We are disappointed to see Zynga (ZNGA) struggle because we used to be huge fans of the company’s games on Facebook. We used to be huge fans of the Mafia Wars game and because there were so many people who were playing that game as well as its other recognized games like Farmville and Texas Hold ‘Em Poker (Zynga Poker), we made it a point to analyze and evaluate the company’s IPO. We thought it was cute how in the S-1 Form, the front page was all the characters of Zynga’s games. Let’s play indeed! While the company had shown spectacular growth in its S-1 form for revenues and profits before the IPO, Zynga has seen significant losses due to stock compensation expenses and pedestrian free cash flow performance. Zynga’s year-over-year revenue growth has also decelerated to 19% in Q2 2012 versus Q2 2011. We think that the reason why those Zynga game characters were smiling was because they were able to sell their shares at the top before all of Goldman Sachs’s Muppets were aware that this IPO was an IPU.

We were disappointed to see that Mark Pincus fostered an unhealthy company culture at Zynga. The most notable instance was when he was quoted by an ex-employee as saying “I don’t bleeping want innovation,” the ex-employee recalls Pincus saying. “You’re not smarter than your competitor. Just copy what they do and do it until you get their numbers.” We were also disappointed that there was poor employee morale at Zynga. In late November 2011, Don Reisinger of CNET wrote about how there were a number of Zynga employees who were holding on to their jobs long enough so that when Zynga’s IPO was consummated, they would cash in their vested stock and leave the company.

Zynga’s Corporate Highlights: Good News and Bad News

Zynga saw revenue growth of 19% on a year-over-year basis in Q2 2012. That might be good for regular companies, but it is kind of pedestrian for a highly-touted technology IPO.

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