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Would you buy Zynga if the shareholders PAID you to take it away?
“Zynga is currently trading at a discount to cash”, scream the pundits. “Zynga’s shareholders would like to pay you to it off their hands” say the headlines.
Is it really true? Yesterday’s market value for Zynga was $1.67 billion. They have $1.22 bn in cash or marketable securities (meaning bonds and shares that they could sell at the touch of a button in the market). They have another $426m in long term investments such as corporate bonds. They bought their SF headquarters for $275m in April 2012. So the financial and property assets total realisable assets are $1.92 billion. Based on the share price on Wednesday 24th October (before their third quarter announcement), if you bought all of the shares for $1.67m, you would immediately get cash and property worth $1.92 bn. The shareholders would have paid you $247 million to take Zynga off their hands.
In practice this won’t happen. Firstly, shareholders expect a premium when someone buys the whole of the company. Secondly Mark Pincus has voting rights and could block a deal. Thirdly if the market gets a sniff that a serious buyer is circling, the price will immediately spike. The only person who can take Zynga private is Mark Pincus (with financial help) and I would bet that he is considering it.
The more interesting question for readers of MCV is whether Zynga’s travails reflect the wider free-to-play business. On the way up, Zynga was lauded as the company that embodied the new world of gaming. It had expanding audiences, growing revenues and brought a new category of gamer – the whales – to wider attention. Many pundits, myself included, viewed it as a massive success story.
I still think that any company sitting on $1.6 billion in cash after less than 5 years in business has done something right.
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