Zynga’s Mark Pincus cashes in after 15-year boom-and-bust cycle

In the 15 years since he launched Zynga as a poker game for Facebook, Mark Pincus has twice stepped down as CEO while guiding his games company through rocket growth, a historically disappointing period after the IPO; and a turbulent history of expensive acquisitions.

But one thing he never did was empty the majority of his stock.

Following Take-Two Interactive’s announced acquisition of Zynga on Monday for $ 12.7 billion, Pincus is on line to be the largest individual beneficiary, thanks to its continued holding of around 5% of its outstanding shares. company.

According to the latest documents filed with the SEC, Pincus owns 55 million Zynga shares. With Take-Two agreeing to buy Zynga for $ 3.50 per share in cash and $ 6.36 per share in shares, Pincus is set to pocket around $ 193 million while holding around $ 350 million in stock. equity of Take-Two.

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

Yet, this is not how the story was supposed to play out.

Prior to its IPO in 2011, Zynga was Silicon Valley’s hottest ticket. Its flagship game, FarmVille, was printing cash, as consumers spent real money to create digital worlds and dress up their avatars. In the first three quarters of 2011, sales climbed to nearly $ 830 million, or seven times more than sales for 2009. FarmVille accounted for 27% of sales.

Paul Martino, a venture capitalist who backed the game developer in its first fundraiser in 2007, said that between 2008 and 2011, Zynga sparked more discussion than any other company in Silicon Valley. In particular, during the financial crisis, venture capitalists weren’t putting money into much, but Zynga was still raising cash.

Before the IPO, Kleiner Perkins was so bullish on Zynga that in early 2011 he increased his stake by buying shares to $ 14, valuing the company at $ 12 billion. The stock debuted below that, at $ 10, and surpassed $ 14 a few times in early 2012.

But Zynga’s initial growth was based 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 prevented third-party developers from promoting their services, exposing Zynga’s main weakness. Between 2012 and 2014, Zynga’s revenue halved.

The stock lost 75% of its value in 2012 and never fully recovered.

“Once it became such a big hit from the get-go, it was believed that Zynga could transcend being a games company to be much more,” said Martino, managing partner at Bullpen Capital. “But at the end of the day, it’s a games company and it was bought out as a games company.”

Martino admitted that the stock’s performance was disappointing. Even with the high premium that Take-Two pays, it’s still less than the IPO price.

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

The only sale of Pincus shares came at the right time for him and angered other investors. In April 2012, in a secondary offering, Pincus sold $ 192 million of shares at $ 12 each, representing approximately 15% of its total stake. Many shareholders were still stranded after the IPO and did not have this option.

Pincus and other insiders who sold under the offer were sued by shareholders, who claimed they “suffered colossal losses on their investments,” while those at the top were able to sell before the decline. . Zynga ultimately settled $ 23 million.

From that point until the end of 2018, Pincus retained his remaining shares. He sold roughly $ 70 million in shares between 2018 and 2021, in part for estate planning for his children, according to a representative from Pincus. The only other significant change in her ownership was related to her divorce in 2017.

Detention was a lucrative decision, even as the business faced turmoil and uncertainty.

Pincus stepped down as CEO in 2013, when Zynga appointed Don Mattrick, which was Microsoft’s Xbox company, as his successor. Pincus remained President and assumed the role of Product Manager.

Two years after the announcement, Pincus took back the CEO job, a move that was rejected by Wall Street – the stock fell 18%. Here’s what Wedbush Securities analyst Michael Pachter wrote in a report after the announcement:

“Mr. Pincus has an uneven track record with investors, given Zynga’s struggles during the latter part of his previous tenure as CEO; we believe that lack of investor confidence has caused Zynga shares to drop significantly in aftermarket trading. “

Less than a year after his return, Pincus stepped down again as CEO, this time handing over the reins to Frank Gibeau, an executive at Electronic Arts. Pincus remained the president.

The stock has since climbed 300%, including Monday’s rally following the announcement of the Take-Two deal.

“One of the toughest challenges for any business is a successful partnership between its founder and CEO,” Pincus wrote in a blog post after the announcement. “Over the past 6 years, I’ve been lucky enough to have this with Frank Gibeau. He taught me a lot about large-scale management. Frank and I always said we agreed 80% of the time, and the remaining 20% ​​led to some of our best ideas. “

Zynga was able to revive itself by overtaking social games like FarmVille, in large part by acquiring popular title developers like Words with Friends, CSR Racing, and Toy Blast.

But Pincus, who is now a managing partner at investment firm Reinvent Capital, has never given up on his love for what started him: poker.

Before the Covid-19 epidemic, Pincus hosted Zynga poker nights at his home, setting up several Texas Hold’em tables and offering his guests catering options. Martino said he last attended a poker night at Pincus in early 2020.

“He’s been doing this for years,” Martino said. “He’s doing a great job. It’s a good group of investors and early-stage employees.”

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