Last year, following Zynga’s $95.5 million writedown of goodwill relating to its purchase of OMGPOP, TNW calculated that its losses at that moment totaled to around $500,000 per day. That specific writedown cam just 190 days after the purchase was announced.
We’re here today to recalculate the cost of the OMGPOP acquisition today as Zynga has reportedly shuttered its office, and laid off at least the majority of its staff; the once proud chapters of OMGPOP’s history as a corporation, and later a subsidiary are over. It’s time to draw something new.
Before we can calculate a cost-rate, we have to make a few decisions. Primarily, do we set the OMGPOP purchase price at $180 million, or $210 million? The $30 million gap represents a potential earn-out. Given that it took just half a year for Zynga to write down a massive chunk of the deal, I don’t suspect that OMGPOP’s financial performance was stellar. Let’s presume that the earn-out, if partially earned, was minimal. We’ll stick with the $180 million figure then, to be conservative.
Our second choice is how to weigh OMGPOP’s financial contribution to Zynga. A scan of Zynga’s most recent quarterly report yields bare mention of OMGPOP, except to note the above stated writedown of goodwill. Draw Something merits a single mention, detailing its impact on monthly unique players (MUPs) in 2012. Given that, I propose we be generous and declare that OMGPOP’s financial contribution to its parent company during its time as a Zynga component were revenue neutral.
By that I mean let’s presume that OMGPOP’s absorbed staff and games were completely financed by the incomes of their operations. The shuttering of the group in a mere 440 days, and writing down of 55.5% of its price in 190 days makes this perhaps a rosy estimate. Still, we want to be fair; Draw Something 2 might yet bring in meaningful revenue for Zynga.
We are thus left with a simple calculation: Zynga spent no less than $180 million on OMGPOP, and all but axed the whole affair in 440 days. That breaks down to a per-day expense rate of $409,000 per day on the purchase. Don’t forget: Zynga paid all in cash for OMGPOP, so that sum isn’t partially borne by stock issuances, for example.
Cash in, not much out. Zynga yesterday fired around 520 employees – 18% of its workforce – to save around $80 million per year, to put the $180 million in perspective.
There is quite a bit of public anger from OMGPOP employees relating to this shutdown. It’s understandable, given that seeing your company, once flying higher than any shop in gaming, be acquired by a firm for a high sticker price, only to see both acquirer and acquiree struggle. But we have to ask the following question: given how quickly OMGPOP unraveled under Zynga’s aegis, how would it have fared alone? I suspect not much better, thus putting it in the same place it is today, but without a nine figure exit for its employees and investors. Something to think about.
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