Zynga’s Mark Pincus makes money after 15 years of boom-bust cycle

In the 15 years since he started Zynga as a poker game for Facebook, Mark Pincus resigned as CEO twice while leading his gaming company through early rocket growth, a historically disappointing post-listing stretch and a choppy history of expensive acquisitions.

But one thing he never did was dump most of his shares.

Following Take-Two Interactive̵[ads1]7;s $ 12.7 billion acquisition of Zynga on Monday, Pincus is inline for being the largest individual recipient, thanks to its continued ownership of around 5% of the company’s outstanding shares.

According to the latest SEC documents, 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 on shares, Pincus is ready to shell out around $ 193 million while still owning around $ 350 million in Take-Two shares.

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

Yet this was not how the story was to unfold.

Prior to the 2011 IPO, Zynga was by far the hottest ticket in Silicon Valley. The flagship game, FarmVille, was to print money, as consumers spent real money building digital worlds and dressing up their avatars. In the first three quarters of 2011, revenue increased to nearly $ 830 million, up seven times from full-year revenue in 2009. FarmVille accounted for 27% of sales.

Paul Martino, a risk investor who supported the game developer in its first round of financing in 2007, said that between 2008 and 2011, Zynga got more talk than any other Silicon Valley company. Especially during the financial crisis, venture capitalists did not invest in much of anything, but Zynga still raised money.

On the way to the IPO, Kleiner Perkins was so optimistic about Zynga that in early 2011 it increased its stake by buying shares to $ 14, and valued the company at $ 12 billion. The stock debuted below that, to $ 10, and passed $ 14 a few times in early 2012.

But Zynga’s early growth was entirely dependent on Facebook – the company’s games spread virally using the social network for distribution. When Facebook began to exercise greater control over the platform, it restricted third-party developers from marketing their services, revealing Zynga’s main weakness. Between 2012 and 2014, Zynga’s revenues fell by half.

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

“When there was such a huge success out of the gate, there was the belief that Zynga could transcend being a gaming company to become so much more,” said Martino, a managing partner at Bullpen Capital. “But ultimately it’s a gaming company and was bought as a gaming company.”

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

“But if you told us in 2007 that the company would be bought for a figure of $ 12-13 billion, I have to imagine that we would probably be quite happy with it,” he said.

Pincus’ one major share sale came at the right time, for him, and aroused the anger of other investors. In April 2012, as part of a secondary offering, Pincus sold shares worth $ 192 million to $ 12 apiece, representing approximately 15% of its total stake. Many shareholders were still blocked after the listing at the time and did not have that option.

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

From that time until the end of 2018, Pincus held on to its remaining shares. He sold shares worth about $ 70 million between 2018 and 2021, in part for property planning for his children, according to a Pincus representative. The only other significant change in his ownership was in connection with his divorce in 2017.

Holding was a lucrative decision, even though the company was facing turmoil and uncertainty.

Pincus resigned as CEO in 2013, when Zynga named Don Mattrick, who had been Microsoft’s Xbox company, as his successor. Pincus remained as chairman of the board and took over the role of product manager.

Two years after that announcement, Pincus took back the position of CEO, a move that was panned by Wall Street – the stock fell 18%. Here is what Michael Pachter, an analyst at Wedbush Securities, wrote in a report following that announcement:

“Mr. Pincus has a patchwork record with investors, given Zynga’s struggle in the latter part of his previous term as CEO; we believe the lack of investor confidence resulted in Zynga shares declining significantly in aftermarket trading.”

Less than a year after his return, Pincus resigned as CEO, this time handing over the reins to Frank Gibeau, a leader in Electronic Arts. Pincus remained chairman of the board.

The stock has since climbed 300%, including Monday’s rally on news of the Take-Two agreement.

“One of the toughest challenges for any company is a successful partnership between its founder and CEO,” Pincus wrote in a blog post following the announcement. “Over the last 6 years, I’ve been lucky to have had it with Frank Gibeau. He’s taught me a lot about leading on a large scale. Frank and I have always said that we agree 80% of the time, and the others 20% have led to some of our best insights. “

Zynga was able to revive itself by going beyond social games like FarmVille, mainly by acquiring the developers of popular titles like Words with Friends, CSR Racing and Toy Blast.

But Pincus, who is now the managing partner of investment firm Reinvent Capital, never left the love of what got him started: Poker.

Before the outbreak of Covid-19, Pincus held Zynga poker nights at his home, setting up several tables with Texas Hold’em and indulging his guests with food. Martino said he last attended a poker night at Pincus in early 2020.

“He’s been doing it for years,” Martino said. “He’s doing a good job. There’s a good group of investors and early employees.”

SEE: Take-Twos’ $ 12.7 billion deal to buy Zynga makes sense