On December 16, 2011, Zynga opened on NASDAQ at $10 per share. This means the social games company raised about $1.15 billion and put its valuation at about $7 billion. This put it among Groupon and LinkedIn (with Facebook soon to follow) as the group of tech companies setting the new trend and bar of IPOs.
What a strange and sordid time that was.
J.P. Morgan, underwriter for the San Francisco-based gaming network, used to have a 6.7% stake in Zynga back in January of 2012. That equated to 6.7 million shares, or $61 million given the $9.12 trading price. They’ve now relinquished their hold and sit tight at 2.6 million shares, which, through dilution and other fiscal shenanigans, is less than half a percent of stock. This puts their current monetary holding in Zynga at $7 million.
Zynga’s outlook as always been rocky and a bit of an up-and-down roller coaster with the acquisition of Draw Something developers Omgpop and the release of several board game versions of their popular titles but also the closing of several studios and consistent neutral to negative analysis from business analysts. However, it should have been clear that Zynga wasn’t headed anywhere good even before the IPO when its valuation rapidly dropped from $20 billion to $14 billion to its eventual $8.9 billion. Their opening day actually closed down five percent and would have been worse had it not been for the likes of J.P. Morgan making a “stabilizing bid.”
Zynga, for the most part, is still a well-operating machine. And apparently, their games are even kinda okay now! But their rapid and depressing decline is still emblematic of several problems. First off, people are investing in companies that they don’t understand (Groupon, Facebook, etc.). This is not another dot com bubble burst, but it is definitely a wake-up call to everyone that the Internet is not a bag you reach into and pull out GV airplanes. Second, Zynga does not have a sustainable business model. It is tied up in dirty F2P practices and shotgun blasting everyone with enough games to not think about the fact that most of their money relies on Facebook.
Coal mines used to use canaries as an early warning system. Toxic gases would kill the bird before the miners. This didn’t mean the mine was tapped; just that it was too dangerous to continue. J.P. Morgan certainly isn’t dead and Zynga definitely isn’t out of ideas, but their little canary has at least flown the coop.