A Former Videgame Developer's view on Tech + Media + Fine Arts

OMGPOP Cashed Its Lottery Ticket Too Soon??

On March 21, social/mobile gaming developer OMGPOP was sold to Zynga for $210 million. $180 million upfront and $30 million in employee retention. The acquisition by Zynga is portrayed in the media as largely tied to the home run success of OMGPOP’s Draw Something, a game where you draw stuff and have your friend try to guess what you drew. Its not a new concept, but who cares about that when it is doing $250,000 a day with a user base of 1 million users in just 9 days?

Now $210 million is quite pile of cash and Dan Porter and his (42 – 1 ) employees must be feeling really warm and fuzzy inside right about now, but could they have gotten more? Many in the media seems to think so.

One way to start look at this is: Draw Something makes around $250,000 a day in revenues or $91 million annualized

This means that Zynga paid about 2x revenues for not only Draw Something, but for the entire OMGPOP business, including its website and suite of other flash-based games. To put it in perspective, Zynga’s IPO price implies 9x revenue. Admittedly, Zynga’s valuation probably reflects that fact that it is in a later stage than OMGPOP, but a 7x gap is still significant. For instance, Facebook in it nascent, cash burning stage was trading lowest at around 7x.

Or one could look at it from the perspective of OMGPOP’s user base:

1 million users in 9 days

12+ million active daily users in 6 weeks

31 million MAU as of March 31th

This means Zynga is paying around $6.77 for each of OMGPOP’s monthly user – assuming OMGPOP does not spent an additional $$ on customer acqusition and just maintain its current user base that is.

A survey of recent acquisitions helps puts this figure in perspective:

Playfish – EA: $300 million | 50 million MAU – > $6 per MAU

Playdom – Playfish: $563.2 million | 42.5 million MAU – $13.25 per MAU

Popcap – EA: $750 million | 17.5 million MAU – $42.8 per MAU

Zynga cost per MAU: Sales and Mkting. / Chg. in MAU ’10 – ’11 -> $234 million / (233 – 216) million MAU – $14.60 (from 2011 10-k)

From these two data points – 2x revenue and $6.77 per MAU, or half of Zynga’s own escalating MAU of $14.60, OMGPOP definitely seemed like a sweet sweet deal. For Mark Pincus that is.

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