Public Company Unicorn: Zynga

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Zynga Inc.’s (NASDAQ: ZNGA) business really never got off the ground after the company had its initial public offering on December 15, 2001. It raised $1 billion, based on an opening $10 share price. By the end of its first day of trading, the stock had dropped to $9.50, on a choppy decline to its current price of $2.28.

Facebook Inc. (NASDAQ: FB) was the primary source of traffic to Zynga’s games. Games such as FarmVille lost players after the IPO, in many cases because these players’ interest in its games dwindled. Facebook dropped Zynga as an exclusive game provider. What was the fastest growing social game just before Zynga went public began to bleed users. Annual revenue peaked in 2012 at $1.3 billion. In 2014, that number dropped to $690 million. From 2012 to the present, Zynga has lost money every year. The company’s market cap is barely $2 billion.

In its most recently reported quarter, Zynga’s results improved, a very little. The growth that fueled hunger for its stock is completely over. Revenue rose to $195 million from $176.6 million in the same period the year earlier. The company swung to a net profit of $3.1 million from a loss of $57.1 million. Against most measures of user engagement and traffic to its products, Zynga is falling apart. All the company has to offer investors is $1.1 billion in cash on its balance sheet. Zynga has not found any way to use the money, so its sits like a lump as one of the company’s assets.

Zynga is a near perfect example of a unicorn, although its demise is five years old. More recently, some of the most famous unicorns have had “down” rounds to raise money. Investors will no longer value these at their peaks. Among these is Foursquare and Jawbone, once among the most promising large private companies.

Zynga tipped into disaster early, as it became public. It is being followed by more and more private companies today.