$10 Billion Zynga Valuation Means We're In a Bubble, Boys

$10 Billion Zynga Valuation Means We're In a Bubble, Boys

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The chief financial officer of French studio Gameloft says the $10 billion valuation of Zynga is proof that the social and mobile gaming business is riding a stock market bubble.

Rule number one about bubbles: they burst. If you're lucky, you get a little bit of soap in your eye, it stings for a second or two and then you go back to playing in the yard. If you're less fortunate, you get to watch billions of dollars of market valuation get wiped out in mere days, leaving collapsed portfolios, devastated retirement savings and countless distressed investors in its wake. The "dot-com bubble" of the late 90s and the deflated housing bubble that the U.S. is still struggling with are two of the most famous recent examples of economic bubbles and the damage they can cause.

Another big bubble that's just waiting to go pop, according to some observers, is the social and mobile gaming business. Yesterday's IPO of social network LinkedIn saw its share value skyrocket from an offering price of $45 to more than $120 over the course of a single day, before eventually closing at $94. That's a sign of looming trouble in the eyes of some European companies, who are putting off a public offering until they're on more stable footing and the market shakes out a bit.

"I just want to keep my head down and build an amazing brand without getting too distracted by the offers of IPOs, investment bankers and discussions with media companies," said Mind Candy CEO Michael Acton Smith. "An IPO is something that we're considering but I think it's too early. There's still a huge amount of value to be built." Rovio, the studio behind the mega-hit Angry Birds, also said it intended to wait a few years before going public in the U.S.

One of the most telling indicators of trouble, said Gameloft CFO Alexander de Rochefort, is the runaway success of certain other game companies. Gameloft has been on the Paris stock exchange since 2000 and has considered a listing in the U.S., but de Rochefort has doubts. "Lots of our U.S. shareholders advise us to list on the Nasdaq because we'd get a share [price] boost of about 50 percent. But I wonder how long this upside can last," he said.

"I'm sorry but when Zynga is worth $10 billion, something is a bit strange," he added. "If this is not a bubble, I don't know what is."

Source: Yahoo! News

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I hope nobody tells PopCap!

HankMan:
I hope nobody tells PopCap

*doubles over in pain after reading*

That was... *groans* ...clever...

If Groupon can be valued at $25 billion after being in business for just two years, there's a bubble waiting to burst. Does anyone even know what they do?

I am secretly hoping Zynga falls flat on it's face. My own sister is addicted to it so it just got PERSONAL.

HankMan:
I hope nobody tells PopCap!

Argh, my soul! I think I need to lie down...

They shouldn't worry. This bubble won't be on the verge of collapse until someone tries to claim that the market has changed fundamentally in an attempt to explain why this bubble will never pop. That's when they should pull out.

The fact that the bubble is being reported is going to speed the bursting up- investors will see reports like this, and lose confidence.

Thanks for knocking down the dominoes, Escapist. Let's get some popcorn.

God damn it. One of those things I cannot comment on. I'm not an economist and I've not seen any financial data from any of the related companies. Hopefully, the bubble, when it pops, just restricts itself to Zynga.

This is good news.

Studios like EA, Eidos and Ubisoft will finally stop firing next-gen artist and programmers just to get in on the market.

Finally, some of us can feed our families again, YAY!

HankMan:
I hope nobody tells PopCap!

Oh, that was good. First post and everything.

I'm personally looking forward to this, just as long as nothing happens to my precious, precious Echo Bazaar.

Damn, I can't wait till this one bursts. These kind of shitware publishers/devs need to be done away with pronto!

I really don't get much of this bubble business, can someone explain?

HankMan:
I hope nobody tells PopCap!

Oh that was a good one.

Can't wait for that the burst and cause those greedy no talent dick weasels to go broke in vain attempts to get customers back.

I would definitely be selling stock in zynga and gameloft right now.

Zynga isn't successful because they happened to snag the right piece of market. They are successful because of a long string of deceitful practices including stealing and reselling customers' personal information, and making cheap knockoffs of superior products (Farm Town will ALWAYS be better than FarmVille).

P.S. Thanks

Best of the 3:
I really don't get much of this bubble business, can someone explain?

Zynga's shares are worth a lot because a lot of people want it. Sooner or later people will sell it again when the worth has increased, making money in the progress, but lowering the amount of people who want it and thus lowering its value. Supply and demand and all that.

It's a waiting game. The longer you wait, the more valuable your shares become. However, most professionals are very cautious to sell their shares as fast as they can when the shares' value start dropping, which means that it will drop even more, which will lead to a chain reaction where everyone owning Zynga shares will try to sell them now that they are still worth something, before the bubble bursts. This will cause the shares to plummet down, and the bubble to burst.

In other words, the bubble bursts because people think it's going to burst.

(At least, that's what I think to be true. Could have things wrong, of course, not exactly a genius in this field.)

Best of the 3:
I really don't get much of this bubble business, can someone explain?

In very basic terms, it implies that companies are being valued by investors at a much higher value than they're actually worth. They see how much they've grown in value and invest in them, hoping to gain in the same way. It's called a bubble because it's built on confidence, not assets. Zygna doesn't own $10b in assets, it's just how much the market feels it is worth.

Eventually that confidence will collapse as investors see smaller and smaller returns on their investments - a company cannot reasonably expand at this rate forever. At which point they'll sell their stock, get their money out and move on. Because they've sold their stock, the price will start to go down and other investors will also pull out, making the decline gain speed. Other investors in other social gaming companies will see this and pull out also before the same thing happens to them. The whole thing comes crashing down - the "bubble" of confidence "pops". This causes trouble because they were never "really" worth that much money in the first place, and companies collapse under the weight of the obligations they've picked up during the good times.

That's a very basic explanation from a non-economist, but I hope it helps.

Edit: Dammit, ninja'd!

JDKJ:
If Groupon can be valued at $25 billion after being in business for just two years, there's a bubble waiting to burst. Does anyone even know what they do?

Make bad Super Bowl adds?

Ferrious:

Edit: Dammit, ninja'd!

It does still help :3

Ekonk:
Snip

Yours too :3

Thanks guys, makes a lot more sense now ^_^

This is no surprise. It happens every time a new thing catches on or shows profitability.

Ferrious:

Best of the 3:
I really don't get much of this bubble business, can someone explain?

In very basic terms, it implies that companies are being valued by investors at a much higher value than they're actually worth. They see how much they've grown in value and invest in them, hoping to gain in the same way. It's called a bubble because it's built on confidence, not assets. Zygna doesn't own $10b in assets, it's just how much the market feels it is worth.

Eventually that confidence will collapse as investors see smaller and smaller returns on their investments - a company cannot reasonably expand at this rate forever. At which point they'll sell their stock, get their money out and move on. Because they've sold their stock, the price will start to go down and other investors will also pull out, making the decline gain speed. Other investors in other social gaming companies will see this and pull out also before the same thing happens to them. The whole thing comes crashing down - the "bubble" of confidence "pops". This causes trouble because they were never "really" worth that much money in the first place, and companies collapse under the weight of the obligations they've picked up during the good times.

That's a very basic explanation from a non-economist, but I hope it helps.

Edit: Dammit, ninja'd!

Zynga's valuation is based on its 275 million active monthly users across all its titles. That's the "asset" that's being valued. That user base allows them to (a) sell those users stupid shit that they don't need and (b) sell other advertisers access to all those users who are willing to buy stupid shit that they don't need. Potentially, there's a lot of money to be made in doing (a) and (b).

One word. Myspace.

Cya.

HankMan:
I hope nobody tells PopCap!

That one stings.

Also, I knew this was going to bubble.

"The chief financial officer of French studio Gameloft says the $10 billion valuation of Zynga is proof that the social and mobile gaming business is riding a stock market bubble."

In related news, scientists report that the sky is blue, and that water is wet!

As my business studies teacher said, if you get into a cab or go home and start talking about investments and those people are saying they "bought X because it is really popular and profitable" you know it is time to get out and get out fast.
And literally everyone is talking about "social platforms" and "social gaming".

 

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