https://en.wikipedia.org/wiki/Dot-com_bubble#Bubble_growth https://en.wikipedia.org/wiki/Dot-com_bubble#Bubble_growth

ChuckMcM 14y ago
Well their 180 day lockup is about to expire as well. I would fully expect some folks to liquidate next week, perhaps this is in anticipation of that. One of the weird things about World of Warcraft was that there are (or were) folks who would sort of hang out in that world just to socialize and sometimes, perhaps, go out and kill some stuff. The 'hanging out' part was key, and I am convinced that if Blizzard could figure out a way for folks to sit down and play cards or checkers or something it would be popular. People like to sit around and socialize, and if they can do it with an 'excuse' like a game of cards or a table top game, well that is just icing on the cake. I don't think Zynga has quite got the formula down yet but when they do, or someone does, you will see the rise of the 'Grandma chat rooms'.
- fjarlq 14y ago
  Looks like ZNGA's lockup period has already expired: http://www.ifre.com/equities-zynga-insiders-race-to-cash-in-us$400m/21005868.article http://www.ifre.com/equities-zynga-insiders-race-to-cash-in-... "IPO underwriters controversially agreed to early waiver of a lock-up agreement preventing insider selling within 165 days of going public" So lock-up expired May 28.
- Aethaeryn 14y ago
  > The 'hanging out' part was key, and I am convinced that if > Blizzard could figure out a way for folks to sit down and play > cards or checkers or something it would be popular. The problem with Zynga is that they built up casual games around a general purpose social network. I agree that social-oriented minigames would provide a much better user experience if they were built around a larger game environment, like a high-quality MMO. People who form groups in games want to be able to socialize, so social mini-games built around such a game is a good idea. Another advantage, of course, is that you don't necessarily have to tie your full real life identity to your social identity. This allows people to be freer about what they can say or do, and might be more appealing.[a] ----- [a] Yes, an argument can be made that attaching one's RL name to a post makes abuse less likely, but I believe that effective moderation of a community is a much stronger factor in having a quality community than simply requiring real names. I've seen places on the Internet where people were happy to flame using their full name and identity because of no moderators. On the other hand, HN is a good example of a civil online environment where real names are not required.

ChuckMcM 14y ago

Well their 180 day lockup is about to expire as well. I would fully expect some folks to liquidate next week, perhaps this is in anticipation of that. One of the weird things about World of Warcraft was that there are (or were) folks who would sort of hang out in that world just to socialize and sometimes, perhaps, go out and kill some stuff. The 'hanging out' part was key, and I am convinced that if Blizzard could figure out a way for folks to sit down and play cards or checkers or something it would be popular. People like to sit around and socialize, and if they can do it with an 'excuse' like a game of cards or a table top game, well that is just icing on the cake. I don't think Zynga has quite got the formula down yet but when they do, or someone does, you will see the rise of the 'Grandma chat rooms'.

fjarlq 14y ago
Looks like ZNGA's lockup period has already expired: http://www.ifre.com/equities-zynga-insiders-race-to-cash-in-us$400m/21005868.article http://www.ifre.com/equities-zynga-insiders-race-to-cash-in-... "IPO underwriters controversially agreed to early waiver of a lock-up agreement preventing insider selling within 165 days of going public" So lock-up expired May 28.
Aethaeryn 14y ago
> The 'hanging out' part was key, and I am convinced that if > Blizzard could figure out a way for folks to sit down and play > cards or checkers or something it would be popular. The problem with Zynga is that they built up casual games around a general purpose social network. I agree that social-oriented minigames would provide a much better user experience if they were built around a larger game environment, like a high-quality MMO. People who form groups in games want to be able to socialize, so social mini-games built around such a game is a good idea. Another advantage, of course, is that you don't necessarily have to tie your full real life identity to your social identity. This allows people to be freer about what they can say or do, and might be more appealing.[a] ----- [a] Yes, an argument can be made that attaching one's RL name to a post makes abuse less likely, but I believe that effective moderation of a community is a much stronger factor in having a quality community than simply requiring real names. I've seen places on the Internet where people were happy to flame using their full name and identity because of no moderators. On the other hand, HN is a good example of a civil online environment where real names are not required.