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Similaire à Zynga IPO analysis
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Zynga IPO analysis
- 1. Group 10 David Parast, Derek Yu, Wei Wang
- 2. Introduction • Zynga held an IPO on Dec 16th, 2011 – Management wanted to raise $1 billion • 100 million shares at $10 per share • Since debut last year – High volatility • High: $15.91 • Low: $2.09
- 4. Success Factors and Metrics • Making games accessible and fun • Launch new games • Enhance existing franchises • Exploit mobile Growth • Exploit international growth • Technology leadership position • Increase monetization of games Acquisitions?
- 5. Success Factors and Metrics Cont. • Monthly Unique Users (MUU) • Monthly Average Users (MAU) • Daily Average Users (DAU) • Monthly Unique Payers (MUP)
- 6. Success Factors and Metrics Cont. • Important to note: – Operating metrics may not correlate directly to bookings or revenue • Besides opportunities for more advertising revenue, more users only good to extent they pay • Increases hopefully result in increases Average Daily Bookings Per User (ABPU)
- 7. Risk Factors • Facebook terms change – 71% of accounts receivable IPO were owed by FB – Users pay by purchasing credits on FB first • FB takes 30% cut • Most revenues from select few players – Only 2.5%-3% of users actually pay • Online game revenue: 93.5% • Advertising revenue: 6.5%
- 8. Risk Factors Cont. • Game formulas become stale – Top 3 games account for 57% of revenues • Advertising negatively impacts player experience • Acquisitions and new games do not pan out • Low barrier for competitors to enter
- 9. Accounting Analysis • Refer heavily to Bookings instead of Revenues – Management states that Bookings more accurate – Cash basis, non-GAAP (Revenues + Deferred Rev) • Deferred revenue recognition is confusing – Recognizes “consumable virtual goods” instantly – Recognizes “durable virtual goods” over estimated playing period of game
- 10. Accounting Analysis Cont. • Durable virtual goods – Account for 71% of online revenues – No true pre-determined life span • Before IPO amended average paying player life from 19 months to 15 months for Farmville – Caused GAAP revenue to increase $27.3 million – Short term revenue looks good, but is a bad sign – All games easily manipulated?
- 11. Accounting Analysis Cont. • Goodwill checked for impaired annually or more frequently if reason occurs • In 2010 & 2011: – Acquired 22 different companies – Spent $105.1M -$91.8M of that was goodwill – Pre IPO had never written anything off – March 21, 2012 acquired OMGPOP for $183.1M 100M approximately in goodwill
- 12. Prospective Analysis & Valuation • Outstanding shares: 700,000,000 • Price @ IPO: $10 per share • Date of Pricing: December 16, 2011 • Ticker/ Listing: ZNGA/NASDAQ Global Select • Use of Proceeds: General corporate processes, capital expenditures and tax withholding obligations related to the vesting of employee equity-based compensation
- 13. “Fair Price” $10 $2.3
- 14. Valuation Model Price / Multiple ROE Valuation Model
- 15. Price Multiple Comparable companies--- High Growth Internet & Digital Gaming .
- 16. First Step: Selecting Comparable Companies Activision Blizzard Inc Electronic Arts Inc Groupon Inc Linkedin Corporation Pandora Inc.
- 17. P/E ? P/B ? P/S ! P/E: Groupon Inc & Electronic Arts P/B: Varying sizes; P/S: Easy measurability/ start-up/hard to manipulate;
- 18. Total Revenue Price Share Outstanding P/S Groupn,Inc 1,610,430.00 23.04 655,720.00 9.38 Activision Blizzard 4,755,000.00 11.88 1,110,000.00 2.77 Pandora Media, Inc 137,764.00 10.15 168,880.00 12.44 Electronic Arts 3,589,000.00 22.23 305,140.00 1.89 Linkedin Corporation 522189 65.84 107,450.00 13.55 Mean 8.01 Sales 828,863.00 $10 Maket Value 6,636,672.05 Share Outstanding 700,000.00 Price $9.48
- 19. Us Gaming Companies Chinese Gaming Companies Electronic Arts (ERTS) Perfect World (PWRD) Activision Blizzard (ATVI) Shanda Games (GAME) Changyou (CYOU) NetEase (NTES) Mean 2.33 Price $2.76 Mean of US & Chinese 2.54 Price $3.01
- 20. ROE Valuation Model Assumptions: Discount rate 0.15 Initial ROE 1.25 ROE decline per year 0.10 Minimum ROE 0.19 ROE at terminal year 0.19 Growth in book value over 10 yrs 0.24 Growth rate beyond 10 years 0.03
- 21. Implied price : ONLY $1.58 What kind of assumptions behind the analysts forecasts ---------------$ 10
- 22. Discount rate 0.15 0.12 0.19 0.31 Minimum ROE 0.31 ROE at 0.19 terminal year 0.24 0.45 Growth rate beyond 10 years
- 23. Fair Price : $ 2.3 Current Price: $ 2.5
Notes de l'éditeur
- Many of these trying to be accomplished through acquisitionsIn 2010 and 2011, Zynga acquired 22 different companies, spending $105.1 million in the process. Of that $105.1 million spent, $91.8 is recorded as goodwill on its books; the majority of the prices Zynga is paying for these companies are for intangible assets.
- In 2010facebook signed two year agreement with Zynga to not create competitor games
- Consumable goods do not provide the player any continuing benefit following consumption or often times enable a player to perform an in-game action immediately. For the sale of consumable virtual goodsDurable virtual goods, such as tractors in FarmVille, represent virtual goods that are accessible to the player over an extended period of time.
- Unlike a typical business where there is a contract specifying the terms of service, Zynga’s virtual items have no pre-determined life span. It is left up to the company to determine what the ‘correct’ time frame is.Shortening life means they are losing customers, but makes current revenues look great
- Goodwill and indefinite-lived intangible assets are carried at cost and are evaluated annually for impairment, or more frequently if circumstances exist which indicate that an impairment may exist. No impairment charges had been recorded by IPO dateIn 2010 and 2011, Zynga acquired 22 different companies, spending $105.1 million in the process. Of that $105.1 million spent, $91.8 is recorded as goodwill on its booksFor a new industry with so many intangibles assets for new industry, high risk of inappropriate valuation and write down of goodwill
- After Zynga debuted on December 11, 2011, at $10 per share, the stock ended the day down. Over the next 2 months, Zynga had a downward trend, falling to a low of $8 before a run-up in anticipation of its Quarter 1 earnings release occurred. After the earnings fell short of analyst forecasts, the stock fell into a rut again until management released Quarter 2 guidance that exceeded revised expectations and they disclosed their $185 million acquisition of OMGPOP. This information led to momentum that pushed Zynga to its highest point, $15.91 per share. Following these events, Zynga has had downward momentum. Facebook had its IPO in May; it too closed lower on its open day.. Due to its lackluster reception and Facebook’s implied ties to the success of Zynga, there was increasing downward pressure on Zynga’s stock as investors wondered if the market for Zynga’s product was actually there. In addition, Zynga tried to venture into the mobile gaming market to better monetize the mobile gaming market due to trend progressing towards this market. All attempts thus far have received mediocre results. Furthermore, Zynga recently disclosed that their partnership with Facebook had been downgraded meaning that they would no longer receive preferential placement on the Facebook site. These subsequent events have been disappointing and/or alarming in the eyes of The Street and the stock has had downward movement ever since, hitting a low of $2.09.