Business

Zynga’s Mark Pincus cashes in after 15 years of boom-bust cycle

Mark Pincus, CEO of Zynga Inc. , during an event at the headquarters of Zynga Inc. in San Francisco, California, United States

David Paul Morris | Bloomberg | Getty Images

In the 15 years since Zynga started as a Facebook poker game, Mark Pincus has twice relinquished the role of CEO while guiding his gaming company through the early growth of missile ships, a disappointing post-IPO history stretch and a sporadic history of expensive acquisitions.

But the one thing he didn’t do was get rid of the majority of his inventory.

After Take-Two Interactive’s acquisition of Zynga Monday for $12.7 billion, Pincus is poised to be the single largest beneficiary, thanks to its continued ownership of about 5% of the shares of its existing company.

According to the latest SEC filings, Pincus owns 55 million shares of Zynga. With Take-Two agreeing to buy Zynga for $3.50 per share in cash and $6.36 per share, Pincus is poised to pocket approximately $193 million while still holding approximately $350 million of Take-Two stock.

Take-Two’s purchase price equates to a 64% premium over Zynga’s closing price on Friday, giving Pincus’ net worth a significant boost.

However, the story was not supposed to unfold this way.

Before it went public in 2011, Zynga was all about the hottest tickets in Silicon Valley. Its main game, FarmVille, was printing money, as consumers spent real money building digital worlds and decorating their avatars. In the first three quarters of 2011, revenue increased to nearly $830 million, a sevenfold increase over full-year revenue in 2009. FarmVille accounted for 27% of sales.

Between 2008 and 2011, Zynga got more chatter than any other company in Silicon Valley, said Paul Martino, the venture investor who backed the game developer in its first funding round in 2007. In particular, during the financial crisis, venture capitalists weren’t putting their money into anything, but Zynga was still raising money.

As the IPO approached, Kleiner Perkins was so optimistic about Zynga that it increased its stake in early 2011 by buying $14 of shares, valuing the company at $12 billion. The stock appeared lower, at $10, and crossed $14 multiple times in early 2012.

But Zynga’s early growth depended entirely on Facebook – the company’s games went viral using the social network for distribution. When Facebook began to exercise greater control over the platform, it limited third-party developers from promoting their services, exposing Zynga’s main weakness. Between 2012 and 2014, Zynga’s revenue fell by half.

The stock lost 75% of its value in 2012 and hasn’t fully recovered.

“Once it had such a huge success out of the gate, there was a belief that Zynga could move beyond being a gaming company to become so much more,” said Martino, managing partner at Bullpen Capital. “But in the end, it’s a game company and it was bought up as a game company.”

Martino admitted that the stock’s performance has been disappointing. Even with the high premium that Take-Two pays, it’s still below the IPO price.

“But if you told us in 2007 that the company would be bought for between $12 and $13 billion, I would have to imagine that we would probably be very happy with that,” he said.

Pincus’s big sell-off of the shares came at the right time, and irritated other investors. In April 2012, as part of the secondary offering, Pincus sold $192 million worth of stock at $12 apiece, representing approximately 15% of his total stake. Many shareholders were in a post-IPO closing situation at the time and did not have this option.

Pincus and other insiders who sold on the show were sued by shareholders, who claimed they “incurred huge losses on their investments,” while those at the top could have sold before the dip. Zynga eventually settled for $23 million.

Know when to hold

From that point until late 2018, Pincus held his remaining shares. He sold just $70 million worth of stock between 2018 and 2021, in part to plan estates for his children, according to a Pincus representative. The only other significant change in his ownership was related to his 2017 divorce.

Holding was a lucrative decision, even as the company faced turmoil and uncertainty.

Pincus stepped down as CEO in 2013, when Zynga appointed Don Matric, who had been at Microsoft Xbox, as his successor. Pincus remained on the board of directors and took over as production director.

Two years after that announcement, Pincus regained the CEO position, a move criticized by Wall Street – the stock fell 18%. This is what Michael Butcher, an analyst at Wedbush Securities, wrote in a report after the announcement:

“Mr. Pincus has an on-and-off record with investors, given Zynga’s struggles in the latter part of his previous stint as CEO; we believe a lack of investor confidence has led to Zynga’s stock trading significantly lowering in after-market trading.”

Less than a year after his return, Pincus once again relinquished his CEO position, this time handing the reins of power to Frank Gibeau, CEO of Electronic Arts. Pincus remained chairman of the board.

The stock has since risen 300%, including a rally on Monday on news of the Take-Two deal.

“One of the toughest challenges facing any company is the successful partnership between its founder and CEO,” Pincus wrote in a blog post after the announcement. “For the past six years, I’ve been fortunate to have had that with Frank Gibeau. He’s taught me a lot about managing at scale. Frank and I have always said we get along 80% of the time, and another 20% has led to some of our best ideas” .

Zynga has managed to revive itself by bypassing social games like FarmVille, largely through the acquisition of popular game developers like Words with Friends, CSR Racing, and Toy Blast.

But Pincus, now a managing partner at investment firm Reinvent Capital, never gave up his love for the thing that got him started: poker.

Before the outbreak of Covid-19, Pincus had Zynga poker nights in his house, setting up several Texas Hold’em tables and treating his guests to catering. Martino said he attended his last poker night at Pincus’s house in early 2020.

“He’s done it for years,” Martino said. “He’s doing a great job. It’s a good group of investors and early adopters.”

He watches: Take-Two $12.7 billion deal to buy Zynga makes sense

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