Archive for the ‘guidance’ tag
Editor’s note: Guest author David Cho is CEO and co-founder of Sidebark, the private photo and video sharing service. Prior to founding Sidebark, he was a leader in Bain & Company’s digital media practice.
How much more valuable do you think Facebook is than Yahoo? Let’s say I gave you 1% of Facebook’s stock. How much of Yahoo would I have to give you to part with that share? 5%? 10%? More? (Or would you just move to Singapore and renounce your U.S. citizenship?)
What about Google stock? Would you make a 1% for 1% trade? What about 0.5% of Google for your 1% Facebook stake?
Well here’s what the stock market thinks: Based on market cap, Facebook is closer in value to Yahoo than it is to Google. After sliding under $20 per share, just two and a half months after going public at $38, Facebook’s market cap hit $45B, closer to Yahoo’s $20B than Google’s $210B.
The two companies represent two possible future states for Facebook. Google: Thriving, a colossus in digital advertising with a stranglehold on search, the kind of company that creates billion dollar businesses out of secondary products. Yahoo: Shrinking, trying to find its identity with a revolving door of CEOs, while seeking ways to improve monetization of its still massive user base.
These two companies pretty much represent heaven (Google) and hell (Yahoo) for Facebook. Or to steal from Dante’s Divine Comedy (no, not this one, this one), Paradiso and Inferno.
Right now, according to Wall Street, Facebook is edging perilously close to Inferno. So what gives? Is Wall Street right, and more importantly, can Facebook find salvation?
By virtually any measure, Facebook runs a fabulous business. With a billion (!) engaged users, Facebook recorded $1.2B in revenue and $300M in profit in its most recent quarter and has $10B in cash to invest in the business.
But the stock market does not reward current performance. Stock prices reflect investors’ expectations about a company’s future performance, and particularly for stocks like Facebook, growth.
This is partly why Facebook’s stock price took a beating after its most recent earnings announcement, even though it met the earnings guidance that it had set for itself. The problem was that many analysts believed that Facebook was “sandbagging” its numbers. The stock price reflected that expectation, and when Facebook merely met its earnings guidance, the stock took a tumble.
So what should we expect for Facebook’s growth? Facebook will almost certainly start to create separation from Yahoo ($1.3B revenue in Q2 2012). But do we think it can eventually grow to Google’s size ($11.0B), nearly 10x bigger than Facebook today?
To get a sense of Facebook’s growth prospects, we can start by breaking down Facebook’s revenue into its component parts: number of users; mix of those users; and average revenue per user (ARPU). Let’s look at each piece individually.
Number of Users: This is all about product, and Facebook has obviously crushed it here. They have added 250M users in each of the past three years, and these users are becoming ever more engaged on the site. But how much growth is really left? In the US, its most mature market, Facebook grew its user base just 5% in April vs. the same time last year. In many other markets, Facebook appears to be hitting saturation as well. While some headroom still remains, Facebook is rapidly approaching a point where hyper-growth – driven by growth in users – will plateau.
Mix of Users: What do I mean by mix? Not all users are created equally. A U.S. user is more valuable than an international user, and a web user is more valuable (today) than a mobile user. As has been well-covered, however, engagement is rapidly shifting to mobile, and most of Facebook’s user growth is coming in developing markets. Both factors will serve to mute the impact on revenue that arises from continued growth in users. In other words, even if you believe that Facebook can grow its user base by, say, another billion users, revenue will not necessarily double.
Average revenue per user (ARPU): This one is all about business model, and it is here that Facebook will need to generate consistent growth to find Paradiso. This in turn will come down to two factors: How well it leverages its competitive advantages of scale and data to attract large-scale brand advertising, and how successfully it grows new monetization models like payments.
On the first, Facebook has done well in attracting small and medium businesses and other so-called “performance advertisers” to the platform, but the game will be won or lost based on attracting the billions of dollars that brand advertisers like GM, Proctor & Gamble or AT&T still spend offline. While online advertising has grown to nearly $40B per year, offline advertising (TV, print, radio, etc.) is still a ~$140B market. Facebook’s scale will help in attracting these dollars, but they have hit bumps along the road in doing so.
To help land these brand advertisers, Facebook will also need to continue to be aggressive in how it uses user data to deliver strong ROI. We’ve already seen Facebook experiment here with sponsored stories, using your friends’ likes to insert ads into your mobile feed. I expect we’ll see many more experiments in the future as Facebook uses what it knows about us to improve ROI. In fact, Sidebark, the company I co-founded with Nick Stanev, was founded in part in anticipation that privacy concerns will get worse, not better, on Facebook.
The second factor of finding secondary sources to monetize the user base is a wild card. Facebook has been successful building payments as a meaningful revenue source, and many pundits have offered other adjacent businesses that Facebook should enter (Facebook phone, anybody?) But I think it’s hard to rely on the discovery of new business models to project Facebook’s growth.
So where does that leave us? Decelerating growth in users, unfavorable change in user mix, and a question mark in ARPU. In the short term, Facebook is certain to grow, but the question of Inferno vs. Paradiso will take quite some time to sort out. In order to catch up to Google and find Paradiso, Facebook must be aggressive in driving strong ROI for its customers, the advertiser. But to avoid Inferno, they must not kill the golden goose – their amazingly engaging product – through overly aggressive use of user data or otherwise sullying the user experience. It’s a fine balance, so for now, I’ll hedge my bets and say that Facebook is in Purgatorio and take my 1% to Singapore.
What do you think?
In a dramatic move befitting of his company’s business, Netflix CEO Reed Hastings ponied up more than $1 million for a small stake (0.0017 percent) in Facebook, a company for which he already maintains a board seat.
According to a regulatory filing with the Securities and Exchange Commission, Hastings purchased 47,846 shares at $21.03 a piece on Wednesday costing him $1,006,201.38. The investment has already accrued more than 37,000 for Hastings, as Facebook’s stock closed up at $21.81 on Friday.
The move suggests that Hastings holds confidence in the stock, which hit new lows after Facebook provided zero guidance on its earnings expectations for the rest of the year. Perhaps Hastings knows something the market doesn’t, or maybe the buy is a symbolic gesture meant to show support for a close partner. Netflix was a launch partner of Facebook’s Open Graph and may soon be able to enable U.S. subscribers to automatically share their viewing actives with their Facebook friends.
Facebook got a second vote of confidence today courtesy of Microsoft. Bloomberg claims that Microsoft will be holding on to its trove of Facebook shares, even though the company will be free to unload its stock next week. Microsoft, said an anonymous source, views Facebook as a long-term investment.
Surely no one, save Facebook, would fault Microsoft for dumping its stake. Even with the stock resting around $22 a share, a much depreciated value from the IPO price, the software giant would stand to make a handsome profit from its 2007 investment. At the time, the company put in $240 million and holds a 1.7 percent stake in Facebook. That stake is worth around $1 billion.
But investing in Facebook has been one of Microsoft CEO Steve Ballmer’s more highly regarded decisions in the last decade. Both companies also have a common enemy in Google, and they remain tightly aligned in many ways, including patent-sharing deals and a partnership that gives Microsoft’s Bing search engine a Facebook advantage. Cashing out now doesn’t seem likely.
The market has reacted well to both pieces of news, but Facebook will be put to the test yet again on August 16, when a share lock-up period expires and insiders are allowed to sell.
Facebook declined to comment on this story.
Filed under: social
Facebook says it’s testing a redesign of its ad creator tool that will give more guidance to advertisers as they build their campaigns — specifically by helping them find the right mix of Facebook ads and Sponsored Stories to achieve their stated objectives.
You can see a screenshot of the new workflow below. (Yes, it’s a looooong screenshot, but that means you can see the whole thing.) As shown, the small businesses and other advertisers who use Facebook’s self-serve tool start out by specifying what they’re hoping to accomplish with a given campaign, whether it’s specifically getting more Page likes or promoting Page posts (they can also take a more nuanced approach by choosing “advanced options”). Once advertisers have identified their goal, the ad creator will recommend a combination of ads and Sponsored Stories to achieve that objective.
Connecting Facebook ads to specific goals has been a theme of Facebook’s ad products for several months now. The company says that in May, it introduced features that helped advertisers measure the performance of ads based on their stated objectives. Now Facebook is integrating that idea into the campaign creation process, making it easier for advertisers to take a smarter, more integrated approach to their entire campaign — and also encouraging them to try out different ad types.
Facebook says the change is only affecting the ad creator interface, not the ads API. Other new features include a preview that shows how Sponsored Stories will actually appear in a user’s newsfeed.
If this interface is a hit with advertisers, it also seems like Facebook could use these features to introduce new ad units in the future.
In an attempt to give the mobile payments industry some guidance, the trade group Electronic Transactions Association today announced the Mobile Payments Committee, a task force that includes representatives from all four of the major U.S. carriers, as well as others developing mobile payments solutions.
Chaired by Jackie Moran, Verizon’s executive director of federal relations, the committee will serve as a way to develop policy and business strategy for the mobile payments industry. Among the issues the committee is tackling, it will help participants figure out the complex business relationships necessary to make mobile payment options interoperable; help legislators and regulators understand how to develop mobile payments public policy; and educate consumers and merchants about the benefits of mobile payments.
“Our industry must work collaboratively to ensure that the regulatory and business environment promotes innovation and cooperation,” ETA Chief Executive Officer Jason Oxman said in a statement today. “As the trade association of the payments industry, ETA is the hub of activity in mobile payments, and our Mobile Payments Committee will help ensure that consumers and merchants have access to an efficient, reliable, and secure mobile payments system.”
Mobile payments tech feels a lot like the Wild West right now, with competing standards, hardware, and goals, it makes sense for the industry to come together to figure out broader solutions. After all, their biggest challenge is still ahead of them: convincing consumers that they should give a damn about mobile payments.
AT&T, Verizon, Sprint, and T-Mobile are all joining the ETA to take part in the committee, which should hopefully put an end to carrier exclusive payments offerings (like Sprint’s Google Wallet arrangement). Other companies in the Mobile Payments Committee include Google, Isis (itself a union between several carriers), PayPal, Verifone, and Intuit.
The committee will meet for the first time later this month, the ETA says.
Photo via Shutterstock
HTC lowered its guidance after missing analysts’ expectations and reporting a 27 percent drop in revenues and a 57 percent drop in operating profits. The company’s slide is being blamed on increasing difficult competition in the smartphone arena.
LinkedIn has just released Q2 earnings, and the enterprise-focused social network continues to rise. It’s posted revenues of $228.2 million and earnings per share of $0.03 (non-GAAP EPS: $0.16). This puts the company past earnings estimates from First Call of $216.3 million, and Yahoo Finance, which had estimated revenues of $216 million. It also beat First Call’s EPS of $0.01, as well as LinkedIn’s own guidance of revenues of $210-$215 million.
Q2 saw LinkedIn get hit with what might have been its worst publicity disaster in recent times, when some 6.5 million passwords were stolen. Although the company moved quick to create password changes, the breach would have put off users from relying too much on putting data into that social network, or using it for and paid services, but these results show that clearly it was not hit as hard as people might have thought.
Here’s how some of its divisions performed:
Hiring Solutions: Revenue totaled $121.6 million, up 107% compared to the second quarter of 2011. Hiring Solutions revenue proportion is going up. It’s now 53% of total revenue versus 48% in Q2 2011.
Marketing Solutions: Revenue totaled $63.1 million, up 64% versus Q2 2011. Marketing Solutions revenue represented 28% of total revenue in the second quarter of 2012, compared to 32% in the second quarter of 2011.
Premium Subscriptions: Revenue was $43.5 million, up 82% versus Q2 2011. Premium Subscriptions represented 19% of total revenue in the second quarter of 2012, compared to 20% of revenue in the second quarter of 2011, LinkedIn said.
We’ll be listening in to the call at 2pm PT. Some things we’ll be looking for:
Mobile in Q1 accounted for 22% of LinkedIn’s visitors, and with the introduction of LinkedIn’s iPad app, investors will be looking to see whether the company has been able to capitalize on that further. In the release, LinkedIn notes no numbers but does say the iPad app has been “received positively, and engagement trends are encouraging.” More than half of page views on the app are being generated by content-focused products such as updates, news and groups — meaning potentially more routes for monetizing on those down the line.
User engagement, as some have noted, is another focus. The company in May bought enterprise content sharing platform SlideShare for $119 million, and just weeks ago it launched a redesign that is also geared to making the site a place where users would like to spend more time, with an enhanced LinkedIn Today story stream and more options for communicating with other LinkedIn members.
LinkedIn’s revenue guidance for Q3 had been $235 million, and now it’s bumped that up to $235 million-$240 million. It’s also raised its full-year forecasts to $915 million-$925 million; in its Q1 call, LinkedIn had given the range $880 million$900 million.
In Q1, LinkedIn had impressed analysts with a set of very strong results, producing earnings per share of $0.15 against estimates of $0.09, and revenues of $188.5 million against an estimate of $179 million.
More to come. Refresh for updates.
Electronic Arts‘ flagship online game, Star Wars: The Old Republic, isn’t doing so well, but the big video game publisher is so well diversified that the impact on the company’s bottom line isn’t as bad as it could have been, analysts say.
EA chief executive John Riccitiello said in a conference call yesterday that the company’s diversification is paying off. Even though Star Wars: The Old Republic is missing expectations, the company’s earnings didn’t fall apart and guidance was only slightly lowered for the full fiscal year. That shows that the company’s smaller-scale efforts, such as an expansion into social and mobile games, are starting to add up and make a difference in the larger outlook for EA.
The company is a kind of guinea pig in that it is racing into digital games faster than any other rival in the industry. If the move pays off, then it will show that old-guard entertainment companies are capable of making a transition into the modern world of social entertainment.
But so far, EA’s flagship is taking on water. Star Wars, which took more than six years and an estimated $200 million to make, is bleeding subscribers. It had 1.7 million subscribers at the outset but dropped to 1.3 million in the fourth fiscal quarter and to under 1 million in the first fiscal quarter announced yesterday.
EA now plans to add free-to-play options for Star Wars in November. Analyst Michael Pachter of Wedbush Securities said the free-to-play option should result in long-term incremental growth and margin expansion for the game.
Arvind Bhatia, an analyst for Sterne Agee, said that EA beat expectations, once adjusted for Battlefield 3 Premium accounting, which required EA to defer subscription revenue until the fourth fiscal quarter ending March 31, 2013. The reduction in guidance wasn’t as bad as expected, Bhatia said, and more of the year’s revenues will now fall in the second half of the year.
“It appears EA’s diversified model is helping it in the ongoing industry transition,” Bhatia wrote in a research note. He reiterated his “buy” rating and maintained his target stock price for 12 months out at $17 a share. EA is trading around $11 a share.
EA is counting on a deft shift to digital revenues as its retail business of selling $60 games to hardcore games slows down. Pachter estimates that EA’s digital revenues will grow from $1.2 billion in the year ended March 31, 2012 to $1.7 billion in the 2013 fiscal year and $2.2 billion in the 2014 fiscal year. Pachter is maintaining a 12-month price target of $29 a share.
Ben Schacter, an analyst at Macquarie Research, said EA’s stock would get a bounce because its news wasn’t all bad, although he called the Star Wars game “clearly a disappointment, to put it mildly.” Yesterday, EA said it would buy stock back from investors in order to boost the price. This $500 million stock buyback will likely help the stock as well, Schachter said.
“The question is, during the transition, can this digital revenue lead to meaningful improvement in margins, and can [EA's] core franchises have a sustainable competitive advantage on the new platforms? Both of those issues are still unclear and given the company’s track record, we prefer to wait on the sidelines,” Schachter said.
Schachter said that investors are apathetic about video game stocks now, but since the stocks have fallen so much, investors looking for a good deal may now be interested in EA. Overall, Schachter raised his price target from $15 to $18 a share.
Atul Bagga, an analyst at Lazard Capital, said that EA is executing solidly in growth areas such as mobile and free-to-play games.
“We continue to see EA as a transformation story from games-as-a-product to games-as-a-service, which we believe could drive margin expansion, reduce earnings volatility, and as a result drive multiple expansion,” Bagga wrote in a research note.
Bagga is optimistic about the prospects for Star Wars: The Old Republic as a free-to-play game. He said EA could be an attractive acquisition target for media companies looking to strengthen positions in the video game space or Asian companies looking to expand in Western markets. He maintained a buy rating on EA with an $18 price target.
Colin Sebastian, an analyst for R. W. Baird, said it was an uneventful quarter with in-line results. He lowered his price target to $15 a share, largely because of declining prices for game industry stocks.
“However, we continue to be encouraged by EA’s digital progress and still see potential catalysts unfolding later in the year,” Sebastian said in a research note. “With the iron in multiple digital fires, EA retains a unique portfolio of digital opportunities ahead. In particular, we believe that EA Sports and Battlefield offer upside potential from an increasing mix of online revenues.”
Electronic Arts reported its first fiscal quarter earnings today, hitting its target but falling short on revenue.
The maker of video games such as Madden NFL and Battlefield 3 said that revenues for the first fiscal quarter ended June 30 were $491 million, down from $524 million a year ago. Non-GAAP net loss was $130 million, compared with a loss of $123 million a year ago. Non-GAAP earnings per share were 41 cents, compared with 37 cents a share a year ago.
Analysts expected EA to report non-GAAP revenues of $502 million and a loss per share of 42 cents. After hours, EA’s shares rose 3.6 percent to $11.40. Evidently, investors interpreted the loss as good news. EA also announced it would buy back more than $500 million in its own shares of stock.
“We have established an unmatched diversity in our business with multiple brands performing across several channels, business models, and geographies,” said Chief Executive Officer John Riccitiello. “This allows us to drive profitable growth in a rapidly transforming marketplace for games.”
In other news, Redwood City, Calif.-based EA appointed Blake Jorgensen as CFO, filling a gap that has been open since Eric Brown left the job to become CEO of conference call communications firm Polycom. Jorgensen will report to EA CEO John Riccitiello and start in early September.
It was a relatively light release schedule during the quarter. EA did release SimCity Social (pictured at top), and the game has more than 16.3 million monthly active users on Facebook. EA has 51 million monthly active users on Facebook, compared to Zynga’s 255 million. EA’s release said it had more than 10 million monthly active users for SimCity Social.
Arvind Bhatia, an analyst at Sterne Agee, believed EA would lower its full-year revenue guidance of $4.3 billion for the fiscal year ending March 31, 2013 and earnings per share guidance of $1.05 to $1.20. But EA reaffirmed its previous guidance.
“We had a solid first quarter and are reconfirming non-GAAP guidance of annual earnings per share growth of 30% at the midpoint of our guidance,” said Interim Chief Financial Officer Ken Barker. “The $500 million stock buyback demonstrates our confidence in EA’s future.”
“We continue to make progress in our goal of becoming the leading digital entertainment company,” said President of EA Labels Frank Gibeau. “Over the last twelve months, we generated over $1.3 billion in non-GAAP digital net revenue, and approximately two-thirds of our non-GAAP net revenue in the first fiscal quarter was in digital.”
As we noted earlier today, EA faces considerable financial challenges now as it tries to balance the sale of $60 retail games with the need to invest in digital games in the social, mobile, and online spheres. Last year, EA had $4.1 billion in revenues, and a quarter of those came from digital games. But the stock price is at a historic low, and investors have focused on declining subscribers for EA’s flagship online game, Star Wars: The Old Republic. The stock today closed at $11 a share, valuing the company at $3.52 billion. For much of last year, EA was valued at around $7 billion.
Last week, shareholders asked Riccitiello when they would see returns. Riccitiello, speaking at the annual meeting, asked them to be patient and said that EA is moving toward all-digital revenues. Larry Probst, chairman of EA, said that the board is 100 percent behind Riccitiello. For the trailing 12 months, EA said its digital revenues were $1.3 billion. EA also said that pre-orders for its Madden NFL 2013 game are up 25 percent from the same period a year ago.
EA said that Star Wars: The Old Republic, which EA-owned studio BioWare developed over the past six years, will have free-to-play options starting in November. The Old Republic is EA’s main competitive thrust against Activision Blizzard’s money-making machine, World of Warcraft. Wags on Twitter are now calling it the “non-WoW-killer.”
EA did not mention how many subscribers it has for Star Wars. The company had previously said the vast majority of Star Wars’ 1.3 million subscribers signed up for beyond the initial free trial. That was down from the previous quarter’s subscriber estimate of 1.7 million. The game is now shifting to include a free-to-play option, where users play for free and pay real money for virtual goods. Analysts believe the game, which cost a reported $200 million to make, had a chance to steal subscribers from World of Warcraft, which has dominated massively multiplayer online games for seven years and has more than 10 million paying subscribers.
Founded in 1982, EA was once the biggest independent publisher of video games. But it now has a smaller market value than rival Activision Blizzard. EA ended the quarter with 9,225 employees, compared with 9,158 employees in the previous quarter.
EA announced today it would team up with Nexon to publish its EA Sports FIFA Online 3 game in Korea. The previous title generated $25 million in digital revenue for EA. EA said that FIFA Ultimate Team contributed over $30 million in net digital revenue in the first quarter.
EA also said Battlefield 3 Premium, an online service for Battlefield multiplayer fans, has sold more than 1.3 million subscriptions to date, with all of the deferred revenue to be recognized in the fourth fiscal quarter. EA’s online social network Origin now has more than 21 million registered users, including 9 million on mobile. 57 independent game developers are publishing games on Origin.
EA said that it has to defer Battlefield 3 Premium revenue from the quarter until the end of the year, for accounting purposes. That revenue is expected to be $37 million.
Electronic Arts reports its first fiscal quarter earnings today, and so it is probably a good thing that the video game giant (known for its Madden NFL, Battlefield, and Need for Speed franchises, among others) now has a chief financial officer.
EA appointed Blake Jorgensen as CFO, filling a gap that has been open since Eric Brown left the job to become CEO of conference call communications firm Polycom. Jorgensen will report to EA CEO John Riccitiello and start in early September. Jorgensen’s appointment will get a lot of attention because EA is under the financial microscope now.
Jorgensen (pictured right) was previously executive vice president and chief financial officer at Levi Strauss & Co. He was also the CFO at Yahoo and chief operating officer and co-director of investment banking at Thomas Weisel Partners, which he co-founded in 1998.
In other words, he has no experience in the video game industry. That may seem like a negative, but large companies frequently hire outsiders from beyond the games business.
“We are very pleased to have an executive with Blake’s experience joining our senior team at EA,” said Riccitiello in a statement. “His deep understanding of finance and experience in online commerce and entertainment will be instrumental to EA’s transformation into digital distribution of game content and services. Beyond his experience and leadership profile, we think Blake is a great cultural fit for EA and the game industry.”
“New devices, digital distribution, and a rapidly expanding audience make this an incredibly exciting time to join the game industry,” said Jorgensen. “EA is a leader on every major game format from packaged goods to mobile, social, and free-to-play. I look forward to joining this team and helping them expand their global leadership.”
EA faces considerable financial challenges now as it tries to balance the sales of $60 retail games with the need to invest in digital games in the social, mobile, and online spheres. Last year, EA had $4.1 billion in revenues, and a quarter of those came from digital games. But the stock price is at historic lows, and investors have focused on declining subscribers for EA’s flagship online game, Star Wars: The Old Republic. The stock today is at $11.23 a share, valuing the company at $3.56 billion. For much of last year, EA was valued at around $7 billion.
Analysts are expecting EA to report non-GAAP revenues of $502 million and a loss per share of 42 cents. Arvind Bhatia, an analyst at Sterne Agee, believes EA will lower its full-year revenue guidance of $4.3 billion for the fiscal year ending March 31, 2013 and earnings per share guidance of $1.05 to $1.20.
Last week, shareholders asked Riccitiello when they would see returns. Riccitiello, speaking at the annual meeting, asked them to be patient and said that EA is moving toward all-digital revenues. Larry Probst, chairman of EA, said that the board is 100 percent behind Riccitiello.
Filed under: games
As we reported before, Zynga executives and investors, including CEO Marc Pincus, sold over $500 million in stock just three months before. Pincus sold $200 million of Zynga stock, chief operating officer John Schappert sold $3.9 million, and chief financial officer David Wehner sold stock worth $4.6 million.
Those five firms were Schubert Jonckheer & Kolbe, Newman Ferrara, Johnson & Weaver, Wohl & Fruchter, and Levi & Korsinsky.
Today San Francisco-based Newman Ferrara has announced the first lawsuit on behalf of Mark H. DeStefano and “all other persons similarly situated.” In other words … a class action. The firm believes that hundreds of investors share the same concerns and may be included in the suit.
Key among the law firm’s allegations are these:
- Executive stock lock-up agreements were initially set to expire May 28, 2012
- All of our officers and directors and the holders of substantially all of our capital stock have entered into lock-up agreements with us which provide that they will not offer, sell or transfer any shares of our common stock beneficially owned by them for 165 days, subject in certain cases to extension under certain circumstances, following the date of this prospectus. We have agreed with Morgan Stanley & Co. LLC and Goldman, Sachs & Co. not to waive these lock-up restrictions without their prior consent.
- Zynga issues positive guidance on stock price
- In announcing its 2012 outlook, Zynga stated that “Bookings are projected to be in the range of $1.35 billion to $1.45 billion. We expect that growth will be weighted towards the back-half of the year with slower sequential growth in the first half of the year.”
- The lock-up agreements were revised on March 23, 2012
- On March 23, 2012, before the Secondary Offering was completed, Zynga filed an Amendment to Form S-1 with the SEC. The Amended Registration Statement authorized the Secondary Offering of 42,969,153 shares of Class A common stock. Zynga’s March 23 Amended Prospectus waived the lock-up restrictions that previously restricted Zynga insiders from selling their common stock until May 28, 2012. Indeed, the Prospectus announced “[w]e are releasing the selling stockholders from these lock-ups to permit them to sell up to 49,414,526 shares (including the underwriters’ option to purchase additional shares) in this offering.”
- Which enabled Zynga insiders to sell stock early
- The March 23 lock-up restriction waiver enabled Zynga insiders, including the Defendants, to sell their shares of Zynga stock when the Secondary Offering was on April 3, sooner than the May 28, 2012 expiration date.
- And allowed them to profit while ordinary investors did not (and rank-and-file employees could not)
- As detailed below, the Individual Defendants promptly sold the shares they received in the Secondary Offering, for proceeds of over $500 million. While Zynga insiders were able to sell their holdings at $12 per share before Zynga’s second quarter financial results were announced, Zynga’s non-executive employees and other public shareholders suffered colossal losses on their investments.
- In addition, Zynga continued to issue positive guidance
- On April 26, 2012, Zynga issued a press release on Form 8-K with the SEC and filed a corresponding Quarterly Report on Form 10-Q with the SEC announcing its financial results for the first quarter of 2012. Zynga touted its growth in both web and mobile bookings, reporting record bookings of $329 million for the quarter, up 15% year-over-year. The press release announced that “[w]e’re pleased with the progress that Zynga has made in the first quarter growing our audience reach 25% year over year and nearly 20% quarter over quarter.”
- In issuing its 2012 outlook, Zynga announced that “Bookings are projected to be in the range of $1.425 billion to $1.5 billion. We expect growth to be weighted towards the second half of the year.”
- And, misrepresent or failed to disclose important information
- Zynga misrepresented or failed to disclose material adverse facts about its business, operations, and growth prospects including, among other things, that: (1) Zynga had been experiencing a rapid decline in user numbers and virtual goods sold in existing web games; (2) Zynga had faced substantial delays in launching new web games; and (3) Zynga’s revenue and bookings were entirely dependent on Facebook’s online gaming platform.
It’s a serious lawsuit and obviously a major problem for Zynga. But the company and its executives will have their day in court and will be able to present their view of the events at that time.
One possibly bigger problem for the company right now?
I wonder if the rank-and-file employees, who were forced to wait longer to sell than key executives, are one of the parties feeling particularly aggrieved right now.
Especially if their options happen to be underwater at the moment.