In the sad little world that we analysts live in, coming up with a witty headline is sometimes all the pleasure we get.
For me, it started in 1979 when I sold a computer system to The Ritz Hotel in London and the Guardian headlined the story ‘Chips at the Ritz’, I still have the cutting on my wall.
In the era of HotViews, my favourite is still my Money for Nothing but the chicks ain’t free headline - back in Mar 2010. This was, of course, all about Zynga’s best selling game – Farmville – where you had to pay real money for virtual chickens for your farm. We have written about Zynga many times since and – just like Groupon – have been less than kind. To me it was the epitome of the ‘social bubble’
In Dec 11, Zynga IPOed at $10 a share giving them a value of $7b – 11x the previous years sales.
Yesterday Zynga issued another profits warning (See the last one in July - Zynga bodes ill for Facebook) which sent their shares down another 20% to $2.25 – over 75% lower than the IPO price. If that wasn’t evidence enough for you of the ‘social bubble’ then the news that Zynga were writing off $90m of the $200m they spent acquiring OMGPOP (makers of Drawsomething) which they bought only 6 months ago, surely must prove the point. The FT mused, if the bosses of Zynga – the largest social gaming company – had no idea how to value a social gaming company, what hope do the rest of us have? (Ed – Actually, we did and we never bought into either the stock or the genre)
The ‘problem’ is that so much of this is fast moving fashion not technology. Nothing moves faster than the fashion for the games my ‘little ones’ play. They are also very canny and skip constantly to the next free version. Zynga didn’t help itself here by adding a huge number of ‘new’ games in an effort to diversify away from Farmville – all initially tempting you with a free version. So Farmville – like many of the genre – is just left with a few saddo addicts willing to pay for the virtual chickens.
Zynga’s misfortunes are, in turn, bad for Facebook which still garners much of its revenues from Zynga. In turn, many have said to me that the reason why Facebook will not go the way of MySpace or Bebo is that they have such a huge userbase. But remember that’s what they all said of Zynga and its 320m users at the time of the IPO less than a year back.
Footnote. I keep assuming that all HotViews are my age and understand my rock lyric references. The lines come from the Dire Straits 1985 track, Money for Nothing.
Now look at them yo-yo's that's the way you do it
You play the guitar on the MTV
Now that ain't workin' that's the way you do it
Money for nothin' and the chicks are free