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Looking a Lot Like Netflix

Netflix spent a good portion of 2010 and 2011 buying back stock. It spent millions repurchasing shares at prices in excess of its post-implosion market price.

The whole buyback scheme was curious.

Netflix never said much about the practice; the company just claimed it was making best use of free cash flow.


Zynga, another growth company (or at least that’s the plan), announced Wednesday that its board authorized the repurchase of up to $200 million worth of stock, as posted on its website. On Wednesday’s earnings conference call, the company’s CFO noted he was uncertain if Zynga would end the year free cash flow positive.

You could argue that it makes sense to buy back shares with your stock so low. Plus, Zynga is flush with cash.

That argument doesn’t wash.

Given its uncertain business and it’s horrible history of acquisitions (it took a nearly $100 million charge this past quarter related to its purchase of OMGPOP), Zynga has the potential to burn cash quickly.

At day’s end, Zynga needs another hit game. And then another. And then another. And then another.

Pincus needs to turn this company around. I’ve never questioned his ability as a visionary. If anybody can vision, it’s him.

That said, he’s not fit to be CEO.

Instead of buybacks and spewing talking points on conference calls (he sidestepped the million-dollar Facebook question), Pincus should focus on one thing for the time being — making himself “Chief Strategy Officer” like Tim Westergren is at Pandora Media and naming a CEO who can handle the gig.

At the very least, he should do what Hastings should have done long ago — bring in a strong COO. Somebody like Sheryl Sandberg who makes more than a token contribution at Facebook. She helps Zuckerberg run the show.

Counterintuitively, if you compare the three — Zuck, Pincus, and Hastings — the youngest CEO appears to require the least assistance. Maybe the COO has something to do with that.
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