Can Zynga Avoid LinkedIn-Like Ugly Insider Sales? Business Problems Remain
Online social gamer Zynga (ZNGA) is hitting the market with a secondary offering of $400 million in common stock held by initial shareholders, hoping to create a more orderly way for these investors to cash out and avoid the type of plunge suffered by LinkedIn (LNKD) when its pre-IPO shareholders unloaded stock last year.
The maker of Words with Friends and CityVille, which just launched its IPO in December, is transitioning itself into more of a traditional gaming company, trying to diplomatically shake its heavy reliance on Facebook for the lion’s share of its revenue. That relationship, coupled with an unexpected fourth-quarter loss last year of $435 million, rattled investors earlier this year.
Zynga launched what it's calling the Zynga Platform earlier this month, and announced last week that it had signed on Konami Digital Entertainment to develop games for Zynga.com Among Konami popular titles are its Metal Gear and Contra series.
Zynga's goal is to have people play their games, and offerings from other gaming developers, directly on Zynga’s site rather than through Facebook(FB), which reportedly takes a 1/3 or more of revenue off the top.
With a forward PE of about 37, and with downward pressure on earnings from high compensation costs expected to continue this year, Zynga Platform better be a winner or the end of the lock-up period may be the least of the company's worries.
Filed under: Company Analysis