My Trefis

Having reviewed 1000s of equity valuations in my career - I was shocked by this valuation both in terms of structure and outcome. The attempt to place an income stream on a per-game basis - and then accumulate value, is a break-up analysis which has no business in discussing a newbie IPO flushed with post-teens millionaires - Zynga is not valued by a sum-of-the-parts - and these "parts" are fad-games which will rise/fall like the tides - naturally a real analysis would be based on cashflow and net income - but projecting Zynga's financial future is pure gambling at this stage. The only basis for this approach is the assumption that Zynga will never produce a stable earnings stream and therefore will be bought out by EA, Sony, MSFT etc...but that would only happen after the stock crashed to $3-4 and would be bought out around current levels or possibly a $1 or 2 higher. Here is reality - Zynga is an option on the growth of social gaming - but they are up against companies that are fierce competitors and each have 10-50x Zynga's financial position. Look for quarter-to-quarter earnings to be erratic and stock to trade $4-5 and be bought out at $7 range - yes the stock will likely trade up over $10 before the Street gets education here - so there is a trade. But the REAL issue driving Zynga stock is not even mentioned - which is the fate of FB and its loathsome IPO - if I was Zynga - I would be de-coupling my business model off of FB hopefully faster than users move on - as long as FB remains a dog - then Zynga will be the fleas on the dog - both companies are acting like teenagers on a spending spree - and EPS models for both are hopeless, self-serving speculation - sell FB - don't buy ZNGA.... [ less... ]