  On December 16th, 2011, Zynga, the well-known social game developing company
went public. This event followed other recent IPOs in the world of social
networking companies, such as Groupon or Linkedin among others. With a
valuation close to 7 billion USD at the time when it went public, Zynga became
one of the biggest web IPOs since Google. This recent enthusiasm for social
networking companies raises the question whether they are overvalued. Indeed,
during the few months since its IPO, Zynga showed significant variability, its
market capitalization going from 5.6 to 10.2 billion USD, hinting at a possible
irrational behavior from the market. To bring substance to the debate, we
propose a two-tiered approach to compute the intrinsic value of Zynga. First,
we introduce a new model to forecast its user base, based on the individual
dynamics of its major games. Next, we model the revenues per user using a
logistic function, a standard model for growth in competition. This allows us
to bracket the valuation of Zynga using three different scenarios: 3.4, 4.0 and
4.8 billion USD in the base case, high growth and extreme growth scenario
respectively. This suggests that Zynga has been overpriced ever since its IPO.
Finally, we propose an investment strategy (dated April 19th, 2012 on the
arXive), which is based on our diagnostic of a bubble for Zynga and how this
herding / bubbly sentiment can be expected to play together with two important
coming events (the quarterly financial result announcement around April 26th,
2012 followed by the end of a first lock-up period around April 30th, 2012). On
the long term, our analysis indicates that Zynga's price should decrease
significantly. The paper ends with a post-mortem analysis added on May 24th,
2012, just before going to press, showing that we have successfully predicted
the downward trend of Zynga. Since April 27th, 2012, Zynga dropped 25%.
