Zynga sets aside $122M of stock to tether its staff

Krystal Peak · August 20, 2012 · Short URL: https://vator.tv/n/297b

As the company stock hovers at $3, it fights to hold onto its valuable engineering staff

Zynga is doing everything it can to not lose the employees it has by setting aside a huge allotment of stock options. In the highly-competitive and poaching-friendly environment of the Bay Area tech world, keeping your engineers is crucial. As Zynga stock and moral has been plummeting lately, Zynga is combating its failures with more stock options.

While this move could help hold on to some of the staff, it also points out the flaws in equity-centric compensation that is common in the tech world.

Vator News reported last week that there were rumblings Zynga would be trying to maintain its staff with stock options, and an SEC filing published over the weekend confirmed Zynga’s new stock option pool, which has a current value of around $122 million (which was trading at $3.04 early Monday morning). The pool, if issued and subsequently vested, will add about 10% to Zynga’s total number of shares flowing around the public market.

The $3 value affixed to Zynga shares, currently, is a far cry from the $10 it debuted at it mid-December, and an even lower bar than the $15.91 high it experienced in 2011.

When Zynga made its IPO, the company was valued at $8.9 billion, now that company is values at around $2.3 billion.

According to Zynga’s form S-8, the company has set aside 43,295,554 shares for its employees, at prices from $2.53 to $2.97 per share.

When you compare this new pool to the number of shares outstanding, which is 464 million, that is a substantial chunk. And, while this could help employees stay on board (at least for a little while longer), the influx of more shares while the company is at an all-time-low could also depress the stock even lower.

We will have to wait and see if Zynga places a four-year vesting period on these shares with the standard restriction that zero shares are vesting during the first 12 months -- because that would help keep the stock from feeling an immediate impact at this low point. 

Recent Zynga activity

Last month, Zynga reported a loss of 3 cents a share, or a 1 cent profit on an adjusted basis, on revenue of that grew 19% to $332 million, far short of analysts' expectations of 5 cents a share on revenue of $345 million. Zynga also sharply reduced its forecast, dropping its full-year bookings to $1.15 billion to $1.23 billion. Zynga had previously estimated bookings to be $1.43 billion to $1.5 billion.    

As a result, Zynga stock dropped 40% in a single day.

Also, after taking the hit on its stock, Zynga was then accused of insider trading when it was revealed that executives, and major investors, had sold off a significant amount of stock months before it crashed.

The company was then hit with a lawsuit by Electronic Arts, who claimed that Zynga has plagiarized EA’s signature game, The Sims Social, with its new game, called The Ville.

Zynga’s stock was down nearly 2% on Friday, losing six cents to $2.95. It is now down 71% from its $10 IPO in December. So, perhaps giving out stock options right now is not the best way to retain employees.

And then just last week, Zynga signed a new deal with another fledgling company (Nokia) to new deal to add Draw Something and Zynga Poker to the Nokia Asha Touch feature phones along with the rest of the Nokia Series 40 devices. 

The games will start appearing in the fall (their Q3) and will reach 100 million users, Nokia says. Because of Nokia's strength overseas, this could be a boost to Zynga as it seeks for more international recognition and users.

Both games are freemium models and are set up so that Nokia users can buy additional credits through the phone.

Since Zynga bought Draw Something maker OMGPOG for $180 million in April 2012  the user numbers have been steadily falling, but this could be because they bought the game so close to its debut that the numbers were falsely high -- mostly people interested in downloading a new app but not really sticking around to place and get interested in the model.

One this news, Nokia shares saw some upward momentum Friday morning, trading at $2.73, up 3.60%‎ for the day. Meanwhile Zynga shares are holding steady at a similar price range of $2.99, in mid-morning trading.

While I think it is important to have more bells and whistles on your phone in the this day and age, I am not sure (and it wasn't clarified in the statement) how Nokia and Zynga will translate these games on their non-smartphone devices. It is also unclear if the Zynga Poker will soon translate to real-money gambling since Nokia is big overseas, where gambling laws are far looser than here in the US.

Zynga has been very clear about its interest in doing more real-money gambling in its games and both Nokia and Zynga could use the extra revenue at this point.

(Image Source: SFGate.com)

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Zynga is the largest social gaming company with 8.5 million daily users and 45 million monthly users.  Zynga’s games are available on Facebook, MySpace, Bebo, Hi5, Friendster, Yahoo! and the iPhone, and include Texas Hold’Em Poker, Mafia Wars, YoVille, Vampires, Street Racing, Scramble and Word Twist.  The company is funded by Kleiner Perkins Caufield & Byers, IVP, Union Square Ventures, Foundry Group, Avalon Ventures, Pilot Group, Reid Hoffman and Peter Thiel.  Zynga is headquartered at the Chip Factory in San Francisco.  For more information, please visit www.zynga.com.


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