Zynga, maker of FarmVille, is thriving again

Frank Gibeau had only just become Zynga Inc’s CEO, but he had to deliver some bad news. The once-high-flying company, which shot to fame with Facebook games such as Farm-Ville, was now in trouble.

At an all-hands meeting in Zynga’s cafeteria in March 2016, Gibeau put up a slide showing its return on equity compared with video-game peers. The room was very quiet. “I showed them that we are the worst of the worst,” he recalled in an interview. “We are generating less return than everybody else in the industry.”

Fast-forward three years, and the mood is very different. The company increased its guidance three times last year. Profit margins have rebounded, and sales are growing at their fastest pace since the game developer went public in 2011. Zynga is “on track to be one of the fastestgrowing — if not the fastest-growing — gaming company at scale,”

Gibeau said.

Zynga shares have nearly tripled to $6.15 since Gibeau, now 51, took over as chief executive officer. That includes a 56% gain in 2019, eclipsing the S&P 500’s 29% increase. The stock is still far below its post-IPO high set in 2012, when the exuberance around social media propelled Zynga to almost $16. But shareholders and Wall Street analysts are embracing the company again.

“Investors like a good turnaround story,” said Colin Sebastian, an analyst at Robert W Baird & Co. Along the way, Gibeau reinvented what Zynga is about. It now makes only a sliver of its money from Facebookbased games, which gave the company a reputation for delivering endless requests and notifications to socialmedia users.

Instead, Zynga focuses on stand-alone titles that consumers play on their phones. They include Words With Friends, Zynga Poker, and Merge Dragons!.

Zynga also has used acquisitions to dial up growth. In 2018, it agreed to buy controlling stakes in Small Giant Games for about $560 million and Gram Games for $250 million. And it has a war chest of cash and short-term investments that’s approaching $1.5 billion, which could be used for additional deals. To raise money, Zynga has sold bonds and made over $300 million from unloading its San Francisco headquarters in a deal last year.

The idea is to create a mini-empire of game studios and franchises, said Gibeau, a veteran of Electronic Arts Inc. “We see a lot of opportunities to acquire assets that would grow value for shareholders. We want to put those dollars to use,” he said.

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