- With Take-Two Interactive's agreement to buy Zynga, Mark Pincus is poised to pocket about $193 million, and get another $350 million in Take-Two equity.
- The acquisition price, while a steep premium to where Zynga was trading, is still below the company's 2011 IPO price.
- "Ultimately, it's a game company and got bought as a game company," said Paul Martino, an early investor and managing partner at Bullpen Capital.
In the 15 years since he started Zynga as a poker game for Facebook, Mark Pincus twice gave up the CEO role while guiding his gaming company through early rocket ship growth, a historically disappointing post-IPO stretch and a choppy history of pricey acquisitions.
But one thing he never did was dump the majority of his stock.
Following Take-Two Interactive's announced acquisition of Zynga on Monday for $12.7 billion, Pincus is inline to be the biggest individual beneficiary, thanks to his continued ownership of about 5% of his company's outstanding shares.
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According to the latest SEC filings, Pincus owns 55 million Zynga shares. With Take-Two agreeing to buy Zynga for $3.50 a share in cash and $6.36 a share in stock, Pincus is poised to pocket about $193 million while still owning roughly $350 million worth of Take-Two equity.
Take-Two's purchase price equates to a premium of 64% to Zynga's closing price on Friday, giving Pincus's net worth a big boost.
Still, this isn't how the story was supposed to unfold.
Prior to its IPO in 2011, Zynga was about the hottest ticket in Silicon Valley. Its flagship game, FarmVille, was printing cash, as consumers spent real money building digital worlds and dressing up their avatars. In the first three quarters of 2011, revenue surged to almost $830 million, up seven-fold from full-year revenue in 2009. FarmVille accounted for 27% of sales.
Paul Martino, a venture investor who backed the game developer in its first financing round in 2007 said that, between 2008 and 2011, Zynga got more chatter than any other company in Silicon Valley. In particular, during the financial crisis, venture capitalists weren't putting money into much of anything, but Zynga was still raising cash.
Heading into the IPO, Kleiner Perkins was so bullish on Zynga that in early 2011 it increased its stake by buying shares at $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 early growth relied entirely on Facebook — the company's games spread virally by using the social network for distribution. When Facebook started exerting greater control over the platform, it limited third-party developers from promoting their services, exposing Zynga's principal weakness. Between 2012 and 2014, Zynga's revenue fell by half.
The stock lost 75% of its value in 2012 and never fully recovered.
"Once it became such a big success out of the gate, there was belief that Zynga could transcend being a game company into being so much more," said Martino, a managing partner at Bullpen Capital. "But ultimately, it's a game company and got bought as a game company."
Martino admitted that the stock performance was disappointing. Even with the high premium Take-Two is paying, it's still less than the IPO price.
"But if you told us in 2007 that the company would be bought at a $12-$13 billion number, I have to imagine we probably would have been pretty happy about that," he said.
Pincus's one big stock sale came at the right time, for him, and drew the ire of other investors. In April 2012, as part of a secondary offering, Pincus sold $192 million worth of shares at $12 apiece, representing about 15% of his total stake. Many shareholders were still in post-IPO lockup at the time and didn't have that option.
Pincus and the other insiders who sold in the offering were sued by stockholders, who claimed they "suffered colossal losses on their investments," while those at the top were able to sell before the drop. Zynga eventually settled for $23 million.
Know when to hold
From that point until late 2018, Pincus held onto his remaining shares. He sold just about $70 million worth of shares between 2018 and 2021, in part for estate planning for his kids, according to a representative for Pincus. The only other significant change to his ownership was in connection to his 2017 divorce.
Holding was a lucrative decision, even as the company faced turmoil and uncertainty.
Pincus stepped down as CEO in 2013, when Zynga named Don Mattrick, who had been Microsoft's Xbox business, as his successor. Pincus stayed on as chairman and assumed the role of chief product officer.
Two years after that announcement, Pincus reclaimed the CEO position, a move that was panned by Wall Street — the stock sank 18%. Here's what Michael Pachter, an analyst at Wedbush Securities, wrote in a report after that announcement:
"Mr. Pincus has a spotty record with investors, given Zynga's struggles in the latter portion of his previous stint as CEO; we believe the lack of investor confidence resulted in Zynga shares trading down significantly in after-market trading."
The stock has since climbed 300%, including Monday's rally on news of the Take-Two deal.
"One of the toughest challenges for any company is a successful partnership between its founder and CEO," Pincus wrote, in a blog post after the announcement. "Over these past 6 years I've been lucky to have that with Frank Gibeau. He has taught me a lot about managing at scale. Frank and I have always said that we agree 80% of the time, and the other 20% has led to some of our best insights."
Zynga was able to revive itself by moving beyond social games like FarmVille, largely through acquiring the developers of popular titles like Words with Friends, CSR Racing and Toy Blast.
But Pincus, who is now a managing partner at investment firm Reinvent Capital, never abandoned his love for the thing that got him started: Poker.
Prior to the outbreak of Covid-19, Pincus held Zynga poker nights at his house, setting up several tables of Texas Hold'em and treating his guests to catered food. Martino said he last attended a poker night at Pincus's house in early 2020.
"He's done that for years," Martino said. "He does a great job. It's a good group of investors and early, early employees."