... according to one analyst. Paraphrased from the article: J.P. Morgan analyst Doug Anmuth wrote (Zynga's) assets are worth $2.46 per share... In afternoon trading Friday, Zynga stock was at $2.35.
Troubles seem to be following the struggling game maker, Zynga Inc
(NASDAQ:ZNGA), this time now with the exit of Laurence “Lo” Toney, an executive
who oversaw the company’s hugely popular online poker game.
Tony’s exit was revealed via his LinkedIn profile, where he changed his current
profession to “mentor at MuckerLab,” a Los Angeles startup accelerator, and
lists Zynga Inc (NASDAQ:ZNGA) among his previous professions.
[...]
Tony now joins the list of top-level executives who left Zynga Inc
(NASDAQ:ZNGA) in the past couple of months. In September, Chief technology
officer Allan Leinwand and chief marketing and revenue officer Jeff Karp
resigned, while in August, chief operating officer John Schappert and chief
creative officer Mike Verdu left the company. Not only this, but the game maker
also witnessed the exit of two vice presidents, Bill Mooney and Brian
Birtwistle, at the end of August.
Sometimes this is a good opportunity to invest BUT in this case I would steer clear. I think their business model is questionable which brings into question their profitability. If they continue losing money, they could burn through their book value in no time.
Commonly, in addition to cash burn, a company's assets are a) overstated b) will not fetch fair market value in a firesale c) have many additional costs during the bankruptcy process.
In addition, large funds cannot sell their shares instantly, therefore will depress value below net assets, in effect paying a premium to get out of the stock.
They may have $X of cash or close-to-cash assets, but the company also isn't shutting down tomorrow and liquidating. They will continue to spend into the foreseeable future, making its probably future value something less than $X.
Basically, the future value of Zynga's games is worth less than the future revenue, creating an expected net value decrease.
The expectation is that it will continually lose money down to the point of the valuation.
For example, say in an imaginary world I have a piece of real estate and its worth 500k right now but its pretty much assumed that because of X, Y and Z real estate in the area is going down on average 20%. Because of that if you are the buyer you'd argue that a fair price to buy the house is actually 400k. Same thing with companies - on average, investors think Zynga will be a loser down to the point of its current stock price.
The price of a stock as with any other price merely reflects supply and demand and not it's intrinsic value which is generally unknowable.
If you have an opportunity expected to double your money then it makes sense to sell an asset below 'asset value' to avoid taking on missed opportunity costs.
Example:
You have $1mm in Zynga stock @ $2.35, and no cash on hand.
You expect the stock to trade at $2.85 in 1 year.
You have the opportunity to buy APPL and expect AAPL to double in 1 year.
The EV of AAPL is $2 mm
The EV of Zynga is $1.21 mm
Therefore excluding transaction costs it's the smart play to sell Zynga stock for any price above $1.87.
Since you've probably lost heavily on Zynga you can use the tax losses from a sale to offset the gains from the APPL profit, where as holding Zynga for the EV would merely result in a reduced tax loss.
Because no one looking for market index returns would hold Zynga in anything other than an index fund. If you hold zynga you're looking for a homerun, or a trader.
Thus I used numbers that would appeal to the type that might hold Zynga stock. The type that had a risk profile involving losing 90% of the stock's value in 6 months.
The "fundamentals" in this example are static. But presumably they're not going to fire everyone tomorrow, so at least a good proportion of their cash on hand is as good as spent.
Then, in order to stay in business, they might need to take on massive debt, or there's a chance of severe dilution, and the likelihood of this will lower the stock value further.
To take an extreme example, if everyone assumed the company was going to run itself into the ground, mortgaging its real estate, etc., until it has zero other options, then the stock would be basically right now $0, no matter how much real estate or cash in the bank in had right now.
As to "why", equity values are often more about emotion than reality (sometimes much more). Sometimes people want to bail from a stock that's become unpopular, and they don't bother to notice that the stock valuation is lower than the value of the buildings and inventory.
As to "how", there's nothing to stop a market valuation from being lower than the most basic assessment of the physical value of a company's assets, separate from present and future business prospects.
The single most important thing to remember about equities is that decisions need to be based to some extent on how stockholders think and behave, not necessarily on what makes sense. A person could on principle hold onto a stock in a company whose assets are very valuable, only to watch the stock drop to $0.01 per share, based on mass psychology rather than common sense.
It's a good headline, buut won't the market correct this naturally to account for the fact it's worth "less" than it's assets or is Zynga going to just keep dropping?
> It's a good headline, buut won't the market correct this naturally to account for the fact it's worth "less" than it's assets or is Zynga going to just keep dropping?
Not unless equities investors decide to act rationally, and there's little evidence for that. Stocks falling below the true value of company assets is such a common occurrence that cagier, usually bigger, players will locate and "greenmail" such a company into buying their own stock with company assets to correct the difference between market valuation and basic value.
So I guess the answer to your question is "yes" but exactly how this happens is sometimes rather complicated.
Obviously if a company can be located whose physical plant and inventory value is higher than its stock valuation, such a company is vulnerable to a takeover by anyone able to detect this peculiar state of affairs and act on it.
Actually, it's quite a rational approach. As an equity investor, you have to articulate a certain expectation for cashflow. If you believed that Zynga would give up the game and liquidate itself now, you might price it to net assets. However, the expectation is that although they may have $X in net assets available, they're going to keep bleeding that out until they have less than $X. Basically, you've got a CEO with a dollar, and you don't even believe s/he is going to earn enough to make back that dollar after all the money s/he wastes.
Stock price is the price of the last share sold, not every share. If someone tried to raid Zynga for its cash, buying up all the shares, they would buy all the shares offered at $2.35, then all the shares offered at $2.45, ... until they end up paying $3 or $5 or $100 for the 50% ownership they need to take over the company and shut it down. The total cost of the company would be more than (last share sale price) * (# of shares)
they said the same with Nokia about valuation.
They were saying only it's patents are worth 7 B ... but at some point all NOK was valued at 6.1 B . It has recovered since, but the idea is that you can burn your cash real quickly if you're not earning new income
Why is there no discussion of obligations? A company could have a lot of cash and real estate, but debt obligations could wipe out a ton of that value. I realize the discussion is about Zynga's deteriorating future but it seems that in order to draw any conclusioons from the stock price being lower than cash+real-estate a discussion of obligations is required.
So heartbreaking. The front-line folks at Zynga were worked to the bone, by so many insider accounts. Now all the stock they were counting on has had most of its value evaporate.
But that's life, right? Counting on equity is, simply, a gamble.
Except when you've rigged the table, as Pincus and his cronies have.
They got to play by different rules than the folks whose hard work got them to IPO. Instead of being subject to lockup, like the rest of Zynga, they got to cash out early, before the true state of their company was fully appreciated by the market.
So what's the lesson?
Don't trust people willing to fuck people over to make a buck. You're not special. If there's a buck in it, you'll get fucked too.
Any developer with a moderate amount of common sense who chose to work for Zynga should've seen this coming. Zynga has been criticized for its business model and the way it treats its employees for a long time now.
While I have never worked there, I think the assumption pre-IPO was that yes you might get abused but it will all be worth it in the end because of the equity - remember Zynga according to tech blogs was the hottest thing coming out of the oven a couple years ago.
This also isn't all that unusual of an attitude in a hyped startup - management will abuse you (ahem, I mean expose you to a dynamic exciting work environment) and you will take it because your going to be rich in a few years... or not.
Technically I think orbit can be achieved ballistically, or even planetary/solar escape but the overwhelming majority of projectiles do land. And some of them very hard, others barely get off the ground. All of which makes it quite a good metaphor really although not the originally intended one.
I find that quote interesting. Your gamer friend might not have given you the context of the game, but it's interesting:
You pretty much know there is no cake. GLaDOS, the malevolent and controlling AI telling you there is cake, lies to you consistently. You catch on quickly that she's lying.
The warning "The cake is a lie" is scrawled in blood inside a hidden antechamber, inside one of the levels.
Somehow I feel like there are parallels here that you stumbled on more or less accidentally. Or maybe I'm being far too literary.
While I agree with this statement somewhat, I can't imagine the talented devs at Zynga didn't have common sense. Seems harsh to write those people off with essentially 'you only have yourselves to blame'. That attitude also removes some of the responsibility from the folks at the top.
> I can't imagine the talented devs at Zynga didn't have common sense.
There are a lot of very smart people who are easily blinded to the truth when confronted with the possibility of vast riches. Making the right decision here was less about talent/intelligence and more about wisdom.
Yes, that's certainly possible. However, I don't think the math worked out in Zynga's favor in this case. And the reason why people joined anyway was because it's emotionally difficult to do that math correctly when your eyes are blinded by dollar signs.
Going to the mat to double your options and attempting to deal with them with your eyes open, only to have shenanigans on the back end is nothing that can be protected against. Hey, they're a public company, the shenanigans are out of the bosses hands...or are they?
Lots of Zynga employees ended up there due to acquisitions. It's not their fault if their employer got bought and their equity (if any) at the old company became Zynga equity...
This reminds me of the riddle Varys poses Tyrion in "Game of Thrones": Three great men sit in a room, a king, a priest and the rich man. Between them stands a common sellsword. Each great man bids the sellsword kill the other two. Who lives? Who dies?
Replace sellsword with employee. All these employees got screwed, yet like the sellsword they should have had the power to get a better deal.
Is it really heartbreaking that some Silicon Valley developers, one of the highest paid professions in one of the highest paid areas of the world, only made a decent salary instead of a fantastic total compensation package?
It's unfortunate, sure. And quite a few parts of the Zynga story are downright distasteful, especially the options clawback last year.
But let's not get hyperbolic - they played the startup lottery hoping to get rich, and lost.
I think that's easy for you to say. But I bet it really, really hurts for the many folks who genuinely worked their asses off to see Zynga succeed. You put in that kind of effort only to watch your boss get rich while you get screwed?
You take Pincus and company, tie their fates to that of the employees, and everyone loses together? Fine, whatever. Like you said, they played the lottery. But the mismatch of fates is, to me, what makes this story pretty damn sad.
Right, but again, heartbreaking is hyperbolic. Heartbreaking is when you are a coal miner and you have the mine collapse on you and you die like a trapped rat. This is just a raw deal.
Well to plays devil's advocate, the coal miner is working in a coal mine because he did not get a superior education.
You can argue about why, but I am willing to bet (I don't know anyone working at Zynga) that many of these employees still have tens of thousands of dollars in college loans and seeing the sacrifices they made to get into a position in order to pay them off, erased in a matter of weeks, makes them feel like trapped rats.
I never really like these comparison though because why is a ditch digger better or worse than a computer programmer? Both hold basically the same desires. Why should one's misfortune be less important than another? They both work just as hard?
>Well to plays devil's advocate, the coal miner is working in a coal mine because he did not get a superior education.
Which is heartbreaking in itself, on top of the bloody mine crushing on him.
You say it like this argument somehow makes the Zynga case more heartbreaking, instead of less...
>I never really like these comparison though because why is a ditch digger better or worse than a computer programmer? Both hold basically the same desires. Why should one's misfortune be less important than another? They both work just as hard?
No, they don't. And they don't get the same compensation either. Or job satisfaction -- the ditch digger pretty much works that job because he has to support himself / his family and he doesn't have the means to get something different. The computer programmer could have been 10 other things if he wanted, from tech support to floor manager at a Costco.
Really, try ditch digging for a year, and then we'll talk.
And, unlike ditch diggers and coalminers, programmers (and other educated folk) can work until they die if need be. This make it or break it silicon valley thing is kind of distorting people their brains. Most people in this world have a job to provide for their family; as a developer you are much better off doing that. You get paid more, it's easier to switch jobs, you can move mostly anywhere and you can work until you're old/dead and enjoy it. A lot of educated people (at least 2 devs) over 70 I know still work and are happy to do so.
And gambling on equity when you get paid well over average with all the options you have for your future is not that bad all considered.
>>Really, try ditch digging for a year, and then we'll talk.
What's that? Is it like "First perform at the Opera House and then we'll talk Mozart"?
Most of the times they do not have same desires. For whatever reasons. Be it the immediate need to support family or the ambition the fire of desire having been lost over the years or fight and struggle to look for a stable mean to live. Or maybe the kind of education/upbringing he received. Or the company he grew up with (well, this is very important). This is also has a lot to do with the genes you were born with.
This is the nature of a capitalist society and other ones are even worse. In a capitalist people are supposed to be of uneven means so they are. In a society like communist societies people are not supposed to be of uneven means (in the usual sense) and still they are and the gap is a lot wider than that in the former society.
>the coal miner is working in a coal mine because he did not get a superior education
Now, this is heartbreaking. Given the fact that most probably not having superior education (or education at all) didn't have anything to do with neglecting studies but simply being born to poor parents.
>why is a ditch digger better or worse than a computer programmer?
It's the society we live in. There are various places on this planet where you are an untouchable by caste the caste you were born in leave alone money and job.
>I think that's easy for you to say. But I bet it really, really hurts for the many folks who genuinely worked their asses off to see Zynga succeed. You put in that kind of effort only to watch your boss get rich while you get screwed?
How is that different from 99% of jobs out there? People flipping burgers work crazy shifts with shitty compensation only to watch the franchise owners getting filthy rich.
The difference is in the expectations. In in a minimum wage job, there's no equity. You're not expecting to cash out in stock if an acquisition goes well, and there's no opportunity for the people at the top to manipulate things so that they can cash out and leave you with junk stock.
If you get a minimum wage job, you know what the deal is. If you get equity, it's reasonable to expect that you won't get screwed over completely.
It's 2012. Anyone who sincerely expects options to vest without dilution and other shenanigans is naive at best. Been there, done that in 2000 and 2004.
been there done that. Had stock options not from one, not two, but three startups in dot coms. Worked 60 hrs week - to the bone. Came through with nothing, actually lost money because in one of the startup I had to buy out my options and it came with a large tax bill for some reason
> I had to buy out my options and it came with a large tax bill for some reason
This usually happens if your option has a strike price lower than the market price at the time they're issued, in which case depending on jurisdiction they difference will usually be taxed as income on exercise. If you're really unlucky about where you are and how the options are arranged, you might even get taxed based on the market price on exercise. E.g. Norway at least used to be that way a while back unless you took specific precautions to get the options issued under an approved scheme.
It's something to be aware of, as it means a lot of people might not be able to afford to exercise the options before they're ready to sell the shares, which means your total gains gets taxed as income most places (as opposed to if you see the company on a nice upwards trajectory and exercise and wait, in which case you may end up paying only capital gains and in some cases depending on where you are might end up paying reduced capital gains rates on the growth from your exercised onwards). The difference between a good and bad options plan can easily be 50%+ tax (e.g. UK, if you're careless you might pay 53.8% - top rate income tax + national insurance + employers national insurance contributions, vs. 10% if your company qualifies for certain incentive schemes for startups and the options plan is structured right..)
It might seem great to have a really low strike price, but if you expect to be in it for the long haul and might contemplate exercising options before you're ready to sell your shares, talk to a tax lawyer before agreeing to options terms.
For those in the UK you need to read and understand the implications of Mansworth vs Jelley as it could save you a chunk of Capital Gains Tax (or allow you to carry forward a capital loss to offset future CGT).
That's why it's an intelligent move by Starbucks to let baristas own stock, it creates raised expectations and makes them literally invested in the company's success.
As much as I am a Zynga hater, this happens ALL The time.
Decide.com in 1999 - they farked over the employees and diluted the stock of everyone hoping to cash out in an acquisition - this caused a major meltdown and the company fell apart and nobody received anything.
Savi Technology was acquired by Lockheed - they stated an option price internally which was wildly wrong, granted many many many options to execs and came out and said that anyone who joined in the last 12 months had options worth zero. People who did have common shares got farked over, newer employees even worse. and all employees got ZERO equity in lockheed.
Then Lockheed stock tripled after the acquisition due to the War on Humanity and everyone was still stuck holding the bag.
This is just two direct examples.
Most companies will fuck over their employees. I don't trust ANYONE in the valley.
In addition, and this should be obvious, don't trust ANY company executive or manager that makes oral promises or allusions to future windfall without it being in writing, signed and verified by a lawyer.
I second this. Get everything in writing. But you know, even THAT isn't good enough sometimes.
But don't fret, if (when) Zynga does collapse, it's execs (including the founder, who I hear is a piece of work) will be up to their eyeballs in lawsuits. Ahh the fun, writing checks to your lawyers.
I remember this one part of the documentary Born Rich where one of the recently-turned-18 kids said that when you're born stupidly rich in the US, getting sued over something -- anything -- is basically a right a passage. He basically said it's not a matter of if you'll get sued, just when you'll get sued.
Given how litigious the US is, if I were super rich I could not imagine keeping a significant portion of my assets in the country. If you have a lot of money it makes a lot of sense to not only diversify your investments but your jurisdictional exposure as well.
If you know the lawsuits are going to take forever (time) and cost a bunch (money), not having many assets in the US makes it easy to accept a default judgement, declare bankruptcy and write off the loss entirely without ever paying any lawyers a cent.
In this case, the people being sued seem like they totally deserve a lawsuit, but that doesn't change the fact that it is naive to not diversify jurisdictionally.
> Given how litigious the US is, if I were super rich I could not imagine keeping a significant portion of my assets in the country.
You don't even need to be wealthy. The US no longer has the rule of law, so you can now be stripped of your possessions even if you are _accused_ of a crime:
This reminds me the story of forgotten Twitter founder Noah Glass and the way affairs were handled that time http://www.businessinsider.com/twitter-cofounder-noah-glass-.... It's not exactly the same situation but it's also about not giving someone the due he deserved.
People like that have lawyers on retainer. And if those same lawyers did their job when the options contracts were written, the lawsuits won't amount to anything.
This is a pretty common story. Probably more common than when the options pay anything. I once worked for a company that acquired another company. We were bigger, our CEO set up the deal, their CEO got paid, etc. But officially it was a "merger of equals". Why? Because if we'd bought them their options would have vested immediately and we would have had to buy up all the stock the employees held.
The way it was worked my company traded their options for options in the new company. Two years later everyone who had worked for the company we acquired was out of a job, and they had to decide whether or not to exercise their options in a company that wasn't publicly traded (which is madness, BTW - never, ever do that). I would have bought one of those mirrors on a stick and checked under my car every day if I'd been the CEO. But eventually he cashed out for a cool $15m.
A good friend worked for a Valley start-up in the late-90s boom. Wasn't too sure about the organization, and yes, there were some sketchy people there.
Turns out, though, that the founder was funding payroll out of his own pocket for the last couple of months. Subsequent datapoints suggest he's a good (if occasionally odd) egg.
Trust in the Valley is a very scarce commodity, but it can be found.
Zynga? I have to say I saw it coming from miles away.
A few years ago, I saw a documentary that broke my heart.
A woman in China had an unnecessary, experimental operation done at a hospital, without her consent. It caused kidney failure, and she needed a transplant.
There was a match with a family member, but the hospital refused to pay for it, even though it could have been sued into bankruptcy in the US. For the want of $7,000 USD, she was dying.
Watching her sit with her young children on her lap, deathly sick with her husband by her side, the expression of finality and despair on their faces - I'm not ashamed to admit that it made me tear up.
Now that, to me, is god damn heartbreaking. I don't disagree with the direction of your sentiment, just the magnitude of the word you are using. It's close to the strongest feelings you can have on a subject. Did you really feel a pang in your heart when you read the article?
Because to me, those two stories aren't even on the same planet.
I totally agree with you, logically; but I also don't really have any problem with the earlier poster saying it was "heartbreaking", either. Certainly to the people involved at Zynga, the situation is heartbreaking — and our sympathy/empathy responses are based on our ability to "feel" (in some way) a similar experience to that which we imagine others are feeling.
Your comment is one of those which I so very much hate about HN, because you already know it's wrong, you're just writing it because you like to argue and insult others.
By this stupid logic, you can never be happy, because there's always someone with more reasons to be happy, while the victims of a serial killer probably had it better off than a child who dies of starvation in Africa.
(Of course, you're a smart person, so I'm sure you're aware of how stupid this line of arguing is.)
You seem to be pretty strongly in support of someone who by all means cheated his employees. If that's the case, I certainly hope future employees have the foresight to do some research on who you are before agreeing to work for you.
You're misrepresenting reitzensteinm's position, which he put clearly: "I don't disagree with the direction of your sentiment, just the magnitude of the word you are using." His comment certainly seems to have been made in good faith even if you disagree with it.
Your tone on other hand is combative and patronizing. The HN guidelines say "When disagreeing, please reply to the argument instead of calling names," and "Be civil."
I tend to agree with reitzensteinm that we in Silicon Valley should remember how good we have it compared to the rest of the world. Our fortune comes not only from hard work and talent, but from being born in the right decade in a prosperous country.
I was going to comment on reitz' original statement because something was off in the way it was put.
I didn't because every time I went over it and sliced it, there was too much scope to misunderstand what was said.
But there were 2 aspects that I knew were triggers -
1) His underlying assumption that the employees were there for playing the "startup lottery". Firstly this ascribes knowledge of the mind set of the emps. Secondly this ignores the fact that Zynga also was a "safer" firm given its history and at the time, certain prospects.
The employees for that firm which are hurting today aren't necessarily the same as your first batch or second batch hires in an untested startup.
(this is why I didn't comment - there are many ways to slice and dice this further, and suffer from badly drawn edges and subsets)
2) His description of it as startup lottery. The underlying philosophy here on HN, and in most places which discuss startups is strongly merit oriented.
His statement carried the implication that all the discussions so far were eye wash - it was a lottery and people lost, bad luck.
His later clarifications were pretty crucial to explain his context, but I can completely see where he ticked people off.
That's reductio ad absurdum. Yes, taken to an extreme, it stops making sense, but all I'm arguing for is a little perspective on how lucky we are as gifted developers. I might be wrong, but I'm certainly not arguing just for the sake of it.
Your assertion that I support cheating employees just because I didn't explicitly say otherwise is quite insulting, and it's what makes me feel the need to reply to you. I think the deal they got it shitty, and I certainly wouldn't start taking money off the table before my employees could.
I think you're reading an attitude into my comments that just isn't there. I suggest we continue this conversation by email, to avoid polluting HN with what will no doubt be a long thread - mine is in my profile if you'd like to.
I don't know, I kind of read your comment to say that unless you're dying some horrible death you shouldn't be using the word "heartbreaking" to describe the plight of someone. I think it would be heartbreaking for someone to toil away their time with family and friends in the hopes of a payout only to have it blow up in their face. Relationships do die and health does suffer from the strain of some peoples endeavors. While you can say that these programmers and artists brought it upon themselves and took on that challenge, at the same time there is enormous pressure by employers and the culture itself which reinforces the notion of grinding away and sometimes poor work/life balances.
I think it's very hard to define exactly where your slippery slope of perspective begins and ends. Bottom line is that greater injustice is never an excuse for injustice. Neither are acceptable.
I think you're ignoring the role of psychology. I think you do this very explicitly in your first comment:
>some Silicon Valley developers, one of the highest paid professions in one of the highest paid areas of the world, only made a decent salary instead of a fantastic total compensation package?
The relevance of the integrity of the managers to the ways people make decisions that determine the course of their lives is not something to be taken lightly. This applies even if the consequences themselves do not appear to be so dire. There is a distinctly painful feeling that comes along with devoting your life to someone who abuses that. For those familiar with this perception, the idea that you could ignore it is preposterous. From your perspective, whatever it may be, it could beyond your imagination and experience.
You might say this:
>Is it really 'heartbreaking' when someone's 17-year-old cat dies? It's a normal and expected outcome; plus, not only were they lucky enough to afford a pet and keep it in good health, the animal itself hasn't lost much, considering it's limited cognitive capacity.
And yet anyone who has been through or even near this situation would find the argument to be incredibly callous, because the formation of human emotion has so much more to it than simply evaluating one's present situation.
I understand the sentiment that perhaps nobody is entitled to a fantastically large amount of money and that people living what we call the good life are a small minority in the world. However, that just isn't the story here.
Connections between humans are what make society possible. It's reasonable to care when they are abused.
The comment you quote was trying to point out that they will recover from this, and have a fantastic career ahead of them.
It was not meant to be a comment on how it feels today, or to suggest that we shouldn't feel empathy for them because of their future position.
I just meant that in a few years they'll look back on this and laugh, which makes it story much less sad. Do you disagree with that?
Look, I'm coming from the perspective of an outsider. OP seemed to suggest it is heartbreaking to read about Zynga, which is what I was responding to. If one of my close friends was working there, I would absolutely feel a different way.
Similarly, if I read about a kid's cat dying on the internet, it might just make me feel a bit down. When my dog died, heartbroken was exactly how I felt.
Reductio ad absurdum is a valid form of argument and not a logical fallacy. While the argument doesn't prove or disprove anything, it can show inconsistency. For example one person might say "I think taking the middle ground is always a good thing" and one might reply "So the middle ground between Hitler and Stalin is good then?", if the first person were to say "no" he would have exposed an inconsistency in his logic, rendering his first statement all but useless.
While there was a "reductio ad absurdam" in there, it appears that term was used in error. From the rest of the post, the complaint appears to have been about an alleged "straw man argument".
I have no comment on the issue, I just wanted to point out a terminology confusion.
You are both right. My use of the term was in error. I meant to say it was reduced to absurdity while being presented as an inevitable logical conclusion, which is a straw man argument.
Without the straw man, reductio ad absurdum alone is just a tool, not a fallacy, as you say.
By way of being pedantic -- reductio ad absurdum is not a fallacy. Showing extreme consequences by taking assumptions to their conclusions is perfectly valid. That's the whole point of reductio.
Commenter is right. It's almost foolish to find this heartbreaking. It could be anger, disgust (though it's not necessary they are always mutually exclusive) but it can certainly not be heartbreaking. Not in this case.
It wasn't like Zyanga kept them working while they were starving and kept them lured all along that they will be fed once Zynga stock booms up.
They always had the chance to jump ship. Esp. with many small/big ships steadily floating around ready to lift them aboard. It was a gamble for the extra cash (read bonanza) and they lost (just the bonanza).
I think his point was about the wording, the vocabulary used in the previous comment. I see a lot of hyperbole in HN, and I find the abuse of inappropriate wording revolting (haha, just kidding here). This is probably HN is populated by a lot of very young people whose toughest thing that happened to them so far is to get a bad grade in school or worse to quit college, and who therefore consider that losing a lot of money over something that is nothing but a bet can be heartbreaking.
Using overly emphatic words for not so cruel-bad situations is a bad thing, since you will be at loss for words when something worse happen. That's just a sign of lack of culture. I am not talking about the person who said "heartbreaking" in the first place, just a general observation as to what language is changing into these days.
Feelings are not negotiable. Poor people feel poor-people problem pains, rich people feel rich-people problem pains. The problems may be different, but the intensity of the pain felt by them can be of the same magnitude.
If you're in America, have $0, can't pay rent, can't buy food for your kids; the fact that kids in Africa are dying from some non-1st world disease is completely irrelevant to the pains you're having.
It's a completely different thing for an impartial third party to say person X's pain is more than person Y's pans (that's relative to the observer).
While I genuinely believe that documentary saddened you, you're basically saying that skilled workers in the first world don't deserve words connoting sympathy or outrage when they're fucked over by their employer.
You don't think Elvis was taking his economic privilege into account when he wrote "Heartbreak Hotel"? Maybe he should have called it "Momentary Romantic Setback Hotel". Or maybe the word "heartbreaking" should be reserved for citizens of the Democratic Republic of the Congo, where, all things considered, things are considerably more dire.
"The National Adjective Council must regrettably inform you that your first world documentary viewing experience was merely 'disheartening'."
How have they been "fucked over"? They've bet on equity and it did not turn out the way they hoped.
That the CEO cashed out before has nothing to do with that fact.
And with
"Pincus has a track record now of big IPO train wrecks. He founded Support.com and took it public for $14 a share during the first Internet bubble in 2000. The stock zoomed up by 133% in its first day of trading. It changed hands for more than $30 per share before tanking below $5 in 2001."
Yes they make a mistake. That mistake is to bet on an unethical business man. The point is not that, the point is the CEO set different conditions for him and different for others.
While the senior execs were allowed to cash out, guys down the ladder weren't.
Which does not mean they have been "fucked over", or in which way have they?
How does the fact that senior execs cashed out relate to the fact that they don't get rich b/c their company has no sustainable business model and the stock crashed?
Don't be obtuse. The primary insiders of Zynga sold like there was no tomorrow immediately after the IPO. They should have had the same lock-up period as the employees. The entire company just reeks of sleaze. You don't have to be a crackpot to notice these things.
Well, I think the definition applies when the thought was that the reason the CEO was able to cash out was because he set different rules for himself from his employees, as was explained, and that he knew the true outlook of the company which was bad, as was explained. What more do you require to understand the situation?
I mean, if the CEO told everyone up front about the tactics he was going to use to allow him to cash out early that also prevented everyone else from doing the same at the same time and also that the future of the company was all downhill; then maybe you have a point.
Maybe saying they were cheated is a better phrase for you?
If you don't agree that that's fine. Which, by the way, I have a bridge for sale you might be interested in...
If we're talking about pay structure and access to the executive washroom, then no.
If we're talking about employees and the CEO having equity in the same company but the CEO can cash his equity any time he feels like it while the employees cannot then there's a problem. Especially when said CEO seems to be doing questionable things to pump up the value of his stock that later collapses so that when employees finally can get money there's no money to be had.
I find it disturbing that you seem to think there's nothing wrong in this situation. There's no way you can say that the actions and behaviors of this CEO and company are the norm. If you don't understand that at this point then I'm unable to explain it to you. In this case we'll just leave it with you have your opinion and I have mine.
I never said I find it ok what the CEO did, but that's not the reason the stocks crashed, the reason being that Zygna just does not work as a business model.
And the reason they've lost their "money" is not because of the CEO having different rules.
We put far too much emphasis on prolonging life and not enough on quality of life. I have no clue who this lady was or what her background was, but $7k goes a long ways in China. Imagine if she could have instead guaranteed a solid education for every one of her children.
We spend a ton of money on end of life care that could do much more good spent elsewhere. Which would you rather have- $50k in end of life care or a free college education?
Kidney failure and a transplant, chances that the transplant doesn't work, complications following it, issues remaining for the rest of her life, etc. It's not all roses and medicine isn't as magic as it is in the movies.
Whenever I read about these documentaries, I ask myself what the guys doing the documentary did about the case.
I hope they did get the woman the U$ 7.000.
Sadly, there are stories much like that, or worse, every single day. My SO works for the state child care agency here in Uruguay, now that's a thankless job if there is one. She gets to see the worst of human beings (child rape, uncaring mothers, a mother putting her 12 year old girl into prostitution), fortunately balanced by a little of the best too (kindhearted adoptive mothers for example, and lots of supportive people).
When you think of it, those two stories are the consequence of one huge problem. Globalization, and financial empires don't give a fuck about human beings. This poor mother in China is dying because a whole chain of power/money holders don't give a dman about what could be an insect for all they care. Same for Zinga : no respect for the human beings whose income depends on what decisions the leaders make. Only, yes, i agree with you, nobody died at Zinga yet. That chinese mother did die.
I worked my ass off for a company that did very well. We were bought out and, due to certain reasons I won't go into, my stock wasn't worth very much. I make a good salary, I didn't cry about it. It's not "heartbreaking", it's disappointing. Let's not get dramatic. Zynga as a company doesn't even produce anything particularly interesting.
"Silicon Valley developers, one of the highest paid professions"
Based upon the number of hours the people who I knew at Zynga were putting in - IMHO they were far from receiving a good rate when looked at hourly.
100k at 60-70+ hrs per week in a place with some of the highest living costs is not all that admirable of pay if you ask me. Yes they are not on the street but its not exactly the bees' knees either.
Well, developers work on the internet. Good freelance developers command $70+/hour on the internet.
The cost of living in the hip part of Berlin (Kreuzberg/Friedrichshain) has nearly DOUBLED in the last 5 years. You're now looking at nearly $1500 per month for a 900 square foot 2-bedroom. :D
My place a bit farther out is €1000/mo and is 1800 square feet. My office is on one floor (the one with the small balcony) and living quarters upstairs (the big balcony).
But in line with South Bay. As long as the work is near Caltrain/BART lines, one doesn't really have to live in San Francisco unless they really want to pay premium for the privilege.
Fuck, I paid $1850 for a 650 sqft one-bedroom in Mountain View. That was before they tried to raise the rent after the Google expansion, I hear they posted it at $2400 after I left.
The place I lived in Mountain View was prime real estate. I was on Castro street, one of the only walkable places outside of San Francisco proper. There is plenty of cheaper real estate in MV.
Similarly in Battersea I live near Clapham Junction. I can get to Heathrow in 40, Gatwick in 30, Soho in 25 and Bright on 50! I can also cycle to Trafalgar Sq in 20 mins if the lights are favorable. Again, there are cheaper places around, but not without worse location or other problems with the property.
Also, the first property on the link you listed is £390 a week. You do realize that that is $2700 / month right? And you do realize that in Mountain View when you rent there is no council tax, and you don't pay estate agents any fees at all. In fact there are no estate agents, and property holders often give you some kind of deal like reduced rent for the first month to get you to sign a lease.
My 3 bedroom 1000sqft house with a garden in London has a current rental value of about $1600. That's the difference between living in a leafy, relatively unfashionable suburb in the South of London vs. living in one of the enclaves of rich people or hipsters in the centre of town. I have a 45 minute commute to the centre, door to door.
The analogue is living in Oakland or San Jose. Of course public transportation is much worse in the bay area, if you happen to live and work near the right Caltrain or Bart stops then it can be comparable.
What about all the people that work at Zynga who are not developers? The artist, the people in Q/A, and the rest? In many cases they are working just as hard without the compensation packages or virtual guarantee of another job if Zynga goes under. To me, it really is heartbreaking.
> Is it really heartbreaking that some Silicon Valley developers, one of the highest paid professions in one of the highest paid areas of the world, only made a decent salary instead of a fantastic total compensation package?
They effectively worked two full-time jobs for a year and a half, and got paid for one. Average salary for a programmer at Zynga seems to be around $100k, which is less than I make working 37.5 hour weeks, not 100-hour ones.
So, yes. It's pretty heartbreaking to see them get fucked over after giving their entire life to Zynga for the better part of 2 years. I'm not sure why you think otherwise, frankly.
But they had the option to leave anytime they wanted, no?
I don't consider it heartbreaking when someone makes a conscious decision to stick around in a crappy situation in the hopes of striking it rich and it doesn't work out.
> they played the startup lottery hoping to get rich, and lost.
What?!? Folks: ZNGA still has a market cap of almost $2 billion. Your average startup engineer is lucky to see any decent and timely exit event. So even at these "low" prices, from where I sit they are still looking better than many of their peers.
So rich people never deserve sympathy? It's got to hurt when people close to you, whom you see as peers, make off like bandits whilst you're left relatively a lot worse off.
"Life's not fair", bellum omnium. But the reason to talk about fairness is that it's something to strive for and insofar as we can make things fairer (like through SEC regulation) we should.
Nobody's saying the losers here are catastrophically equivalent to a war zone. But worthy of sympathy? Sure. Just because you're rich doesn't mean things can't suck for you, subjectively.
I think with Zynga it's the fact that it's hard to feel bad for people who work for Pincus, who laughs as he proudly relates how he got his start by peddling malware. When you work for a known-to-be shady guy in the hopes of getting rich, it makes your plight less sympathetic to most people.
It's heartening that their business model is failing. I hope it means that it keeps ever more developers from falling into that short-term trap of extracting value through psychological manipulation instead of creating things that are useful or enriching.
I've heard from a lot of people that your reputation means everything. It's a shame that Pincus's didn't catch up with him sooner, since he hardly deserves anything he's getting.
I don't find it heartbreaking at all, actually. While it may be a bummer for those who lost the gamble; it was probably a valuable life lesson. Surely they'll think twice about buying into unfounded hype, and depending on the promise of a paycheck later, someday.
Do you find it heartbreaking when a fool throws down $50k on red at the roulette table, and loses?
Heartbreaking? I feel about as bad for people working at Zynga, where they spend day and night copying other web properties, as I do for those working on the Death Star when it exploded.
"You know, any contractor willing to work on that Death Star knew the risks. If they were killed, it was their own fault. A roofer listens to this... [taps his heart] not his wallet."
100% spot on. Yah, super sux that (as usual) the top execs ride on the backs of everyone else, cash out, and buy fat crib in Pac Heights. But then again, what do you expect when the ceo is so blatant about the culture there? That sentence says it all, anyone can see it.
So, sorry folks u got screwed, but it's, literally a house of cards. Everyone early and vc that put their money in, I'd a happy camper..
When your project manager shows you a Top 25 game from the AppStore and tells you to Zynga-ify (blatantly copy it), you should know you're dealing with scum of the earth.
This is like feeling sorry for people who work overtime for telemarketers. Oh poor them. Zynga was a cheesy business to begin with, and absolutely every employee there knew it.
Anyone worth their salt could've Googled their leaderships history of creating big IPOs that end up crushing and burning. Most were complicit in it, or just rationalized it to themselves that it was different.
Second, the people who make the company - the early people - are on better terms. The guy who got hired the month before IPO shouldn't be expecting much.
The only heartbreaking thing about this is that the developers were too cowardly to say no to poor working conditions. Doing so might have actually increased quality and output and saved the company. It's every technicians' job to stop management from getting out of hand - or manage the managers, if you will.
Didn't they try to ease stock away from those who owned it pre-IPO? How has that panned out now? … Was it converted to less valuable cash at the time, or is the cash more valuable now? (or was it that they got nothing in exchange for losing the stock)
They control their cash and assets. This indicates that investors believe Zynga will use up their assets without producing any profit from them—that is, their RoE is negative.
You would be paying less than book value (value of copmany divided by number of shares), true.
However, if they lose money, then the book value will drop some more. Only if the company failed utterly and then returned the money to the shareholders (not likely) would it be "safe" to focus on book value.
Not exactly the way it would work, basically the way things are valued you can't necessarily get that much money for them. In the ideal world there would be a business there too.
Now all of this is moot if Zynga is making enough money to pay the bills, doesn't matter what their stock price is if they don't have to sell stock to raise money. So the thing to look at is when their obligations exceed their assets, that is when they are 'upside down' in the lingo. Very hard to recover from that because you can't even borrow money temporarily when that happens, you have to save money, then use the money you saved to do the thing you wanted to do, rinse and repeat and that removes your ability to react quickly.
I don't think it's undervalued by enough for that to work, yet. According to this report, the stock is currently priced 9.5% below book value, but in a hostile takeover the acquirer typically needs to pay a significant premium over current share price, in the range of 10-25%, in order to rapidly acquire a bunch of shares.
Zynga is structured such that Mark Pincus has a majority of the voting shares (50.15% to be exact). This means he cannot be fired nor can any takeover occur without his consent.
Should FB buy them? Much of Zynga's trouble has been that their interests and Facebook's didn't align.
My first thought was "Why bother? FB can just wait and pick up the good staff in the wind down." But the exact opposite of that logic has led to acquihires.
I think that Facebook gets that the current batch of skinner-box games have a limited lifespan as users (and Facebook itself) build up their immunities to them.
I have held Zynga throughout the year. The extent of leadership fail here is unprecedented. n number of remediation tactics should have taken hold early to prevent where we are now. Here is a copy of my e-mail to Pincus (still gone unanswered):
"Mark -
Can we have a man-to-man? Seriously, please explain to me, a small shareholder in Zynga, exactly what the fuck you have been doing with my investment? Clearly, the answer is not building value in any meaningful way. Any third year entrepreneur will have trouble seeing your performance this year amounting to anything other than a collected check, a leveraged office, a leased plane ($3K a wet flight hour?!? What is that a fucking citation X?!?) and an overpaid security team. If the plan is to ride this thing to the nines, let me know so that I can pull out and forget any thoughts of a really well integrated ecosystem of gaming.
BTW: If you see the OMGPOP/Draw Something team, tell them to get the fuck off of their asses (if they're still around) and do something about long-tail gamification model if they want to do something about user retention.
Your "investment" doesn't obligate Mark Pincus into answering a stupid email. You gave them money entirely out of self-interest -- a gamble that you would somehow get more money back -- and they spent it. There are all of the answers you deserve.
The directors do have a fiduciary responsibility to their shareholders. It's reasonable for an investor to expect directors not to waste money.
His investment did not go to zynga, it went to whatever market seller he bought it from. He is more accurately a shareholder - a part owner - rather than an investor.
It is difficult to imagine this email getting a response though.
Assuming the investment was bought on the open market, Zynga probably didn't see a penny of it (though it might have helped to raise or stabilize the stock price in a miniscule way).
So Pincus doesn't have any reason to even read your email, much less respond.
Those $600MM are detailed in their Quarterly report:
-$450MM are deferred revenues (i.e., people bought things in their games but they don't recognize everything as revenue right away, a common procedure with online video games).
-$40MM are customer deposits, which according to them "represent amounts received for unredeemed game cards as well as advanced payments from various customers."
-$120MM are things like transaction taxes, compensation related liabilities and accounts payable.
To the tune of $450, though, these constant amount in deferred revs is reasonably large source of working capital/liquidity @ ~5x their bank line. But valuation of the type implied in the headline should (most likely) be done on some concept of net cash, I would think. It cost you money to liquidate the assets before you get your hands on the cash.
Gross margin less SGA is only 30% of revenues, so maybe only $300mm-ish needs to be shaved off the cash balance from deferred revs. These liabilities must be incurred to realize the future revenues wigthout refunding back the pre-pays, good 1st approximation.
So, $1.0 to 1.1B is closer to the floor value. They are at $1.9B market cap a5 $2.50, so almost 2.0x coverage of this right now. (options, etc might swing this a bit).
Yep. And maybe a few hundred devs will struggle to pay their mortgage.
Yes, Zynga has many issues. But before we get all cold-hearted and rejoice at the wonderful invisible hand that will correct all, can we for a moment remember that it's going to affect mostly the people in the trenches? Who often had little to no say in the outcome?
The idea of getting into a mortgage based on non-vested or non-lockup-expired stock options reminds me of Japanese professionals getting into mortgages based on their salary + overtime pay (overtime was effectively eliminated during and after the financial crisis, which left these people unable to meet their monthly mortgage payments).
Your comment is so isolated from the real world, and the very fundamentals of humanity, that I have to wonder how old you are and if you even have a girlfriend. Let alone kids.
The comment you wrote is something I would have written 17 years ago on a Prodigy bulletin board forum after I just finished reading some selected essays of Ayn Rand.
hyperbole much? all s/he said was that one situation reminded her/him of another. based on her/his comment you can't even tell how he feels about either!
Hopefully the parent just replied to the wrong comment, since I read over my comment a few more times and couldn't see how I potentially stepped out of bounds egregiously :(.
But anyways, the similarity I see is that in both cases, the individuals would have exercised poor financial decision making by assuming that non-realized or potentially temporary increases in income streams were real/permanent. I'd guess that financial professionals have experienced something similar, by assuming that the year end bonus would be size X when they actually only ended up getting X/2, or making purchases assuming job security until the end of the year but getting laid off.
Wait so you think it's reasonable to bank on some uncertain future benefit to pan out, and expect people to be 'heartbroken' when it doesn't go through? Come on, you don't mean that, do you?
When I worked for a startup, I only considered my salary in my financial decisions. This also meant that I could switch jobs and be reasonably certain that my standard of living wouldn't change. We were offered equity as well, and the agreement we had to sign had several provisions that I could only describe as being pro-founder/anti-employee. For example:
1. Upon termination of employment (for any reason), the company can buy back your shares at book price, whether you like it or not. In other words: You'll never see a big payout from your work if you go.
2. There should be no expectation of a market for the shares in the company, and there may never be one. Again, good luck selling those shares.
3. The founder has the right to sell his shares, but employees have no tag-along right. So even if the company is sold, you will probably not be able to cash in at that point, since your labor/skill are part of the sale.
4. The employees' shares are subject to dilution. How much dilution? Who knows, maybe 1%, maybe 99%, whatever's good in the view of the founders.
This stuff is pretty standard, too. What I don't get though is how people will make multi-decade (i.e. mortgage, kids) financial decisions on a benefit that's this uncertain. Instead of actual equity, they could just say "we'll give you more money later if we get rich and feel like it". At least it would be more honest.
I can't believe people are actually willing to sign those kinds of agreements. If you can't sell you shares and the company can basically buy them back at will, the ownership is just theoretical. It's like getting monopoly money with the added clause that you may exchange it for real money if the owners get rich and want let you perform the exchange.
Please tell me that at least some companies have reasonable agreements with their employees/shareholders. Otherwise it's like someone else said a few months ago, Silicon Valley is just overrun with sleazy leadership types who do their best to screw over their employees.
A players get to negotiate stock option agreements. The average employee is given options as part of their compensation package, and there usually isn't much flexibility on management's part. At least that's my experience in the four dotcoms I've worked for.
I couldn't believe it either, and left that place pretty quickly. I still talk to a lot of people that work there, and I get the feeling that they live in this bubble where they assume everything will work out for the best. To them, I'm just cynical.
I hope that this isn't the rule in most places, but I wouldn't know :/
devs? struggle? in the valley, for the gods sake? In what exact moment they're going to struggle with their mortgages, in these precise six minutes twenty four seconds that would pass between they get their notices from HR and they land the next job in the company next door?
If the devs were using unvested stock options to back a mortgage … well, they all make enough money for a single hour long consultation with a tax accountant who would have told them what a stupid idea that is. If they're paying out their mortgage from salary, well then, there's nothing particularly notable about their situation, is there?
I wonder if some people would cheer at the sinking of the Titanic because all the rich people lost their stuff that they couldn't take with them in the lifeboats.
And maybe a few hundred devs will struggle to pay their mortgage.
It sucks to lose your job, but there's a simple and time-honored solution to this problem: savings. It's amazing how much less you're pushed around by life when you have a year's living expenses in the bank. (It's also amazing how fast you can accumulate such a cash hoard when you consistently live below your means.)
While I applaud your financial ethic, in this day and age of our "rentership society" it's not exactly easy for everyone to do all that.
All it takes, for example, is a medical tragedy to befall you or your close family - medical costs are one of the biggest reasons for bankruptcy as now insurance companies play fast and loose with who, what and how much they cover.
It's not easy for everyone, but I'm pretty sure most professional software developers can pull it off if they try. And renting probably makes it easier, not harder. (I rent.)
A side-effect of having a year's living expenses saved up is that you have a measure of self-insurance against medical or legal misfortune. Combined with catastrophic health coverage, this makes it possible to weather even a fairly bad storm.
Beware of believing the party line on medical bills and bankruptcy, by the way. As far as I can tell, surveys showing that medical bills "contribute" to a large fraction of bankruptcies fail to establish causation. What they do show is that people who declare bankruptcy also often have significant medical bills. But of course many people do. I bet lots of people who declare bankruptcy also have car payments, maintenance, and repair bills, but it would be misleading to conclude that car costs are one of the biggest contributors to bankruptcy. Since no one is (yet) advocating for "national car coverage", the political motives are different.
I know we've heard over and over about medical bankruptcies, I don't think that's the issue in most filings.
It's typical for a family of 4 to have 2 new car payments, tens (if not hundreds) of thousands in student loan debt, a $300K mortgage, $20K or more in credit card debt, and all the costs of kids (soccer dues, etc). How long can a family like that do without income or at best lose half? Probably 2-3 months, tops. That's what causes bankruptcy.
I'm a modest Web Developer with a few years experience at a good agency in the UK. If I were to leave my company I know I'd be able to land a job somewhere fairly easily for similar pay.
Zynga is a well-known name and I'd be shocked if their developers struggle to find work when they are forced to leave.
Book value (all assets - all liabilities): $2.46 per share
Book value less expected write off of $90M: $2.34
Book value less all intangibles: $2.01
Current Assets (essentially cash) less all liabilities: 0.78
Current market value: $2.35
So, the market is valuing it at exactly next quarter's expected book value. This means that they still believe there is some value in the intangibles (I don't) or the business (I don't).
For giggles, here are the some numbers for Research in Motion.
I don't know if I would go as low as net-net (current assets less all liabilities). The building is probably worth approximately what they paid for it. There is probably some furniture and computers and things that may or may not be worth their carrying value (depreciation is supposed to account for the decline in resale value).
It is always a bit sad when a company is worth less than the sum of its parts. I don't think Zynga is quite there, yet, but I don't think it is worth very much unless and until they sit down and learn how to run a business. I won't be investing in it.
You are correct that short term investments would be stocks or bonds or term deposits or any other highly liquid assets. Generally, they are as good as cash.
You don't perceive value the business? They still generate $300M in revenues per quarter. That sounds more like an emotional valuation rather than an objective valuation.
Yes, and they spend nearly $400M per quarter to generate that revenue. Using more precise numbers, their net loss over the last 4 quarters was about $0.73 per share. By my rule of thumb of awarding a P/E of 10, that makes the business worth -$7.30 per share.
Now in reality, that is a very simplistic analysis, and in point of fact, I do perceive some value in the business, just not very much. It is something that is very hard to quantify (as are other intangibles like copyrights and trademarks). In the end, I do have to go with my gut a little bit (as you say "an emotional valuation"). I don't personally have much use for Zynga's games or their business model, so I am aware that I might undervalue them somewhat, but what the the numbers tell me is that they are a poor business to invest in even at this "low" price. Other non-financial comments on this story and elsewhere reinforce my opinion that when it comes to doing business, Zynga has a lot to learn.
The most damning thing in all of this is that while the obvious salvation for Zynga is to be a roadkill acquisition by Facebook (where immediately much of their overhead is removed through reduced transaction costs), the market is placing a negative expected value on it.
Aside from no faith in management, what else could be the reason for the discount? Their business model is so bad that reducing the transaction costs can't fix it? They have hidden liabilities related to their copycat culture that haven't surfaced yet? Shareholder litigation? Or just simply a massive burn rate?
Wall street assigns a lot of value to management. And with reason - it is the management that has turned over companies such as IBM and GE over the years. The departure of basically the whole upper management of the company is the most ominous sign in this story.
>"Aside from no faith in management, what else could be the reason for the discount?"
At this point Zynga could be liquidated and still produce value. But the lower-than-book valuation implies the fear that Zynga will eat into its assets (re: cash) before that has a chance of happening, thus lowering its value.
From the parent level comment: The book value doesn't take into account an expected write off of $90m, which would drop the price per share to lower than the share price
This is accounting trickery. They chose to write down the OMGPOP acquisition all at once instead of depreciating that over a few years, same way Microsoft "lost money" by choosing to write down goodwill of aQuantive all at once. The cash flow statements reflect the picture better than income statement.
Ummm . . . they are currently losing money on operations, completely disregarding the write-down (which hasn't actually happened, yet). You are correct that companies often choose to make these write downs in quarters which are otherwise going to be bad. That is accounting trickery, but it is still a real loss that has happened regardless of when it is recognized. It is absurd to ignore it completely.
You cannot depreciate a write down. If you have an impaired asset, like OMGPOP, you have to write it down to whatever the new value is. Depreciation doesn't enter into the picture.
Yes and no. I suspect in practice Zygna have quite a lot of control over how to value OMGPOP, and could have chosen to (for the moment) value it somewhere closer to what they paid for it had they wanted to.
Based on US GAAP, whenever there is an "indication of impairment", ZNGA is required to present a model to the auditors justifying any goodwill and some intangible assets attributed to things like OMGPOP. If Draw Something suffers a user drawdown of 50% or 66% (not sure what the current daily users are) since the acquisition, they would be hard-pressed to justify to their auditors the value of the assets are anywhere near what they have on the books. They might have some wiggle room, but not nearly as much as people on this thread appear to believe.
A company that generates $300M per quarter has a "real" business, despite your disdain for their business model.
ZNGA isn't like a business that spends $100 in ads to make $80 in ad clicks. They are making real games that millions of people appear to enjoy. I myself don't enjoy them, either, but I'm not going to just dismiss their business as having no value.
The main problem for them is that they haven't grown their revenues as quickly as they need to. But in order to turn themselves into a profitable business, all they need to do is cut costs. I've been to their offices and talked to friends that worked there, so I know there's plenty of room to cut costs. That being said, if their revenues drop, they could be in for real trouble.
That being said, I just dumped my entire position today (with my luck, right at the very bottom). My biggest fear is that their revenues keep falling, and they die death-by-a-thousand-cuts. If this quarter is a kitchen-sink quarter, then I might pick some up after they release their official numbers.
I guess you didn't go through their financials. You do realize they can cut expenses like R&D, SGA, etc, and probably not affect their revenues immediately. To me, they are like YHOO, where they have a bunch of people using the products through sheer inertia. YHOO in the past few years has been doing exactly that, which is cut costs relative to their revenues, and shown a decent profit, without affecting their income drastically.
ZNGA could do the same thing. They could cut R&D by 1/3, SG&A by 2/3, and even cut down on things like customer support, etc, and their current earnings for at least a few quarters wouldn't be affected immediately. They still need to create new games to entice those same users
I didn't because I thought you had some inside knowledge on the situation and that you might share it. They were questions of the non-rhetorical type.
>They could cut R&D by 1/3, SG&A by 2/3, and even cut down on things like customer support, etc //
Sounds great. When you say SGA, isn't that mainly wages. So, lay off most of their staff, do away with a large part of development and still generate the same earnings. Won't that just cause them to fail slowly?
I can see how Yahoo can coast on inertia to some extent but aren't Zynga more reliant on novelty? Yes new people come along, but they're entering - in social gaming terms - a pool of people who've already tired of a particular game/games.
there expected to have a low quarter coming up, the price will most likely drop then, but they're mau has been fairly consistent so it might not be too bad
I have been waiting to see this company die and I hope the end is near. They may try and save it with virtual currency gambling as their next con on the human brain but it is inevitable.
Aren't they something like 15% of FB's revenue, and FB is more like 85% of theirs? Seems like FB would just keep on screwing with their visibility on the site to drag their numbers down to the muck, then buy Zynga with change they find between their couch cushions.
Could someone who didn't see this coming please explain to me how there was another outcome for this company?
I'm being completely serious. When I read headlines like this I just assume this happened at least nine months ago. I'd like to hear some reasoned defense of how this company was going to survive.
Well, it makes a _ton_ of money ($1.3b ttm revs). Is, by far, the leading web-based/social gaming company. Is an excellent acquisition target. Has, by far, the most DAUs/MAUs. Is in an easy-to-monetize industry. Would be in the best position to take advantage of relaxed gambling laws. And on and on. What don't you get?
"Could someone who didn't see this coming please explain to me...how this company was going to survive"
How were they going to survive? They aren't dead. Not even close.
Pincus has the same kind of control over Zynga that Zuckerberg has over Facebook, and he's got a mountain of cash in the bank. That means nobody can make him do anything and he has a very long time to get his house in order.
All they would have to do to make Wall Street happy now is lay-off a whole bunch of people and start making 20% profit. The stock would go to $10+ instantly. That's the easy way out, not planning for the long run. Not planning for growth.
Zynga is in a great position for real-money gaming, as just one possible avenue for future growth. The US government is taking longer than expected to regulate that industry but they will get around to it.
Zynga has been public for less than a year and they've got many years of runway left even if things don't improve. People need to slow down on thinking and claiming they are done.
So, what you are saying is, I should buy all of Zynga's stock, lay everyone off, close up shop and sell all it's real estate, and keep the cash for myself.
It is baffling that analysts can essentially divide their guidance by 2 overnight. With such "guidance", it's easy for small investors to get fleeced. And with everyone in the industry gloating about how we saw it coming, it's only going to make us all look a little less trustworthy. It's a shame too, because many called out Zynga's business model as unsustainable, even though that didn't get much coverage in the financial or mainstream press.
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[ 3.0 ms ] story [ 289 ms ] threadIn addition, large funds cannot sell their shares instantly, therefore will depress value below net assets, in effect paying a premium to get out of the stock.
Basically, the future value of Zynga's games is worth less than the future revenue, creating an expected net value decrease.
For example, say in an imaginary world I have a piece of real estate and its worth 500k right now but its pretty much assumed that because of X, Y and Z real estate in the area is going down on average 20%. Because of that if you are the buyer you'd argue that a fair price to buy the house is actually 400k. Same thing with companies - on average, investors think Zynga will be a loser down to the point of its current stock price.
If you have an opportunity expected to double your money then it makes sense to sell an asset below 'asset value' to avoid taking on missed opportunity costs.
Example:
Therefore excluding transaction costs it's the smart play to sell Zynga stock for any price above $1.87.Since you've probably lost heavily on Zynga you can use the tax losses from a sale to offset the gains from the APPL profit, where as holding Zynga for the EV would merely result in a reduced tax loss.
Big error. You can predict a stock doubling in value a year in advance?
Your numbers are less shocking when you plug in more reasonable expectations, say 6% market index instead of 200% home run.
If exaggerated numbers make the hypothetical concept easier to grasp I don't think it detracts from the example to use them.
(I'm prety sure that Appell Pete Corp would be psyched if enough people make this mistake).
Thus I used numbers that would appeal to the type that might hold Zynga stock. The type that had a risk profile involving losing 90% of the stock's value in 6 months.
Then, in order to stay in business, they might need to take on massive debt, or there's a chance of severe dilution, and the likelihood of this will lower the stock value further.
To take an extreme example, if everyone assumed the company was going to run itself into the ground, mortgaging its real estate, etc., until it has zero other options, then the stock would be basically right now $0, no matter how much real estate or cash in the bank in had right now.
As to "why", equity values are often more about emotion than reality (sometimes much more). Sometimes people want to bail from a stock that's become unpopular, and they don't bother to notice that the stock valuation is lower than the value of the buildings and inventory.
As to "how", there's nothing to stop a market valuation from being lower than the most basic assessment of the physical value of a company's assets, separate from present and future business prospects.
The single most important thing to remember about equities is that decisions need to be based to some extent on how stockholders think and behave, not necessarily on what makes sense. A person could on principle hold onto a stock in a company whose assets are very valuable, only to watch the stock drop to $0.01 per share, based on mass psychology rather than common sense.
It's a good headline, buut won't the market correct this naturally to account for the fact it's worth "less" than it's assets or is Zynga going to just keep dropping?
Not unless equities investors decide to act rationally, and there's little evidence for that. Stocks falling below the true value of company assets is such a common occurrence that cagier, usually bigger, players will locate and "greenmail" such a company into buying their own stock with company assets to correct the difference between market valuation and basic value.
http://en.wikipedia.org/wiki/Greenmail
So I guess the answer to your question is "yes" but exactly how this happens is sometimes rather complicated.
Obviously if a company can be located whose physical plant and inventory value is higher than its stock valuation, such a company is vulnerable to a takeover by anyone able to detect this peculiar state of affairs and act on it.
Vindication is.. kind of lonely and sad, actually.
But that's life, right? Counting on equity is, simply, a gamble.
Except when you've rigged the table, as Pincus and his cronies have.
http://www.forbes.com/sites/nathanvardi/2012/10/05/zynga-kee...
They got to play by different rules than the folks whose hard work got them to IPO. Instead of being subject to lockup, like the rest of Zynga, they got to cash out early, before the true state of their company was fully appreciated by the market.
So what's the lesson?
Don't trust people willing to fuck people over to make a buck. You're not special. If there's a buck in it, you'll get fucked too.
http://techcrunch.com/2009/11/06/zynga-scamville-mark-pinkus...
This also isn't all that unusual of an attitude in a hyped startup - management will abuse you (ahem, I mean expose you to a dynamic exciting work environment) and you will take it because your going to be rich in a few years... or not.
NB: Ballisticality isn't a word. Pity.
As a gamer friend always reminds me, "The cake is a lie."
You pretty much know there is no cake. GLaDOS, the malevolent and controlling AI telling you there is cake, lies to you consistently. You catch on quickly that she's lying.
The warning "The cake is a lie" is scrawled in blood inside a hidden antechamber, inside one of the levels.
Somehow I feel like there are parallels here that you stumbled on more or less accidentally. Or maybe I'm being far too literary.
There are a lot of very smart people who are easily blinded to the truth when confronted with the possibility of vast riches. Making the right decision here was less about talent/intelligence and more about wisdom.
Replace sellsword with employee. All these employees got screwed, yet like the sellsword they should have had the power to get a better deal.
It's unfortunate, sure. And quite a few parts of the Zynga story are downright distasteful, especially the options clawback last year.
But let's not get hyperbolic - they played the startup lottery hoping to get rich, and lost.
You take Pincus and company, tie their fates to that of the employees, and everyone loses together? Fine, whatever. Like you said, they played the lottery. But the mismatch of fates is, to me, what makes this story pretty damn sad.
You can argue about why, but I am willing to bet (I don't know anyone working at Zynga) that many of these employees still have tens of thousands of dollars in college loans and seeing the sacrifices they made to get into a position in order to pay them off, erased in a matter of weeks, makes them feel like trapped rats.
I never really like these comparison though because why is a ditch digger better or worse than a computer programmer? Both hold basically the same desires. Why should one's misfortune be less important than another? They both work just as hard?
Which is heartbreaking in itself, on top of the bloody mine crushing on him.
You say it like this argument somehow makes the Zynga case more heartbreaking, instead of less...
>I never really like these comparison though because why is a ditch digger better or worse than a computer programmer? Both hold basically the same desires. Why should one's misfortune be less important than another? They both work just as hard?
No, they don't. And they don't get the same compensation either. Or job satisfaction -- the ditch digger pretty much works that job because he has to support himself / his family and he doesn't have the means to get something different. The computer programmer could have been 10 other things if he wanted, from tech support to floor manager at a Costco.
Really, try ditch digging for a year, and then we'll talk.
And gambling on equity when you get paid well over average with all the options you have for your future is not that bad all considered.
What's that? Is it like "First perform at the Opera House and then we'll talk Mozart"?
Most of the times they do not have same desires. For whatever reasons. Be it the immediate need to support family or the ambition the fire of desire having been lost over the years or fight and struggle to look for a stable mean to live. Or maybe the kind of education/upbringing he received. Or the company he grew up with (well, this is very important). This is also has a lot to do with the genes you were born with.
This is the nature of a capitalist society and other ones are even worse. In a capitalist people are supposed to be of uneven means so they are. In a society like communist societies people are not supposed to be of uneven means (in the usual sense) and still they are and the gap is a lot wider than that in the former society.
Now, this is heartbreaking. Given the fact that most probably not having superior education (or education at all) didn't have anything to do with neglecting studies but simply being born to poor parents.
>why is a ditch digger better or worse than a computer programmer?
It's the society we live in. There are various places on this planet where you are an untouchable by caste the caste you were born in leave alone money and job.
How is that different from 99% of jobs out there? People flipping burgers work crazy shifts with shitty compensation only to watch the franchise owners getting filthy rich.
If you get a minimum wage job, you know what the deal is. If you get equity, it's reasonable to expect that you won't get screwed over completely.
Is it fair? That's a very different question.
This usually happens if your option has a strike price lower than the market price at the time they're issued, in which case depending on jurisdiction they difference will usually be taxed as income on exercise. If you're really unlucky about where you are and how the options are arranged, you might even get taxed based on the market price on exercise. E.g. Norway at least used to be that way a while back unless you took specific precautions to get the options issued under an approved scheme.
It's something to be aware of, as it means a lot of people might not be able to afford to exercise the options before they're ready to sell the shares, which means your total gains gets taxed as income most places (as opposed to if you see the company on a nice upwards trajectory and exercise and wait, in which case you may end up paying only capital gains and in some cases depending on where you are might end up paying reduced capital gains rates on the growth from your exercised onwards). The difference between a good and bad options plan can easily be 50%+ tax (e.g. UK, if you're careless you might pay 53.8% - top rate income tax + national insurance + employers national insurance contributions, vs. 10% if your company qualifies for certain incentive schemes for startups and the options plan is structured right..)
It might seem great to have a really low strike price, but if you expect to be in it for the long haul and might contemplate exercising options before you're ready to sell your shares, talk to a tax lawyer before agreeing to options terms.
Decide.com in 1999 - they farked over the employees and diluted the stock of everyone hoping to cash out in an acquisition - this caused a major meltdown and the company fell apart and nobody received anything.
Savi Technology was acquired by Lockheed - they stated an option price internally which was wildly wrong, granted many many many options to execs and came out and said that anyone who joined in the last 12 months had options worth zero. People who did have common shares got farked over, newer employees even worse. and all employees got ZERO equity in lockheed.
Then Lockheed stock tripled after the acquisition due to the War on Humanity and everyone was still stuck holding the bag.
This is just two direct examples.
Most companies will fuck over their employees. I don't trust ANYONE in the valley.
But don't fret, if (when) Zynga does collapse, it's execs (including the founder, who I hear is a piece of work) will be up to their eyeballs in lawsuits. Ahh the fun, writing checks to your lawyers.
Given how litigious the US is, if I were super rich I could not imagine keeping a significant portion of my assets in the country. If you have a lot of money it makes a lot of sense to not only diversify your investments but your jurisdictional exposure as well.
If you know the lawsuits are going to take forever (time) and cost a bunch (money), not having many assets in the US makes it easy to accept a default judgement, declare bankruptcy and write off the loss entirely without ever paying any lawyers a cent.
In this case, the people being sued seem like they totally deserve a lawsuit, but that doesn't change the fact that it is naive to not diversify jurisdictionally.
You don't even need to be wealthy. The US no longer has the rule of law, so you can now be stripped of your possessions even if you are _accused_ of a crime:
http://en.wikipedia.org/wiki/Asset_forfeiture#The_trend_towa...
I know an employee #3 at a successful startup who was fired two weeks before he would have vested. He got his due but only after legal action.
This is a pretty common story. Probably more common than when the options pay anything. I once worked for a company that acquired another company. We were bigger, our CEO set up the deal, their CEO got paid, etc. But officially it was a "merger of equals". Why? Because if we'd bought them their options would have vested immediately and we would have had to buy up all the stock the employees held.
The way it was worked my company traded their options for options in the new company. Two years later everyone who had worked for the company we acquired was out of a job, and they had to decide whether or not to exercise their options in a company that wasn't publicly traded (which is madness, BTW - never, ever do that). I would have bought one of those mirrors on a stick and checked under my car every day if I'd been the CEO. But eventually he cashed out for a cool $15m.
It is really a problem. People have simply been conditioned to think it is normal. it may be "normal" but it is farked and wrong.
Turns out, though, that the founder was funding payroll out of his own pocket for the last couple of months. Subsequent datapoints suggest he's a good (if occasionally odd) egg.
Trust in the Valley is a very scarce commodity, but it can be found.
Zynga? I have to say I saw it coming from miles away.
A woman in China had an unnecessary, experimental operation done at a hospital, without her consent. It caused kidney failure, and she needed a transplant.
There was a match with a family member, but the hospital refused to pay for it, even though it could have been sued into bankruptcy in the US. For the want of $7,000 USD, she was dying.
Watching her sit with her young children on her lap, deathly sick with her husband by her side, the expression of finality and despair on their faces - I'm not ashamed to admit that it made me tear up.
Now that, to me, is god damn heartbreaking. I don't disagree with the direction of your sentiment, just the magnitude of the word you are using. It's close to the strongest feelings you can have on a subject. Did you really feel a pang in your heart when you read the article?
Because to me, those two stories aren't even on the same planet.
By this stupid logic, you can never be happy, because there's always someone with more reasons to be happy, while the victims of a serial killer probably had it better off than a child who dies of starvation in Africa.
(Of course, you're a smart person, so I'm sure you're aware of how stupid this line of arguing is.)
You seem to be pretty strongly in support of someone who by all means cheated his employees. If that's the case, I certainly hope future employees have the foresight to do some research on who you are before agreeing to work for you.
EDIT: Maybe I should add I am currently in Asia. Many people here probably work harder then the people at Zygna and receive less compensation.
Couldn't find some more official name for the "The "Children Are Starving In Africa!" argument.
Anyone willing to help out?
"Of course, when I were a lad, we had it tough..."
Your tone on other hand is combative and patronizing. The HN guidelines say "When disagreeing, please reply to the argument instead of calling names," and "Be civil."
I tend to agree with reitzensteinm that we in Silicon Valley should remember how good we have it compared to the rest of the world. Our fortune comes not only from hard work and talent, but from being born in the right decade in a prosperous country.
I didn't because every time I went over it and sliced it, there was too much scope to misunderstand what was said.
But there were 2 aspects that I knew were triggers -
1) His underlying assumption that the employees were there for playing the "startup lottery". Firstly this ascribes knowledge of the mind set of the emps. Secondly this ignores the fact that Zynga also was a "safer" firm given its history and at the time, certain prospects.
The employees for that firm which are hurting today aren't necessarily the same as your first batch or second batch hires in an untested startup.
(this is why I didn't comment - there are many ways to slice and dice this further, and suffer from badly drawn edges and subsets)
2) His description of it as startup lottery. The underlying philosophy here on HN, and in most places which discuss startups is strongly merit oriented. His statement carried the implication that all the discussions so far were eye wash - it was a lottery and people lost, bad luck.
His later clarifications were pretty crucial to explain his context, but I can completely see where he ticked people off.
Your assertion that I support cheating employees just because I didn't explicitly say otherwise is quite insulting, and it's what makes me feel the need to reply to you. I think the deal they got it shitty, and I certainly wouldn't start taking money off the table before my employees could.
I think you're reading an attitude into my comments that just isn't there. I suggest we continue this conversation by email, to avoid polluting HN with what will no doubt be a long thread - mine is in my profile if you'd like to.
I think it's very hard to define exactly where your slippery slope of perspective begins and ends. Bottom line is that greater injustice is never an excuse for injustice. Neither are acceptable.
>some Silicon Valley developers, one of the highest paid professions in one of the highest paid areas of the world, only made a decent salary instead of a fantastic total compensation package?
The relevance of the integrity of the managers to the ways people make decisions that determine the course of their lives is not something to be taken lightly. This applies even if the consequences themselves do not appear to be so dire. There is a distinctly painful feeling that comes along with devoting your life to someone who abuses that. For those familiar with this perception, the idea that you could ignore it is preposterous. From your perspective, whatever it may be, it could beyond your imagination and experience.
You might say this:
>Is it really 'heartbreaking' when someone's 17-year-old cat dies? It's a normal and expected outcome; plus, not only were they lucky enough to afford a pet and keep it in good health, the animal itself hasn't lost much, considering it's limited cognitive capacity.
And yet anyone who has been through or even near this situation would find the argument to be incredibly callous, because the formation of human emotion has so much more to it than simply evaluating one's present situation.
I understand the sentiment that perhaps nobody is entitled to a fantastically large amount of money and that people living what we call the good life are a small minority in the world. However, that just isn't the story here.
Connections between humans are what make society possible. It's reasonable to care when they are abused.
It was not meant to be a comment on how it feels today, or to suggest that we shouldn't feel empathy for them because of their future position.
I just meant that in a few years they'll look back on this and laugh, which makes it story much less sad. Do you disagree with that?
Look, I'm coming from the perspective of an outsider. OP seemed to suggest it is heartbreaking to read about Zynga, which is what I was responding to. If one of my close friends was working there, I would absolutely feel a different way.
Similarly, if I read about a kid's cat dying on the internet, it might just make me feel a bit down. When my dog died, heartbroken was exactly how I felt.
Well, okay, maybe some of them might have been under a lot of stress and that might affect their personal life and even health or life expectancy.
Maybe some of the talented people who might have a fantastic career ahead of them won't recover and become jaded or leave the industry altogether.
Maybe none of that is heartbreaking, strictly said. It's "highly unfortunate" or "really sad", perhaps.
What really grates is your decision to nitpick about the choice of words because you saw something that was even sadder on TV.
I have no comment on the issue, I just wanted to point out a terminology confusion.
Without the straw man, reductio ad absurdum alone is just a tool, not a fallacy, as you say.
It wasn't like Zyanga kept them working while they were starving and kept them lured all along that they will be fed once Zynga stock booms up.
They always had the chance to jump ship. Esp. with many small/big ships steadily floating around ready to lift them aboard. It was a gamble for the extra cash (read bonanza) and they lost (just the bonanza).
Using overly emphatic words for not so cruel-bad situations is a bad thing, since you will be at loss for words when something worse happen. That's just a sign of lack of culture. I am not talking about the person who said "heartbreaking" in the first place, just a general observation as to what language is changing into these days.
If you're in America, have $0, can't pay rent, can't buy food for your kids; the fact that kids in Africa are dying from some non-1st world disease is completely irrelevant to the pains you're having.
It's a completely different thing for an impartial third party to say person X's pain is more than person Y's pans (that's relative to the observer).
You don't think Elvis was taking his economic privilege into account when he wrote "Heartbreak Hotel"? Maybe he should have called it "Momentary Romantic Setback Hotel". Or maybe the word "heartbreaking" should be reserved for citizens of the Democratic Republic of the Congo, where, all things considered, things are considerably more dire.
"The National Adjective Council must regrettably inform you that your first world documentary viewing experience was merely 'disheartening'."
That the CEO cashed out before has nothing to do with that fact.
And with
"Pincus has a track record now of big IPO train wrecks. He founded Support.com and took it public for $14 a share during the first Internet bubble in 2000. The stock zoomed up by 133% in its first day of trading. It changed hands for more than $30 per share before tanking below $5 in 2001."
they might have should known what was comming.
Yes they make a mistake. That mistake is to bet on an unethical business man. The point is not that, the point is the CEO set different conditions for him and different for others.
While the senior execs were allowed to cash out, guys down the ladder weren't.
How does the fact that senior execs cashed out relate to the fact that they don't get rich b/c their company has no sustainable business model and the stock crashed?
But didn't hold the employees to have the same right.
Which actually speaks a lot about the intentions of those senior execs, which is clearly to play a hit and run game.
I mean, if the CEO told everyone up front about the tactics he was going to use to allow him to cash out early that also prevented everyone else from doing the same at the same time and also that the future of the company was all downhill; then maybe you have a point.
Maybe saying they were cheated is a better phrase for you?
If you don't agree that that's fine. Which, by the way, I have a bridge for sale you might be interested in...
If we're talking about pay structure and access to the executive washroom, then no.
If we're talking about employees and the CEO having equity in the same company but the CEO can cash his equity any time he feels like it while the employees cannot then there's a problem. Especially when said CEO seems to be doing questionable things to pump up the value of his stock that later collapses so that when employees finally can get money there's no money to be had.
I find it disturbing that you seem to think there's nothing wrong in this situation. There's no way you can say that the actions and behaviors of this CEO and company are the norm. If you don't understand that at this point then I'm unable to explain it to you. In this case we'll just leave it with you have your opinion and I have mine.
And the reason they've lost their "money" is not because of the CEO having different rules.
We put far too much emphasis on prolonging life and not enough on quality of life. I have no clue who this lady was or what her background was, but $7k goes a long ways in China. Imagine if she could have instead guaranteed a solid education for every one of her children.
We spend a ton of money on end of life care that could do much more good spent elsewhere. Which would you rather have- $50k in end of life care or a free college education?
Kidney failure and a transplant, chances that the transplant doesn't work, complications following it, issues remaining for the rest of her life, etc. It's not all roses and medicine isn't as magic as it is in the movies.
I hope they did get the woman the U$ 7.000.
Sadly, there are stories much like that, or worse, every single day. My SO works for the state child care agency here in Uruguay, now that's a thankless job if there is one. She gets to see the worst of human beings (child rape, uncaring mothers, a mother putting her 12 year old girl into prostitution), fortunately balanced by a little of the best too (kindhearted adoptive mothers for example, and lots of supportive people).
More likely, they shut off the cameras, thank the people, and then fly away, shaking their heads that such a tragedy could occur.
Based upon the number of hours the people who I knew at Zynga were putting in - IMHO they were far from receiving a good rate when looked at hourly.
100k at 60-70+ hrs per week in a place with some of the highest living costs is not all that admirable of pay if you ask me. Yes they are not on the street but its not exactly the bees' knees either.
(JK)
"I'm getting an XKCD 303 back from the developer."
You don't think I actually work for Berlin salary, do you?! This is the Internet!
The cost of living in the hip part of Berlin (Kreuzberg/Friedrichshain) has nearly DOUBLED in the last 5 years. You're now looking at nearly $1500 per month for a 900 square foot 2-bedroom. :D
My place a bit farther out is €1000/mo and is 1800 square feet. My office is on one floor (the one with the small balcony) and living quarters upstairs (the big balcony).
Sorry, I'll stop now.
That said, London is more expensive.
The Bay Area is a bigger place BTW.
http://www.rightmove.co.uk/property-to-rent/find.html?locati...
The place I lived in Mountain View was prime real estate. I was on Castro street, one of the only walkable places outside of San Francisco proper. There is plenty of cheaper real estate in MV.
Similarly in Battersea I live near Clapham Junction. I can get to Heathrow in 40, Gatwick in 30, Soho in 25 and Bright on 50! I can also cycle to Trafalgar Sq in 20 mins if the lights are favorable. Again, there are cheaper places around, but not without worse location or other problems with the property.
Also, the first property on the link you listed is £390 a week. You do realize that that is $2700 / month right? And you do realize that in Mountain View when you rent there is no council tax, and you don't pay estate agents any fees at all. In fact there are no estate agents, and property holders often give you some kind of deal like reduced rent for the first month to get you to sign a lease.
That depends a _lot_ on where in London.
My 3 bedroom 1000sqft house with a garden in London has a current rental value of about $1600. That's the difference between living in a leafy, relatively unfashionable suburb in the South of London vs. living in one of the enclaves of rich people or hipsters in the centre of town. I have a 45 minute commute to the centre, door to door.
Everyone I know that worked at a startup has ended up out of a job with little to no payout (beyond their salary). It's a risk.
If you don't want to take that risk, work at a non-startup company.
I found myself nodding along in full agreement with the GP, then doing the same, after reading the top rebuttal.
/enqueues 10 minutes of self-loathing, for being so fickle minded. ;)
They effectively worked two full-time jobs for a year and a half, and got paid for one. Average salary for a programmer at Zynga seems to be around $100k, which is less than I make working 37.5 hour weeks, not 100-hour ones.
So, yes. It's pretty heartbreaking to see them get fucked over after giving their entire life to Zynga for the better part of 2 years. I'm not sure why you think otherwise, frankly.
I don't consider it heartbreaking when someone makes a conscious decision to stick around in a crappy situation in the hopes of striking it rich and it doesn't work out.
What?!? Folks: ZNGA still has a market cap of almost $2 billion. Your average startup engineer is lucky to see any decent and timely exit event. So even at these "low" prices, from where I sit they are still looking better than many of their peers.
"Life's not fair", bellum omnium. But the reason to talk about fairness is that it's something to strive for and insofar as we can make things fairer (like through SEC regulation) we should.
Nobody's saying the losers here are catastrophically equivalent to a war zone. But worthy of sympathy? Sure. Just because you're rich doesn't mean things can't suck for you, subjectively.
If I cried constantly, for the age of the universe, times infinity, it would not be enough to express the sadness I feel.
An infinite number of oceans the size of the Sun would not be enough to capture all our tears.
I think this article makes it clear that the market has _no clue_ what the "true state" of the company is...
Do you find it heartbreaking when a fool throws down $50k on red at the roulette table, and loses?
http://www.whysanity.net/monos/clerks5.html
http://uptownalmanac.com/2012/10/nerds-gone-wild-day-san-fra...
And let's not forget.
“I did every horrible thing in the book just to get revenues,” -Mark Pincus
It's unfortunate the empolyees were not paying attention to what their CEO and Company was saying and doing.
So, sorry folks u got screwed, but it's, literally a house of cards. Everyone early and vc that put their money in, I'd a happy camper..
It's the moral hazard - you work for a boss who acts like that, and they'll throw you under the bus pretty quickly just as well.
And that boss will hire folks who think like (s)he does also.
It's even against your self interest - you work for a boss who acts like that, and they'll throw you under the bus pretty quickly just as well.
And that boss will hire folks who think like (s)he does also.
This. Stop coding for a moment and pay attention to the surroundings.
What makes you think a person that's unethical to their customers is going to be ethical to their employees?
Second, the people who make the company - the early people - are on better terms. The guy who got hired the month before IPO shouldn't be expecting much.
However, if they lose money, then the book value will drop some more. Only if the company failed utterly and then returned the money to the shareholders (not likely) would it be "safe" to focus on book value.
Now all of this is moot if Zynga is making enough money to pay the bills, doesn't matter what their stock price is if they don't have to sell stock to raise money. So the thing to look at is when their obligations exceed their assets, that is when they are 'upside down' in the lingo. Very hard to recover from that because you can't even borrow money temporarily when that happens, you have to save money, then use the money you saved to do the thing you wanted to do, rinse and repeat and that removes your ability to react quickly.
My first thought was "Why bother? FB can just wait and pick up the good staff in the wind down." But the exact opposite of that logic has led to acquihires.
"Mark -
Can we have a man-to-man? Seriously, please explain to me, a small shareholder in Zynga, exactly what the fuck you have been doing with my investment? Clearly, the answer is not building value in any meaningful way. Any third year entrepreneur will have trouble seeing your performance this year amounting to anything other than a collected check, a leveraged office, a leased plane ($3K a wet flight hour?!? What is that a fucking citation X?!?) and an overpaid security team. If the plan is to ride this thing to the nines, let me know so that I can pull out and forget any thoughts of a really well integrated ecosystem of gaming.
BTW: If you see the OMGPOP/Draw Something team, tell them to get the fuck off of their asses (if they're still around) and do something about long-tail gamification model if they want to do something about user retention.
That's all, k thx bye drops mic."
I hope you are not actually surprised. You've read the email you wrote, right? I know I wouldn't have bothered to answer an email like that.
His investment did not go to zynga, it went to whatever market seller he bought it from. He is more accurately a shareholder - a part owner - rather than an investor.
It is difficult to imagine this email getting a response though.
So Pincus doesn't have any reason to even read your email, much less respond.
However, unless you have a sizable percentage of the shares, management won't give a damn about what you think.
There is somethin like $600MM of ST liabilities, though vs $1.2B of cash & equivalents (/securities).
Not sure what that is, but that is (potentially) a big deal.
Although it seems to be on the BS QoQ
http://www.google.com/finance?q=NASDAQ:ZNGA&fstype=ii
LT Debt = $100MM, so not as significant an issue.
-$450MM are deferred revenues (i.e., people bought things in their games but they don't recognize everything as revenue right away, a common procedure with online video games).
-$40MM are customer deposits, which according to them "represent amounts received for unredeemed game cards as well as advanced payments from various customers."
-$120MM are things like transaction taxes, compensation related liabilities and accounts payable.
So, it's not really debt, just working capital.
To the tune of $450, though, these constant amount in deferred revs is reasonably large source of working capital/liquidity @ ~5x their bank line. But valuation of the type implied in the headline should (most likely) be done on some concept of net cash, I would think. It cost you money to liquidate the assets before you get your hands on the cash.
Gross margin less SGA is only 30% of revenues, so maybe only $300mm-ish needs to be shaved off the cash balance from deferred revs. These liabilities must be incurred to realize the future revenues wigthout refunding back the pre-pays, good 1st approximation.
So, $1.0 to 1.1B is closer to the floor value. They are at $1.9B market cap a5 $2.50, so almost 2.0x coverage of this right now. (options, etc might swing this a bit).
Yes, Zynga has many issues. But before we get all cold-hearted and rejoice at the wonderful invisible hand that will correct all, can we for a moment remember that it's going to affect mostly the people in the trenches? Who often had little to no say in the outcome?
The comment you wrote is something I would have written 17 years ago on a Prodigy bulletin board forum after I just finished reading some selected essays of Ayn Rand.
But anyways, the similarity I see is that in both cases, the individuals would have exercised poor financial decision making by assuming that non-realized or potentially temporary increases in income streams were real/permanent. I'd guess that financial professionals have experienced something similar, by assuming that the year end bonus would be size X when they actually only ended up getting X/2, or making purchases assuming job security until the end of the year but getting laid off.
When I worked for a startup, I only considered my salary in my financial decisions. This also meant that I could switch jobs and be reasonably certain that my standard of living wouldn't change. We were offered equity as well, and the agreement we had to sign had several provisions that I could only describe as being pro-founder/anti-employee. For example:
1. Upon termination of employment (for any reason), the company can buy back your shares at book price, whether you like it or not. In other words: You'll never see a big payout from your work if you go.
2. There should be no expectation of a market for the shares in the company, and there may never be one. Again, good luck selling those shares.
3. The founder has the right to sell his shares, but employees have no tag-along right. So even if the company is sold, you will probably not be able to cash in at that point, since your labor/skill are part of the sale.
4. The employees' shares are subject to dilution. How much dilution? Who knows, maybe 1%, maybe 99%, whatever's good in the view of the founders.
This stuff is pretty standard, too. What I don't get though is how people will make multi-decade (i.e. mortgage, kids) financial decisions on a benefit that's this uncertain. Instead of actual equity, they could just say "we'll give you more money later if we get rich and feel like it". At least it would be more honest.
Please tell me that at least some companies have reasonable agreements with their employees/shareholders. Otherwise it's like someone else said a few months ago, Silicon Valley is just overrun with sleazy leadership types who do their best to screw over their employees.
I hope that this isn't the rule in most places, but I wouldn't know :/
...Who often had little to no say in the outcome?
No Choice? If you are unhappy, find a new job.
Edit: formatting
It sucks to lose your job, but there's a simple and time-honored solution to this problem: savings. It's amazing how much less you're pushed around by life when you have a year's living expenses in the bank. (It's also amazing how fast you can accumulate such a cash hoard when you consistently live below your means.)
All it takes, for example, is a medical tragedy to befall you or your close family - medical costs are one of the biggest reasons for bankruptcy as now insurance companies play fast and loose with who, what and how much they cover.
A side-effect of having a year's living expenses saved up is that you have a measure of self-insurance against medical or legal misfortune. Combined with catastrophic health coverage, this makes it possible to weather even a fairly bad storm.
Beware of believing the party line on medical bills and bankruptcy, by the way. As far as I can tell, surveys showing that medical bills "contribute" to a large fraction of bankruptcies fail to establish causation. What they do show is that people who declare bankruptcy also often have significant medical bills. But of course many people do. I bet lots of people who declare bankruptcy also have car payments, maintenance, and repair bills, but it would be misleading to conclude that car costs are one of the biggest contributors to bankruptcy. Since no one is (yet) advocating for "national car coverage", the political motives are different.
See, e.g., http://content.healthaffairs.org/content/25/2/w74.long for more information.
It's typical for a family of 4 to have 2 new car payments, tens (if not hundreds) of thousands in student loan debt, a $300K mortgage, $20K or more in credit card debt, and all the costs of kids (soccer dues, etc). How long can a family like that do without income or at best lose half? Probably 2-3 months, tops. That's what causes bankruptcy.
Zynga is a well-known name and I'd be shocked if their developers struggle to find work when they are forced to leave.
Book value (all assets - all liabilities): $2.46 per share
Book value less expected write off of $90M: $2.34
Book value less all intangibles: $2.01
Current Assets (essentially cash) less all liabilities: 0.78
Current market value: $2.35
So, the market is valuing it at exactly next quarter's expected book value. This means that they still believe there is some value in the intangibles (I don't) or the business (I don't).
For giggles, here are the some numbers for Research in Motion.
BV: $18.15 per share
BV less intangibles: 11.81
Current assets less all liabilities: 6.22
Market value: 7.76
What is the "short term investments" line item on the balance sheet under current assets? Are those corporate bonds or other highly liquid assets?
It is always a bit sad when a company is worth less than the sum of its parts. I don't think Zynga is quite there, yet, but I don't think it is worth very much unless and until they sit down and learn how to run a business. I won't be investing in it.
You are correct that short term investments would be stocks or bonds or term deposits or any other highly liquid assets. Generally, they are as good as cash.
Now in reality, that is a very simplistic analysis, and in point of fact, I do perceive some value in the business, just not very much. It is something that is very hard to quantify (as are other intangibles like copyrights and trademarks). In the end, I do have to go with my gut a little bit (as you say "an emotional valuation"). I don't personally have much use for Zynga's games or their business model, so I am aware that I might undervalue them somewhat, but what the the numbers tell me is that they are a poor business to invest in even at this "low" price. Other non-financial comments on this story and elsewhere reinforce my opinion that when it comes to doing business, Zynga has a lot to learn.
Aside from no faith in management, what else could be the reason for the discount? Their business model is so bad that reducing the transaction costs can't fix it? They have hidden liabilities related to their copycat culture that haven't surfaced yet? Shareholder litigation? Or just simply a massive burn rate?
At this point Zynga could be liquidated and still produce value. But the lower-than-book valuation implies the fear that Zynga will eat into its assets (re: cash) before that has a chance of happening, thus lowering its value.
So, basically, no faith in management...
The main problem for them is that they haven't grown their revenues as quickly as they need to. But in order to turn themselves into a profitable business, all they need to do is cut costs. I've been to their offices and talked to friends that worked there, so I know there's plenty of room to cut costs. That being said, if their revenues drop, they could be in for real trouble.
That being said, I just dumped my entire position today (with my luck, right at the very bottom). My biggest fear is that their revenues keep falling, and they die death-by-a-thousand-cuts. If this quarter is a kitchen-sink quarter, then I might pick some up after they release their official numbers.
Did you miss the bit where they use $400M to generate that gross revenue?
How do you think they're going to save > $10M per month to put themselves in to decent profit? Which costs will they cut?
ZNGA could do the same thing. They could cut R&D by 1/3, SG&A by 2/3, and even cut down on things like customer support, etc, and their current earnings for at least a few quarters wouldn't be affected immediately. They still need to create new games to entice those same users
>They could cut R&D by 1/3, SG&A by 2/3, and even cut down on things like customer support, etc //
Sounds great. When you say SGA, isn't that mainly wages. So, lay off most of their staff, do away with a large part of development and still generate the same earnings. Won't that just cause them to fail slowly?
I can see how Yahoo can coast on inertia to some extent but aren't Zynga more reliant on novelty? Yes new people come along, but they're entering - in social gaming terms - a pool of people who've already tired of a particular game/games.
What do you make of reports like this http://arstechnica.com/business/2012/08/as-zynga-stock-price... suggesting that several of the top developers are gone/going. Surely that would make it harder to cut R&D and make great new games.
Will be interesting to see how things progress for sure.
Despite trying to step out from FB's shadow, they are still there- between a rock and a hard place.
I'm being completely serious. When I read headlines like this I just assume this happened at least nine months ago. I'd like to hear some reasoned defense of how this company was going to survive.
How were they going to survive? They aren't dead. Not even close.
Pincus has the same kind of control over Zynga that Zuckerberg has over Facebook, and he's got a mountain of cash in the bank. That means nobody can make him do anything and he has a very long time to get his house in order.
All they would have to do to make Wall Street happy now is lay-off a whole bunch of people and start making 20% profit. The stock would go to $10+ instantly. That's the easy way out, not planning for the long run. Not planning for growth.
Zynga is in a great position for real-money gaming, as just one possible avenue for future growth. The US government is taking longer than expected to regulate that industry but they will get around to it.
Zynga has been public for less than a year and they've got many years of runway left even if things don't improve. People need to slow down on thinking and claiming they are done.
Maybe we should ask for a refund from the analysts? But seriously, it's free advice, we are getting what we pay for.