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After Zynga’s stock crash, the company’s market cap is down to a paltry $2.45 billion.With $1.25 billion in cash, the company’s enterprise value is $1.14 billion according to Yahoo Finance. (Enterprise value is a better way to look at what a company is really worth in a take over.)
That’s an attractively low price for the right buyer.
Who is the right buyer?
Well, Amazon recently opened its own gaming studio. But instead of trying to compete, it should just buy Zynga.
There’s some doubt about whether or not Zynga CEO Mark Pincus would sell. After all, he just took the company public at a $7 billion valuation. It’s unlikely he would sell for $3 billion.
But, let’s just assume he’s sick of dealing with the stress of being CEO of a publicly-traded company and he’s ready to sell.
Why would Amazon buy?
- Amazon needs game developers. The most popular apps on mobile devices are games — and Zynga has a stellar track record when it comes to games.
- We’ve heard from Zynga insiders that some current Zynga employees were at some point also targeted by Amazon for hiring. Amazon also targeted top developers at Zynga about high-level positions in the gaming division. Despite the stigma, Zynga still has a huge number of excellent game designers — all of which are more than capable of producing top-tier games.
- It needs developers, specifically, for the Kindle Fire and its upcoming smartphone. If Amazon plans to sell Fire devices and smartphones, it can increase the value of those devices by having a designated, consistent game company constantly producing high-quality games for it.
- Amazon solves some of the business model problems for Zynga. Zynga is not making enough money on its mobile gaming users. Amazon would want to attract mobile users to sell more Kindle Fires. Selling more Kindle Fires could be a better business than selling ads and in-app subscriptions, which is what Zynga is doing.
- Zynga needs guidance. We aren’t saying Pincus is a bad CEO. Far from it. But you hear plenty of stories about how Pincus went after the market because he saw a massive market opportunity. Amazon CEO Jeff Bezos, on the other hand, is a Jobs-level visionary leader. After a sale to Amazon and under the leadership of Bezos, Zynga’s talent — by far its most important asset — might be even more inclined to stick around.
Pincus doesn’t need to sell. He has a lot of cash, which buys him time to revive his company — and its stock price. Pincus’ mentor Bing Gordon also remains on the board of directors of both Amazon and Zynga.
But if Pincus were to sell, he’d probably sell to Bezos, with whom he already had a close relationship.
Here’s why: In July, Zynga CEO Mark Pincus told PandoDaily’s Sarah Lacy that Bezos had helped him early on as an advisor, but stopped about a year ago.
This appears to have roughly coincided with the time that Amazon began hiring designers and fleshing out its plans for its new gaming division, Amazon Game Studios, which launched its first game earlier this month.
Amazon’s expansion into the gaming market with Amazon Games Studios is a pretty big conflict for Bezos, and seems to have nullified his advisory relationship with Pincus.
But if Bezos were to throw the right combination of stock and cash at Pincus, that might be enough for the two of them to start talking again and solve a few problems for each other.