Zynga, the gaming company best known for FarmVille and Words With Friends, may now be worth less than the office building in which it resides, the blog Halting Problem said this week.
The social video game service is looking to sell off its massive 670,000-square-foot, seven-story headquarters in its hometown of San Francisco. When it first bought its office building for $228 million in 2012 ($340 per square foot), Zynga walked away with a relatively good deal; office space in San Francisco now sells for around $800 per square foot, or two and a half times what the company originally paid for it. The building’s value is now estimated to be around $540 million. Zynga has since fallen on hard times, and put the building up for sale back in February of this year, but the real estate value went undisclosed until recently.
The publicly traded company has had serious problems with its product strategy and business model. In 2011, Zynga was at the top of the world — a Silicon Valley powerhouse producing popular Facebook and mobile games with a market value of $9 billion. Now, the company’s market value is estimated at around $2 billion. Due to Zynga’s large reserves of approximately $1.5 billion cash on hand, it was considered worth less than $750 million three years ago, and analysts estimate the company’s worth is about $500 million now.
In other words, Zynga as a company may be worth less than its own headquarters, as Halting Problem reports.
“Zynga rose to prominence with Facebook-linked games like Farmville and Words With Friends, but has struggled to replicate the successes of its earlier products. At the time of its 2011 IPO, Zynga’s shares were valued at $10 and the company boasted a workforce of 3,000 people. Now, their stock trades at $2 and rounds of layoffs have downsized their team to 1,700 employees. Employees at neighboring tech companies can reportedly judge when layoffs are happening by the long lines of people walking out of the Zynga office with boxes of their belongings and by the unusually large number of people at local bars at 2 PM on a weekday.”
However, all may not be lost for the company. Zynga CEO and founder Mark Pincus announced the plan to monetize its San Francisco headquarters through a sale and leaseback transaction when the company’s 2015 fourth quarter earnings letter was released in February. He said he wants Zynga to remain in the building “with a long-term leaseback as part of any deal,” according to the San Francisco Chronicle.
With real estate values famously high in San Francisco, Zynga may be counting on making a significant profit on the sale of the property. The average studio apartment rents for $2,400 a month in San Francisco, and rent prices are expected to rise by a further 10.5 percent before the end of the year.
When Zynga first bought the building from San Francisco-based TMG Partners, it was still expanding its lucrative Facebook games through titles like FarmVille, Mafia Wars, and CityVille. Zynga began in 2010 by leasing roughly 65 percent of the total space in the building in what the Chronicle reports was the largest office lease in San Francisco in five years. Analysts compared the company favorably to Facebook and Google, and it boasted 226.4 million active players per month.
Zynga’s shares jumped 11 percent higher on Thursday amid reports that its first quarter revenues are beating expectations by breaking even, instead of the projected loss. While reports boasted an increase in ad revenue, they also showed a loss in customer base for their web games. Zynga has yet to match the earlier success of its Facebook web games with its new line of mobile games. The company plans to release 10 new games in 2016.
The actual pricing for the building is almost impossible to judge, since the final price will depend on how much space the seller decides to keep on the property. Zynga declined to make any further comments on the future sale of its property.
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