Rokkan's Zach Newcomb: Zynga Went Public At An Insane Valuation
Executive Account Director says "investors seeking security won't find much comfort in owning equity in Zynga, which sells goods that don't actually exist."
Last December, Zynga went public, a bold step for the company behind such breakout hits as FarmVille and Words With Friends. The stock hit the market December 16 at $11, reached $11.50 and closed at $9.50.
As the months wore on, Zynga hovered in the $14 range a few days, but has since fallen back to Earth, where it now sits at a disappointing $5.05, as shareholders and critics debate the company's ability to break away from Facebook while monetizing virtual goods, issues that have drawn interest from Rokkan, a full-service digital agency that assists companies with creating marketing strategies and online business solutions, with a client list that includes 2K Games, Square Enix and Microsoft.
"Everyone's asking the question of why Zynga has seen its share price drop more than 60 percent since its IPO, and more recently, take a particularly tough beating in the market," said Rokkan Executive Account Director, Zach Newcomb. "Most analysts and pundits are pointing to the fact the company is facing a significant challenge from mobile gaming and is already seeing its user base decline by almost 10 percent last month. There is also that elephant in the room of Facebook, on which Zynga's business heavily relies, and which has seen the growth of its own user base take a hit which has certainly quelled investor excitement, or what's left of it."
To that, we had to ask, how much of this is Zynga's doing, or does the publisher's situation point to a growing problem within the tech industry?
"Zynga's plummeting share price," Newcomb said, "speaks less to the health of the business itself and more to the economic climate and the perverse valuations that surround some tech stocks today."
"First of all, our country's hope for a receding recession is beginning to wane, thanks to recently low unemployment numbers, not to mention a troubled global economy, and investors seeking security won't find much comfort in owning equity in Zynga, which sells goods that don't actually exist and went public at an insane valuation amidst a number of other tech companies securing financing based on not a single dollar of sales."
"That said, Zynga actually has much stronger financials than many other recently public tech companies, but that certainly doesn't substantiate the valuation it commanded at its IPO, nor does it ease the minds of investors desperate for return, but less than sophisticated about the tech industry and eager to buy into the hype of businesses like Facebook, Instagram, Pinterest and Zynga, even though the connection between the prices those businesses are demanding and the revenue they can generate is less than clear."
This could spell tough times for Zynga and its future under current CEO Mark Pincus, whose direction has been questioned in recent months.
"If you know of a business with a clearer picture of its healthy revenue prospects," said Newcomb, "please let me know."