You are not taking into account risk premia i.e. discount rate for investing in a highly volatile tech stock such as facebook. So to be net present value neutral it would need to generate over 100 bn in profits. And not only that, the market cap (at ipo valuation) is based on a stock price * number of diluted shares outstanding. Diluted shares increase on avg of about 1% per year for tech companies. Next. Stock price is based on nothing but forward earnings. If in year 10 facebook earned 100 total amount in profits but is declining then stock price will not imply a 100bn company. greater fool? it's the public shareholders who bought facebook at ipo v. some other public company with better risk adjusted prospects. I mean everything should be based on risk adjusted investment. right now fb is worth 50bn so who's the fool for taking a 50% loss in less than a 3 months? answer: everyone who invested at ipo.
Yes companies are "forced to go public" if you are private and have over 500 shareholders than you have to register its stock. you can trade otc markets but no legit company with bn+ valuation is going to do that. it was inevitable outcome.
True statement. But only if the analysis was that easy... Yes, if that can continue but the 200m valuation is much more complicated than applying a 3x multiple on 73m earnings.
You have to model out and do a churn and fatigue analysis to get to your top-line volume potential over time (meaning, games like this for example, my friends who used to play 3 hours a day now play 30 minutes a week or just stopped playing... this is in a span of 3 weeks of playing!). What goes up can go down. Of course Robryan makes a great point about potential synergies but I would imagine synergies can't be that great. Who plays these games that haven't played angry bird or other zynga games? Only a subset of the population would be incremental new users.
What is the average churn rate per week/month?
What is the avg user's playing time per month and trend (trend should go down over time) and one or both of the variables drop by 25-50% more than offsetting any new users added. Then that 2-3 year payback period to break even now turns into 4-5-6 years. So then would this game be still popular at all for that many years? Maybe. I don't know.
What I was pointing out was if somehow some new drawing game like my absurd example becomes more popular over the next 2-4 years then it's got a lot more binary risk embedded in that 200m valuation that most investors are not thinking about or priced in.
Now, I don't know how many people are paying members v. ad members. That may help / not help their case.
Hope that clears up any lack of clarity that I provided in my previous post!
Please keep in mind, most secondaries are done like a IPO except its secondary shares not primary. Bankers line up a set of buyers to sell in blocks (usually at a discount but not as much as IPO discount) in order to help with the massive liquidity inflow.
Also, they can't dump their entire stake. Usually IPOs of tech companies get to dump around 25% max of top mgmt stake in its first secondary offering and bankers will advise companies to usually wait 3-6 months to dump another stake and so forth especially for companies with low barriers to entry. So the entire process takes a decently long time not one month or quarter.
Management dumping so much ahead of IPO is very suspicious and /or at the very least it may imply they have no conviction in their core business model. I mean companies go public to raise money to propel growth. It should help pump up the share price. On top of that, original IPO budgets given to banks are usually conservative so that MGMT doesn't miss guidance for the first 4-6 quarters until they can dump all of their shares. The fact that in their first quarter they missed their own guidance suggests the business is in a whole lot worse shape than even what the company expected. That's bad news.
So when is Zynga's traffic going to normalize? Most of the guys I know have already stopped playing the game.
I was actually thinking, what about creating the same game except only obscene/explicit/offensive adult drawings & word choices? There should be plenty of immature people wanting to play the game with their immature friends. I would : )
I read the rules on the Apple app stores and it doesn't seem promising to obtain approval. If someone knows how to find a loophole into getting it approved, please let me know!
BTW. I think everyone is valuing Zynga incorrectly.
Wall street guys and VC guys alike are looking at Zynga with an incorrect model just like all the street guys built incorrect assumptions in their models for housing before it popped.
People should be valuing the company on a risk-adjusted long-term discounted cash flow basis (similar to an early stage pharmaceutical company) mixed with sensitized accretion/dilution models as these companies have to continuously go on acquisition sprees if they do not organically produce good games... But at one point or another, they're not going to create cool games / there won't be another OMGPOP available to buy OR what they bought cools down faster than what they envisioned; and that "RISK" is not currently priced in today's stock price.
Hot games come and go over time but with very little visibility to know when it'll get cold. So what would happen if I was able to create OMGPOP2 - adult version and somehow it was approved and got crazy popular taking market share from the original game. Then Zynga just wasted a lot of the 200m they just paid for (I heard it only makes 200k a day on ads)... that's a long ways to go to make up that 200m watermark to break even, taking into account fairly strong growth...
I'm calling "shannigan!" No u.s. receivables factoring business has gross margins that they've got. What is Groupon - short-term loan sharks?
Their reversal of NWC as they slow down their quarter-over-quarter growth and overall impact to cash flows is what every smart hedge fund analyst was pointing out for the past 2 quarters that underwriters like GS, BAML, MS and others were neglecting to put in their 100 page initiation coverage reports... BUT for most hedge fund PM's they could not figure out a way to short the stock because the company only floated like 5% of shares so the last time I checked, cost of borrowing to short the stock was ~45% per year.
I mean for starters, Mason and mgmt. already dumped a ton of their shares. Why would they dump so much of their shares ahead of the IPO? He knew that IPOs usually have 6-9month lockup period where management can't sell their shares and it was a race against time for people to figure out their core business model.
Groupon has billions of dollars of value still left but yeah, market cap at this price is still way too high. Deal fatigue takes time to hit for majority of users and the barriers to entry (currently - having the immediate ability to reach out to hundreds of thousands of local users) are too low (I can't do it but google and others can).
However, I find huge SaaS value in their latest move of introducing the bookability concept. I think under the right platform and execution, it should result in a more winner-takes-all business model with sustainable/repeatable revenue streams.
But on the other hand, I'm still unconvinced of the ROI for most vendors and their NEED for recurring Groupon offers. I believe, in the end, the entire system (whether local restaurants or spas or whatever) is worse off as dollars leave the system and go to the hands of consumers and Groupon. Nevertheless, the concept of Groupon can't be undone; it's just a matter of how much smaller piece of the pie Groupon will get and whether that pie size will shrink in the near future.
Simply saying it sucks. Yeah. Ignore it. What the ??? What kind of value is that?
You should ask for more valued added feedback/comments.
There are lots of people, in my opinion, who don't really think through their ideas (or just not trained to think through their ideas) so if you are one of those people, it would help to get another person's perspective in why/why not your idea may or may not work.
It may work because X, Y, Z. But it sucks because A,B,C.
I think issues that you will face because of 1,2,3 will be significant and impossible to overcome unless you have a strategy in place and you don't seem to have one. That's why it sucks. How could I ignore this?
I'd say my one advice from having thought of some really great ideas and being a chicken to ever execute on them which later on turned out to be massively successful businesses is DON'T EVER LISTEN TO ANYONE WHO SAYS, "Oh it's already been done before. You mean like this or that." There are very few industries/type of businesses where a)multiple market players can't co-exist and b)why making a better more valued-added site can't do well.
Sooner or later we'll see a groupon deal for the 99c pizza!
What we effectively have is an arms race in not just pizza, but one can argue that it's happening in all of NYC value to 3 star restaurants and spas and other commodity services via various promotions created to get traffic through the door. The jury is still out there to see if traffic can be converted into loyal customers (which I argue NO for NYC) whether that's groupon vendors or 99c pizza.
What's the difference between a restaurant that charges 99c cheese pizza but 2.00 for pepperoni pizza v. a spa that gives 70% off of a $100 spa service through lifebooker or groupon deal sites? (btw, if you look at the way these coupon site's business model works, $100 70% off that you buy for $30 doesn't mean vendor gave only 70% off. Groupon take ~30% of that $30 so vendor really only get $21 in return for value of $100. Furthermore, groupon squeezes net working capital by giving that cash to the spa after 15-20-45 days from when Groupon received the money).
Both type of businesses should be near break-even profitability at best UNLESS THEY HAVE THE ABILITY TO UPSELL their services/products or they do it to drive in traffic in hopes of converting them into return customers (marketing cost of doing business). However, in NYC where there are 10,000+ restaurants and hundreds of groupon-esque deals daily and in every corner there's a 99c pizzeria, this traffic is worthless traffic and it's permanently creating a lower RONA (return on net assets) for the entire industry. These pricing schemes get played out in the convenience stores as well in the boonies (w/r/t cigarette and beer pricing).
Maybe these local vendors are smarter than I think and have figured out a way to upsell people into purchasing 100% premium pizza for 1 additional topping or restaurants make up the discount and stay profitable through selling higher margins products in conjunction with the coupon (alcohol for instance is 100% margin product) -- so then at spas, I would hypothesize that the upsell potential to be much lower than restaurants so they're just f'd. But to say that we can last longer than the other vendor is completely moronic and naive view of their customer base - why don't they ask abercrombie and fitch and every other u.s. retailer what happens when they turned promotional in 2008 and now they've tried to curb heavy promoting. Price Stickiness is very hard to get rid of for the consumer especially on the value end of the spectrum.
Regardless of all these pricing wars, one can't imply that all pizzeria's margins are toast or all restaurants are toast. Jean George has no problems filling his seats at his michelin star rated restaurants offering no groupon just like Artichoke Basil, a late night pizzeria, in NY doesn't have any problems selling great artisan pizza at an overpriced price to clubbers coming out of the Avenue and 1-oak (2 super-exclusive bottle service only high-end nightclub in NYC) at 2am. That's just smart business and superior product -> turning a commodity business into a sought after premium charged product. If you're spending $500 for 1 bottle of grey goose to get into a club, you're completely fine coming out drunk and spending $10-$12 for a small pan pizza as long as it looks like high-end.
1. as soon as I saw that ipads took off with old, rich people, I massively shorted RIMM stock. Why you might ask? Because at my old job where there's ton of 35-50 year old rich partners getting and loving IPADS what they would do is force their IT guys to enable apple products to be used and synched up. This was the start of all apple products entering corporate and now all of these people who have been waiting to switch already are or have.
2. I initially thought, "Oh I would switch if basic functions like google maps and browser worked like iphone's."
But in reality, when app writers virtually stopped writing for blackberry and then all these other competitors started to get into the smart phones via android, I knew RIMM is going to be next kodak.
3) All of this leads to --> it's not cool to have a blackberry anymore. When people are willing to go out of their way and use an iphone even though they know typing sucks on the iphone (please don't argue with me - i used to type 1000 word emails while walking through TimeSquare traffic with my blackberry), you know the switching cost is SUPER HIGH.