Landmark Links May 31st – Better Lucky Than Good

Must Read: Some of my readers may recall the name Zynga.  It’s part of a cadre of high-flying iPhone-and-Facebook-centric app / coupon companies that came public around a decade ago and have since fallen on rough times.  Zynga is best known as the 2-trick-pony developer behind Words with Friends and the incredibly annoying Farmville.  Creating fad games that spike in popularity and then plunge into relative obscurity has been a bad business for Zynga to say the least.  Since coming public in 2008, the company has a produced $280MM in losses and achieved positive EBITDA in only 5 years.  Zynga has been a disappointing investment to say the least.  Its stock peaked at just under $15/share in 2012 but quickly sold off due to poor results and has traded between $2/share and $6/share ever since, despite the Nasdaq being up 190% during that same time period.

However, Zynga did manage to do one thing right in the midst of its abysmal performance: purchase its San Francisco headquarters in 2012.  Back then, now-former CEO and founder Mark Pincus bought the building, located at 699 8th Street in San Francisco for $234 million.  Earlier this week, the company announced that it had entered into a sale-leaseback agreement with Beacon Capital Partners for $600MM, pocketing a healthy return of $366MM over the past seven years (obviously not accounting for maintenance and upkeep costs which were not reported but are likely a  lot less than $366MM) which is a hell of a lot better than it has done selling games since going public.  So, what will Zynga do with their financial windfall?

“We are building up our reserves,” (Current CEO Frank) Gibeau said. “It’s a nice gain for our shareholders and we’ll put it into cash, minus the transfer costs. The goal is to grow as we’ve done with Gram, Small Giant, and Peak.”

“We’ll invest in running the business, acquisitions, and our current buyback program,” he added. “We will make sure we do the right thing.”

So, they are taking the proceeds from the sale of their one profitable activity and using those proceeds to invest in activities that have delivered a terrible return on investment since the company came public.  Brilliant.  I suppose that at least Zynga can say that they have a better track record of profitably investing in real estate than WeWork can.


Swinging for the Fences: Private investments in six of the 10 best-funded U.S. tech startups to go public since 2015 have fallen from the peak levels they hit in funding rounds before the companies’ stock debuts.  In other words, Wall Street is not buying what Silicon Valley is selling.

Not Just Here: Increased corporate credit risk is not just a US thing – it’s a global issue.  See Also: The riskiest portion of the municipal bond market is experiencing investment demand at levels not seen in decades as investors desperately search for yield.

Snowbirds: Florida is the big winner of the SALT deduction exodus as wealthy people leave their high-tax states for the land of trailer parks, gators and meth.

Widening: The yield curve inversion is widening and futures markets are now pricing in three rate cuts by the end of next year.  But See: “While the current inversion is certainly unsettling, a lot of the spreads within the curve remain at fairly innocuous levels.”


Downward Guidance: With asset pricing at its peak and lower rent growth projections, many private equity real estate fund managers are projecting lower returns.

Rise of the Machines: Dramatic growth in eCommerce, coupled with an increasing focus on faster delivery times amid already-tight employment conditions mean that robots are being used for more warehouse jobs.

Myth Busters: Lenders do not change their underwriting at all for projects that are in opportunity zones.  In fact, they couldn’t care less.


Source of Demand: Home mortgage REITs are gaining market share and becoming a key source of capital as the government’s role in the market shrinks.  See Also: A decade after the crash, Barclay’s is getting back into the mortgage securitization and trading game.

Still Falling: Freddie Mac single-family serious loan delinquencies (3 months or more past-due) continue to fall and are now at 0.65% after peaking at 4.20% in early 2010.


What a Steal: Huawei’s years-long rise to the top of the telecom and computer business is littered with accusations of theft and dubious ethics.  Side note: I’m typing this blog on a Huawei laptop which is easily the best computer I’ve ever owned.  It’s also probably spying on me.

Pay For Play: Until last year, winning a regional spelling bee was the only way that children from across the US could be invited to compete in the annual Scripps National Spelling Bee.  Now kids who fail to qualify can get in if their parents agree to pay a $750 entrance fee as well as cover their travel and lodging.  On one hand, this is terrible.  On the other, it certainly teaches the kids more about how the world really works.

Fleeced: New research published by ProPublica finds that carbon credits are mostly a scam and may actually do more harm than good.  Remember this the next time that some self-important, wealthy/celebrity blowhard preaches about the environment while flying around in a private jet.

Chart of the Day


Whacked: A man was arrested for hitting his mother in the head with a corncob because Florida.

Busted: How police used a dick pic to help them catch a guy who had been pulling the emergency brakes on subway cars.  Snapchat stock rallied in response.

Always Look: An ironically-named ball python slithered out of a toilet and bit a man who was relieving himself because Florida. (h/t Steve Sims)

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