It's a pretty safe assumption that anyone who shelled out for Zynga stock when the company went public -- or even in the five months that followed -- isn't real happy these days.
After reaching a high of nearly $16 per share, the stock now dwells in the cellar, closing Thursday at $3.25. (And, if it weren't for JMP Securities' bullish words when it initiated coverage on the company Wednesday, it would almost certainly be even lower.)
Things took a turn for the worse for investors a few weeks ago, though, when CEO Mark Pincus said he would never consider the sale of the company. As word of that declaration has slowly spread, some investors have started to squawk.
Let's be clear up front. While I've pointed out Zynga's problems in the past, I'll be the first to say the idea of a company sale at this point doesn't make a lot of sense. While its stock is circling the drain and it's certainly suffering challenges with audience and executive retention right now, the company is cash rich and has plenty of room to recover.
And shareholders certainly have a right to be frustrated. Traditionally, after all, a company has a fiduciary duty to make decisions that are in the best interest of its owners -- the shareholders.
There's one little problem with that, though. The shareholders don't own the majority of Zynga. Mark Pincus does.
Absolute control
This has never been a secret. It was clear from the day the company filed its IPO paperwork with the SEC that Pincus was not giving up any form of control in the company. With his super shares, he has voting power to control every decision the company makes, even if every last shareholder thinks it's a bad idea.
So why, you have to ask, did anyone crazy enough to hand their money to Zynga, think there would be an exit strategy? If Pincus has shown anything throughout his tenure at the company, it's his insistence on absolute control. (No one knows that better than John Schappert, who was unfairly tagged as the reason for the company's decline.)
Zynga insists that the social games sector is shrinking, saying that a "challenging" environment on Facebook was the reason it wildly missed its second quarter earnings expectations and will fall short of its earlier guidance for the fiscal year.
Facebook, though, says it hasn't seen any sign of that. In fact, it notes, the number of people playing games was up 8 percent in the first half of 2012. In the last month, in fact, some 235 million played a game on the social network.
In other words, people are playing more; they're just not playing Zynga's games.
That, unfortunately, puts Zynga shareholders in the same position as many Zynga employees. If they want to see any return in their shares in the company, they have little choice but to sit tight and hope that things get better.
The key difference is this: Investors should have known better. Employees didn't have the chance to ignore the warning signs. Those weren't there when they signed on board -- or if they were, they weren't so glaringly obvious.
"Employees didn't have the chance to ignore the warning signs. Those weren't there when they signed on board -- or if they were, they weren't so glaringly obvious."
Couldn't disagree more with this sentiment. I used to be in management at a very large game company back when Zynga first started to make their ascent. This was back when they really just had Poker and Mafia Wars. We started to lose quite a few good designers, engineers, and product folks to Zynga from our digital divisions.
At this time, Zynga had an "F" rating from the BBB and a whole slew of articles were coming out about Pincus' comments on his "bullsh*t ethics" classes in college. There was also the whole "did everything shady possible to get revenue" speech he gave (and around this time there was the scam revenue issue that surfaced). It became clear very early on that Zynga was really just about cloning games and their leadership & practices were shady. There was one guy on message boards ("Darren") who was making it a mission to share his story about what happened to him at Tribe while working with Pincus. Pincus' style was widely known in the games leadership circles and, with every employee who bolted, we pulled them aside to say "I think you're making a big mistake. This guy is no good. The culture will be anti-innovation. They will work you to death. Sure, we have problems too - but we think you're chasing a pot of gold that won't be there in the long-run."
After a couple of these conversations, I gave up. I realized people were going to make their own choice. Maybe it was money and they were really hoping this was going to be their ticket to buy a home. Maybe it was just that our company wasn't giving them what they needed (wholeheartedly understand this is true in most departures anyways).
Fast-forward and you have more articles coming out like the Farmvillains article in 2010 (an absolute brutal takedown if I've ever seen one). Again, more departures to Zynga. Mixed in here are puff pieces from Fast Company. But, in general, at any given time, you had a wealth of info at your disposal to know exactly what you're getting into. Anyways, there was plenty of "warning signs" for people. Maybe they would've never anticipated the crash, but I think all the signs were there to suggest that this company will eventually have a VERY big problem that will affect you personally.
I agree. I've had several opportunities to interview for jobs at Zynga, and even doing basic research on the company put up gigantic red flags. Now when the recruiters contact me (regularly, and always a new recruiter) I just quote their CEO back at them:
"I did every horrible thing in the book, too, just to get revenues right away. I mean we gave our users poker chips if they downloaded this Zwinky toolbar which was like, I don't know, I downloaded it once and couldn't get rid of it."
He treats his customers with such contempt, and I'd be a fool to think he'd treat me any differently.
Zynga's always been very upfront that their strategy is to steal games and ruthlessly exploit the player. The gamble you took when investing or joining the company was that the players would never notice.
Apparently they did, and now you're trapped in a down elevator with a sociopath, but you knew who he was when you got in.
It's one thing to have a corporate strategy, but one still need to be able to put it into operations. I consider they miss the boat by overkilling the data analytics and the capitalist in-game monetisation to the detriment of having fun games.
I tried a few Zynga's games in the past. That's now why I am making my own game...
As an individual investor who is not looking to cash out for 20-30 years (i.e. I'm not looking for an IPO flip), I would never ever buy stock without voting rights. Yeah this means I miss out of the odd Google, but people who quote that as a success always forget about the invisible graveyard of dictatorial companies who didn't make it, and took 100% of stockholder value with them when they went.
I don't know when it was stockholders decided to abrogate themselves of corporate governance responsibilities, but I don't think J P Morgan would've put up with s**t like this, so I don't see why we have to either.
Couldn't disagree more with this sentiment. I used to be in management at a very large game company back when Zynga first started to make their ascent. This was back when they really just had Poker and Mafia Wars. We started to lose quite a few good designers, engineers, and product folks to Zynga from our digital divisions.
At this time, Zynga had an "F" rating from the BBB and a whole slew of articles were coming out about Pincus' comments on his "bullsh*t ethics" classes in college. There was also the whole "did everything shady possible to get revenue" speech he gave (and around this time there was the scam revenue issue that surfaced). It became clear very early on that Zynga was really just about cloning games and their leadership & practices were shady. There was one guy on message boards ("Darren") who was making it a mission to share his story about what happened to him at Tribe while working with Pincus. Pincus' style was widely known in the games leadership circles and, with every employee who bolted, we pulled them aside to say "I think you're making a big mistake. This guy is no good. The culture will be anti-innovation. They will work you to death. Sure, we have problems too - but we think you're chasing a pot of gold that won't be there in the long-run."
After a couple of these conversations, I gave up. I realized people were going to make their own choice. Maybe it was money and they were really hoping this was going to be their ticket to buy a home. Maybe it was just that our company wasn't giving them what they needed (wholeheartedly understand this is true in most departures anyways).
Fast-forward and you have more articles coming out like the Farmvillains article in 2010 (an absolute brutal takedown if I've ever seen one). Again, more departures to Zynga. Mixed in here are puff pieces from Fast Company. But, in general, at any given time, you had a wealth of info at your disposal to know exactly what you're getting into. Anyways, there was plenty of "warning signs" for people. Maybe they would've never anticipated the crash, but I think all the signs were there to suggest that this company will eventually have a VERY big problem that will affect you personally.
My two cents....
"I did every horrible thing in the book, too, just to get revenues right away. I mean we gave our users poker chips if they downloaded this Zwinky toolbar which was like, I don't know, I downloaded it once and couldn't get rid of it."
He treats his customers with such contempt, and I'd be a fool to think he'd treat me any differently.
Apparently they did, and now you're trapped in a down elevator with a sociopath, but you knew who he was when you got in.
I tried a few Zynga's games in the past. That's now why I am making my own game...
I don't know when it was stockholders decided to abrogate themselves of corporate governance responsibilities, but I don't think J P Morgan would've put up with s**t like this, so I don't see why we have to either.
The signs were there for those who invested/worked there. Why did they flock there anyways?