July 25, 2012
Will Zynga Be A One House Wonder?
As we wrote three weeks ago when we broke the news of Pincus' Pacific Heights purchase:
While Zynga is currently trading at $5.57 per share, 44 percent under its IPO price of $10 per share, a few insiders including CEO Mark Pincus managed to dump over $500 million worth of Zynga stock at $12 per share in a secondary offering, the proceeds of which went into the insiders' pockets rather than the coffers of the company.
Following a just reported $22.8 million loss in the second quarter, versus a $1.4 million gain last year, the stock is currently trading at $3.20 per share, down 37 percent in after-hours trading, down 47 percent since June 1.
First Published: July 25, 2012 3:00 PM
Comments from "Plugged In" Readers
It looks like the midwest drought impacted even virtual farms.
Posted by: Robert R at July 25, 2012 3:08 PM
and facebook stock down in sympathy.
who's going to support these bubblicious r/e prices now?
Posted by: woe-is-tech at July 25, 2012 3:25 PM
Ouch. That's gonna leave a mark.
Posted by: anon at July 25, 2012 3:28 PM
I'm starting to think Wall Street doesn't favor the little guy.
Posted by: soccermom at July 25, 2012 3:43 PM
If we just had a bubble, it sure did not last long.
Posted by: Pop! at July 25, 2012 3:51 PM
You WISH it were still trading at $5.57 per share. Stick to real estate, equities may be too fast-moving for you, SocketSite.
Posted by: Michael at July 25, 2012 4:01 PM
Scratch that last comment -- shouldn't snark without reading the full post. I am the donk here. Sorry SS.
Posted by: Michael at July 25, 2012 4:02 PM
^^^ wow, someone is very trigger happy and didn't properly read the posts.
Posted by: lol at July 25, 2012 4:05 PM
posts might be going too fast for you ;)
Posted by: lol at July 25, 2012 4:07 PM
My friends at Zynga tell me that he paid for the house on Pacific with RSUs valued at $6.00 ;)
I'm more interested to see what FB announces tomorrow.
Posted by: eddy at July 25, 2012 4:40 PM
This was a very unique day in that Apple was down and Facebook was up.
Posted by: redseca2 at July 25, 2012 4:55 PM
(from a buddy's Facebook post:)
I don't always sell stock, but when I do...it's #Zynga.
Stay wealthy my friends!
Posted by: BillyBalls at July 25, 2012 8:12 PM
And guess who sells a lot of ZNGA:
"To date, Mr. Pincus has sold an aggregate of 43,629,310 shares of our common stock at prices ranging from $0.42 to $13.96"
And this was before the secondary...
Posted by: Joshua at July 25, 2012 8:16 PM
Every few months when a tech company hits a rough patch or the stock market has a bad day, you feel inclined to make a post of this nature.
From the standpoint of Bay Area residents, Facebook shares will always be worth $30, because that's the price they sold theirs at on the secondary markets for years leading up to the IPO.
Do you think Mark PIncus was stupid enough to hold onto ZNGA shares? He sold as many as he could to nice folks in Iowa, Wisconsin, New York, Texas, etc.
Do you think that the Facebook founders — and hundreds of early employees — are living the high-flying lifestyle because they have sold public shares on a public market?
It does not take 10,000 millionaires to move SF real estate prices. There are probably only 50+ premium homes on the market right now... and guess what happens when you take hundreds of BILLIONS of dollars in value creation in the last five years for FB, GOOG, AAPL, CRM, etc, and dump it on a few dozen homes?
THEY GO UP IN PRICE!
Would another 2008-style crash hurt the SF real estate market? Maybe a bit. But the wealth is already on our shores.
... oh, and one more thing...
When SocketSite was registered in August 2004, nobody here had ever heard of Facebook, Zynga, Yelp, or Twitter... sure, they may be worth less today than they were a few months ago... but they are sure worth a HELL OF A LOT MORE than they were in August 2004 when this site started...
And in eight more years, there will be many more Googles and Facebooks and Twitters. That's how innovation works.
Posted by: NewBuyer at July 25, 2012 8:31 PM
"This was a very unique day in that Apple was down and Facebook was up."
FB down 8% in extended trading on ZNGA miss. FB earnings tomorrow. Should be interesting.
Posted by: FB at July 25, 2012 10:09 PM
FB: Thanks for the after market update.
There was just something wrong with Apple down and Facebook up, and I am sure these things will self correct.
Posted by: redseca2 at July 25, 2012 10:38 PM
"Do you think Mark PIncus was stupid enough to hold onto ZNGA shares? He sold as many as he could to nice folks in Iowa, Wisconsin, New York, Texas, etc."
REALLY!? The "nice folks" of Wisconsin and Iowa are not breathless followers or investors of ZNGA stock. A minute of online research will show you that a large amount of speculative investors in companies like ZNGA are your neighbors right next door here in the Bay Area. I can walk down to The Grove or some other cafe in my hood and hear non stop chatter about Tech stocks, and I assure the same conversations are not taking place in Madison or Galena. When tech bubbles burst, they hurt the Bay Area most, not "the good folks" in cow country.
Posted by: 94123 at July 26, 2012 2:03 AM
Look at the mutual funds that own ZNGA.
It's especially egregious that Morgan Stanley flipped so many shares into their in-house funds.
Though Janus, T. Rowe Price, Capital Research, Vanguard, and Fidelity appear to be among the bag-holders.
I've always wondered how Russian investors (i.e. Yuri Milner) might react if/when something like this happened...perhaps they're not so forgiving.
Posted by: Joshua at July 26, 2012 6:45 AM
enjoy the pork!! laughs and more
Posted by: johnny at July 26, 2012 7:40 AM
On FarmVille your chicken will never die. But they can be plucked...
Posted by: lol at July 26, 2012 8:38 AM
A little web 2.0 shadenfreude never hurt anyone. The editor isn't pooping all over the companies (thats the job of bears like me and others) rather simply observing their share prices and the public actions of their executives.
If they're down, they're down.
VCs can think, and move, like VCs. They're investing large sums of OPP (other people's principal) in lots of risky ventures. They need a triple digit return to justify their efforts.
What bothers me is the seeping of this mentality into corporate governance. 20% growth just isn't good enough any more; and a ceo should be acting as a fiduciary for his shareholders. Instead, guys are treating companies like stepping stools; less concerned about the future of the business or its employees and more about their exit strategy and next venture.
Its basically a developers version of Goldman; the vc and investment milleu favors flipping (QUICKLY) and moving on rather than staying and growing. We're seeing the downside of these smaller bubbles in unsustainable share prices.
Innovation can be saturated, and stalled, by the limits of technology. It is the contention of this investor that we're approaching that inflection point.
I wouldn't back the truck up just yet.
Posted by: BillyBalls at July 26, 2012 9:03 AM
Ha ha, so the average employee is going to OWE $2 per ZSU in taxes MORE than the underlying stock is worth!
So some poor schmuck who, for the last 5 years, got $100K per year and 25,000 ZSUs per year will make $70K on his salary after taxes, and then owe $50K on his ZSUs, for a net income of $20K per year! Hope those all nighters were worth it: the average night clerk at 7-11 made more!
These guys aren't going to be buying the 50+ premium homes: they can't afford the 50 lowest price homes in Vallejo!
This was eddy's "Monster" IPO. It was a monster all right, it ate up all their salary!
NVJ said RSUs were better than options because they couldn't go underwater. Well, guess what? They are underwater now and unlike options, you can't walk away from an underwater RSU! The "hundreds of Zynga millionaires" are now broke!
Posted by: tipster at July 26, 2012 9:40 AM
As for Zynga being a one house wonder, the answer is "no". I know of at least one other home that sold in D7 for over $3.5 (and featured on SS) that was purchased by a senior exec at Zynga.
Posted by: eddy at July 26, 2012 9:50 AM
For a good laugh, please go to twitter's home page. Web 2.0 gone 1.0 for [%= reason %] but will be fixed before [%= deadline %].
Posted by: lol at July 26, 2012 10:19 AM
Criagslist called, it wants its 404 page back!
@lol, Thanks for pointing that out.
Posted by: eddy at July 26, 2012 10:38 AM
History repeats itself, only sooner than I could have predicted. Hellooo 1999.
Posted by: again at July 26, 2012 10:57 AM
Personally I hope ZNGA senior execs are hurt a bit. Seems like they sold a small % of the company to the market when they went public and also sold a lot of their own stock (at their, vs. company's, gain).
However, let's be clear - Zynga still had $332 million in revenue this *quarter*. 1999 dot-com this is not.
Posted by: DanRH at July 26, 2012 11:40 AM
Are you hearing "you just need to grow your user base, worry about how you'll make money later" more frequently? Did Instragram ever make one dollar? The cash burns quickly when there is no revenue.
Posted by: again at July 26, 2012 11:59 AM
$332 million revenue accrued for fake farm income. At least Wisconsin has the real deal.
Posted by: tg at July 26, 2012 12:07 PM
Boy, there sure are lots of haters on here today! I must admit that this is one interesting storyline, but some of you are absolutely beaming as you watch this company implode. As for the impact on the relatively wealth of the Bay Area and RE in general, I personally think it's miniscule. Even with the spillover to FB, I don't think it's that big of a deal, but maybe I underestimate what those companies meant to Real Estate in SF.
And Tipster, I don't follow your logic on the tax implications at Zynga. In my fairly lengthy experience of receiving both ISO's and RSU's (admittedly at larger companies), your tax liability isn't determined until you exercise said shares AND the tax withholding (liability) comes out of your proceeds at the time. In other words, if you exercised shares with a market value of $1M in April, you will be liable for ~400K in taxes, which will come out of your proceeds at the time of said exercise. Afterwards (net of tax withholding), you would be sitting on $600K in stock or cash (depending on which you elected), and you would have no further tax liability. Even if the stock dropped 50% after that, you'd still be UP $300K. Can you elaborate what you mean above about the tax bill? I'm really not trying to flame, but I do want to know if I'm missing something in regards to the tax implications.
Posted by: Lance at July 26, 2012 12:08 PM
Facebook In Free-Fall: Stock At All-Time After Swinging To Q2 Loss
"Shares of Facebook dropped to their lowest point since the company went public in May. The stock was off nearly 10% at $24.30 in after-hours trading."
Zynag down 4%
Posted by: ReadingForRealtors at July 26, 2012 1:37 PM
RSUs are taxed as ordinary income as of their value on the day they vest. That is the day you receive income, whether you sell or not. The value on the day you actually trade what you got at the vesting date for cash is irrelevant. This is a big difference from ISOs.
The Zynga RSUs (called ZSUs) vested at the $10 IPO. At a 50% tax rate, they owe $5 per ZSU.
An ISO is different for two reasons. First the value at the grant date is the same as the current share valuation. Second, you can elect to pay the tax on an ISO early. So people file an election to pay the tax at the grant date. Because the option strike price is the same as the share price, the value at the grant is taxed at or near $0.
One of course should consult their own tax advisor to consider their own unique situations, this is just the general case from researching it on the web in the "What's the Point" thread on Socketsite you can review for the details.
Posted by: tipster at July 26, 2012 1:38 PM
I see where you are going. I also agree about RSU's being taxed as ordinary income at vesting, but in my experience - the tax is also withheld at the time of vesting in the form of a reduced number of shares. For example, if you were to receive 5000 shares, you will actually only receive 2500 shares assuming 50% withholding. From that point on, you owe no additional taxes until you sell. If you sell for a gain, you pay taxes. If you sell for a loss, you get to claim a capital loss up to the $3000 annual limit. It could be different at Zynga, but that's how it's handled in my experience (with at three different SFBA companies).
BTW, I second your comment on not relying on me or anybody except a professional for your own tax advice, but I do think you're overstating the impact from taxes.
Posted by: Lance at July 26, 2012 1:52 PM
From the layoffs at HPQ and Cisco, and fb down 18% in one day, these poor tech company employees can't get a break.
Posted by: tipster at July 26, 2012 1:59 PM
I'm assuming that Lance is correct about the monetary impact on SF Bay Area real estate, but I think a portion of the froth in the market has been due to the "facebook effect" (in combo with low interest rates, gradual economic turnaround, etc). It does seem like there is enough tech money chasing real estate that even the non-tech money is getting nervous and making their stake, leading to bidding wars, etc.
In that, the fall to earth of Zynga and (even more) Facebook COULD have a bigger impact than the number of newly minted millionaires they've created. It might just give a little pause to an overheated market.
Posted by: curmudgeon at July 26, 2012 2:25 PM
So Tipster and Lance,
It was said that Zuck sold a lot of stock in the FB IPO to pay taxes -- according to Lance, the only reason he owed cash was because indeed he was realizing a gain. So in fact saying he sold stock to cover taxes is disingenuous, b/c he wouldn't have owed the IRS unless he was cashing out. Yes or no?
Posted by: anon at July 26, 2012 2:28 PM
I obviously am not that familiar with Zuckerberg's tax situation, but this article from the NYT (in my signature below) seems to explain it pretty well. The $2B tax bill that they talk about is normally deducted in the form of decreased shares (also known as sell-to-cover), so the $3B that Zuck would be left with is subject to market fluctuations. With that said, there is no additional tax liability unless he later sells the remaining stock for a gain. Where I could see someone with IPO money getting into trouble is borrowing against stock that hasn't actually been sold yet, which this article also talks about. This definitely happened during the dot.com bust, where people borrowed against their stock portfolio, but when the stock dropped 90% or worse, they went belly-up. That has more to do with poor borrowing habits though than tax accounting on stock options and RSU's though. When managed responsibly, ISO's and RSU's really shouldn't get you into tax trouble IMO. Again, I'm not an expert...just someone who finds this kind of stuff interesting (i.e. - use a professional come tax time).
Posted by: Lance at July 26, 2012 3:33 PM
@curmudgeon -- that is a valid argument, and if things stay pretty negative for a while, I could certainly see that having some impact.
Posted by: Lance at July 26, 2012 3:42 PM
From FB's S-1 filing with the SEC, my understanding is that most of Facebook RSU's vest between six months after the IPO to four years. From the S-1: "we grant restricted stock units (RSUs) that generally vest upon the satisfaction of a service condition, and with respect to RSUs granted prior to January 1, 2011 (Pre-2011 RSUs), six months after the completion of our initial public offering. "
Also:"As of December 31, 2011, there was $2,463 million of unrecognized share-based compensation expense, of which $2,396 million is related to RSUs, and $67 million is related to restricted shares and stock options. As of March 31, 2012, there was $2,381 million of unrecognized share-based compensation expense, of which $2,319 million is related to RSUs, and $62 million is related to restricted shares and stock options. This unrecognized compensation expense is expected to be recognized over a weighted-average period of approximately two years."
I take that to mean that the average vest is two years, but I'm not sure if that is vesting or recognition from an accounting perspective. Maybe someone else can chime in on that who has some insight?
Mr. Zuckerberg was granted a ludicrous number of vested options (120mm) and has cash and a large tax bill. But I am guessing that the majority of employees have not vested yet if even the pre-Jan 1 2011 employees (that's being an old-timer there!) don't vest until six months post-IPO.
In terms of real estate impact, I'm with curmudgeon and Lance. Let's say, purely from a hypothetical standpoint, that not a single employee has yet vested beyond Zuckerberg (and in this hypothetical world, can't borrow against the stock either). Most people wouldn't know that and the hyping of the "Facebook effect" on real estate gets that secondary effect of getting fence-sitters scared that they will miss it and buy a house. Reality often doesn't matter much in selling. (It would be funny to hear the next pitch that the r/e market in SF is booming even though FB stock hasn't vested yet so it's only going straight up from here! (Ignore what I said six months ago!)) The FB effect was so hyped for Noe, for condos, for SFH's etc. I heard it from my own agent who generally knows by now how I feel about that kind of stuff.
Who knows about FB as a stock. I wouldn't buy it and I wouldn't short it either. It still could end up trading at $3/share or $300/share. I think it's impossible to come up with even a rough valuation beyond a couple quarters. Personally, I hope that it is not ever valued at $300 because that will mean that FB has succeeded in aggregating all of our private information and selling it.
Posted by: thegraygrey at July 26, 2012 7:10 PM
Or simply maybe tech money gained on intangible products is being converted into tangible (and usable) assets. For instance I did put my previous web 1.0 windfalls into RE a while ago as a way to diversify. I assume many web 2.0 workers also love the safety of non-virtual things.
Posted by: lol at July 26, 2012 7:13 PM
Zynga: the maker of inane on line games that lower the intelligence of anyone who plays them.
I know, prob off topic, but just had to get that out of my system.
Posted by: futurist at July 26, 2012 9:03 PM
I put a link to yahoo finance post (is that ok SS? if not, feel free to remove) that had a quick summary of the top folks that sold stock at ZNGA's IPO.
[Editor's Note: Perfectly fine, but our preferred approach:
The top nine sellers in the secondary offering:
•Marc Pincus, Zynga's CEO, sold 16.5 million shares for $200 million
•Institutional Venture Partners, a Zynga investor, sold 5.8 million shares for $70 million
•Union Square Ventures, a Zynga investor, sold 5.2 million shares for $62 million
•Google, a Zynga investor, sold 4 million shares for $48 million
•SilverLake Partners, a Zynga investor, sold 4 million shares for $48 million
•Reid Hoffman, a Zynga investor, sold 688,000 shares for $8.2 million
•David Wehner, Zynga's CFO, sold 386,000 shares for $4.6 million
•John Schappert, Zynga's COO, sold 322,000 shares for $3.9 million
•Reginald Davis, Zynga's General Counsel, sold 315,000 shares for $3.8 million
Posted by: DanRH at July 27, 2012 8:27 AM
Zynga cutting 520 jobs, 18% of workforce. Anybody know how many of the cuts are in SF?
Posted by: CH at June 3, 2013 1:17 PM