Did Zynga Lose Half Its Value?

In fairness, how much of that $20 billion did it deserve anyway?

Zynga got spanked in the second quarter, with an earnings hit of around 95 percent year over year. The company hasn’t said anything about changing its plans to go public, but the outcome could be much different. According to an article on Motley Fool, experts say Zynga’s valuation may have dropped by as much as $10 billion!

Now, you’d expect a company with plunging earnings to take a serious valuation hit. And, since it’s not public yet and is still young, Zynga is ripe for a certain amount of volatility. It’s just the nature of the beast. So, it comes as no surprise that its valuation estimate would plummet from $20 billion to $10 billion.

Of course, the matter is made worse by the fact that this is the first quarter-over-quarter bookings decline Zynga has ever experienced. The fact that it’s a doozy only hurts even more. Bookings were off 4 percent, but that includes some revenue Zynga can’t recognize for a while (it will show up later: blame the inflexibility in depreciating virtual tractors). The earnings hit, however, can’t be ignored. It’s just way too big, even if other metrics seem positive.

Now, how much of that $20 billion valuation was legitimate is a subject of debate. According to Motley Fool:

“The $20B figure was thrown around back when (Zynga) filed and everyone was going bananas for the big Internet 2.0 names,” [Paul] Bard [of Renaissance Capital] wrote in an email. “But with the markets down 15% and given the 2Q bookings number, that seems like an aggressive target if it were to price the deal today.”

There is a certain “hype premium” at work with Zynga. After all, Motley Fool notes, TripAdvisor is set to go public this year and has comparable first-half earnings and faster earnings growth than Zynga.