Zynga Inc (NASDAQ:ZNGA) is paying Don Mattrick $4 million to leave his job at the head of the company. The exact circumstances that lead to the departure of the former Microsoft executive may never be known, but one thing is clear. Zynga is about to fall apart, and Don Mattrick did a lot to get it to that point There’s a at least one direct reason for his departure: Zynga can’t afford his salary.
$4 million might not sound like a lot in the scheme of things, but for Zynga it really is quite a blow. The company was worth about 2.55 billion at market close on Wednesday. At the end of 2014 the company had about $131 million in cash on its books. Don Mattrick just walked out with 3% of the company’s cash reserves, and many investors will be happy to see him go.
Zynga pays Mattrick to leave
Another couple of numbers on the company’s 2014 accounts are important to note to understand just how bad things are, and why Zynga could no longer afford to pay Mr. Mattrick. On December 31 of last year the firm had no long term debt, and very few liabilities as a whole.
The company’s net cash burn for the year was more than $330 million, with most of that being used to acquire Natural Motion in the early months of the year. The company spent $392 million on acquisition related expenses for the year. It also spent $225 million in cash to fund its net loss.
Zynga is going into a new year with just over $100 million in cash. Mattrick’s compensation was $50 million over a three year period, a number widely reported in the press. With roughly half of that period up, Zynga appears to have chosen to forego his management in favor of saving the cash.
If Zynga were to run into financial trouble in the year ahead, as is widely expected, it would have to take on debt in order to pay Mr. Mattrick’s salary. The interest on that debt would, no doubt, be extremely high given the company’s financial position and lack of a debt-paying track record.
Mattrick is set to be replaced with Zynga founder Mark Pincus. His compensation will be a less worrying $1 per year.
Zynga stock may never recover
Those who bought into Zynga in the hope of securing their own piece of the future of gaming are already sorely disappointed. Shares in the firm, which still secures most of its name recognition from 2009 release Farmville, have lost around 70% of their value since the company went public back in 2011.
A lot of investors, however, merely bought in opportunistically in the hopes that the company could turn things around under the tutelage of Mattrick. The executive was credited with turning the Xbox into the gaming beast that it is today, and creating new franchises at Electronic Arts.
Zynga stock may never recover its value. Since taking over the stock has only briefly traded above $4, and it’s quite a way from there today. On this morning’s market the company’s stock is set to open at $2.61 after taking a beating in pre-market trading. Not everything that goes down has to come up again. A lot of investors may be about to learn that lesson the hard way with Zynga.
Zynga is in desperate straights, and the company’s attempt to save itself, with the help of Mr. Mattrick, has failed because it’s just run out of money. The company may begin selling assets this year in order to pay Mr. Pincus $1 salary. A new strategy, which will probably include some kind of IP or asset stripping, should be expected before the end of the year.
Update 09:22 EST: According to A Venture Beat piece on the departure of Mr. Mattrick, the CEO will receive even more than the $4 million we reported for leaving the company. The piece says that the manager will be compensated for his days so far in 2015, which amount to about $1 million worth of work, and will be given $10 million worth of stock options.
Those stock options are not, of course, a direct drain on Zynga accounts, they simply dilute the stock holdings of investors by an infinitesimal amount. the Venture Beat piece also made references to clauses in the severance portion of the contract that mean neither party is allowed to disparage the other on their separation.