June 29, 2017
Zynga HQ More Valuable Than Zynga Itself? Not So Fast!

How did a company like Zynga, once valued in the billions, become less valuable than the seven-story building it calls its headquarters? Eh, it turns out this probably isn't true. The San Francisco Chronicle, the highly cited source of this erroneous information, states the following.

"The initial report was based on the enterprise value of Zynga compared to its cash reserves and property value. The latest company financial data as of May 6th, 2016, however, indicates an overall market valuation of $2.2 billion, with cash reserves of $987 million, putting its enterprise value at $1.21 billion, which is significantly more than the projected value of the company's real estate holdings at 8th and Townsend Streets in San Francisco."
True, an overall valuation of $2.2 billion is certainly nothing to sneeze at. However, it's important to note that Zynga was once worth nearly five times that amount of money. The company behind the once-popular app games Farmville and Words with Friends may not be out, but it's certainly down -- and struggling to find its way back to its feet.
As reported by the Wall Street Journal, the game developer bought its current HQ in San Francisco for $228 million back in 2012.

The Wall Street Journal is quoted as saying the following.

"The seven-story headquarters opened in 2011 and included a gym, a basketball court, a bar, a candy shop, a Winnebago and a cafeteria serving three gourmet meals a day. Perks included pet insurance, Blue Bottle coffee drinks served by a barista, fitness classes and acupuncture. Employees were encouraged to take their dogs to work and were given unlimited vacation."
This kind of lavish extravagance would be justifiable if Zynga remained worth its many billions. It didn't. The warning signs were there; ironically, first revealing themselves within the same window of time as the HQ purchase.
After its initial public offering in 2011 (during which time, Zynga was actually worth more than Electronic Arts), the company's value began its downward slide. Zynga was able to buy spectacular digs in San Francisco, but within a year, the company was shutting down games. It also laid off nearly 18 percent of its total workforce.

Even though Zynga isn't worth around $500 million as originally claimed by multiple sources, it's easy to argue that going public on Wall Street proved to be a stormy venture for the game developer. Still, every cloud has something of a silver lining. The property that Zynga purchased in 2012 has doubled in value. If Zynga were to successfully sell off it's now $540 million headquarters, it would do so for more than twice what it paid.

The story of Zynga's drop in value and the insanely high property value of its HQ are linked in a way that should terrify anyone tied to the wobbly tech bubble. As the Chronicle warned in January, these are things we've all seen before -- during the 90s dot.com bubble.
"Yes, the whole 'app or crap' joke is getting tired. But that should tell us something. The tech world seems to be brimming with desperate concepts, like startups that will gas up your car for you (there are at least two out there — Purple and Filld). With startups like these, who's to blame venture capitalists from throwing their money into massively valued late-stage firms like Uber and Airbnb?"

"These are a few of the signs that suggest we all may be whistling past the graveyard."

Even though the idea that Zynga's HQ would be worth more than Zynga is an oddly hilarious one, it's not true. The worrying part is that if we're in the first stages of another massive tech bubble burst, it's quite possible that statement is only a few short years from becoming the truth.

Do you think Zynga will pull through or is it the beginning of the end? Share your thoughts below!

[Photo by Justin Sullivan/Getty Images]