Why Is Zynga Held To A Double Standard By The Media?

| About: Zynga (ZNGA)

Zynga (NASDAQ:ZNGA) relies heavily on Facebook. The news often presents this as a primary concern, assuming Zynga suffers from a lack of diversification. But Microsoft (NASDAQ:MSFT) seemed to do okay in its early partnership with IBM (NYSE:IBM). A small biotech startup is typically praised when it locks in a partnership with Big Pharma. Gold miners (NYSEARCA:GDX) are rarely belittled for their unhedged exposure to the price of gold. Yet because Zynga mines virtual gold, all standards are forgotten, and the media feels free to make up the arbitrary, inconsistent standards by which Zynga is judged.

Zynga is said to have "not enough" upside left, because early investors have already made a lot of money. The idea is that IPOs should offer a more dynamic element of risk/reward. Yet if Zynga had IPOd 6 years ago, the same people now complaining about the lack of upside would then have been complaining about the company being too risky and unproven. It seems that for Zynga, the critics want to have their cake and eat it too.

I think there are legitimate reasons to be concerned about Zynga, like any other company. But there are also illegitimate reasons. The expression of concern that Zynga treats employees poorly is laughable. Specifically, the concern is that Zynga's reputation for ruthless treatment of employees will undermine its ability to attract and retain talent. The concern itself could be valid, but the expression is laughable, because it doesn't ever substantively address Zynga's counter-argument, which is "meritocracy"--Zynga deliberately refuses to utilize the standard, comfortable personnel model. Probably, Zynga is a horrible place to work for some employees. But this is by design, and there is no compelling evidence to suggest that Zynga's darker side poses a net-negative to the company.

However, there is compelling evidence that Zynga deserves investment. Consider its approach to opportunity cost. There is little doubt Zynga could be a contender in the online gambling market. Zynga could do this with a direct integration of real money gambling into its platform. However, Zynga could also approach gambling more indirectly, as it has done in the past, by providing leads to third party websites. Of course this would mean giving up a huge chunk of revenue. The justification for Zynga to avoid direct involvement in gambling would be the opportunity cost of alienating users. Considering the multibillion dollar market for gambling, and Zynga's current $7B market capitalization, it is apparent that Zynga's earnings would start dwarfing its current market cap if Zynga went directly into online gambling. From a perspective of opportunity cost, if Zynga doesn't go directly into online gambling, that means Zynga believes it can make even more money with its original strategy. That strategy is: Becoming the default source for "fun" in virtual reality.

Maybe that's why the media doesn't like Zynga, the media recognizes Zynga as a competitor. If we could go to Zynga to have fun in virtual reality, maybe we wouldn't need the news to entertain us in virtual reality.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.