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Comment by lquist | Hacker News Reader

Honest question: why does a technology company own a building anyways? Especially one that is equal to half of its market cap? Surely Zynga investors are not interested in half of their investment being in Zynga and the other half in SF Commercial RE?

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Part of it is timing, part cost. If you can fill a building and plan to be there for a while, generally it pays to buy it rather than rent it. (The renter generally charges a premium to short term borrowers) For financial accounting/engineering purposes (not wanting to show liabilities) firms may do long term leases.

This is why it pays for companies like Apple to own their headquarters.

Overbuilding the HQ is a classic sign of hubris, similar to putting your name on a stadium. (Look to Lehman and Bear Stearns for the former, Enron and 3com for the latter)

Isn't that the same as "cloud vs physical"? If you plan to use a lot of resources consistently for several years, physical is cheaper; if your workload is more transient, you choose virtual.

(The main difference being that real estate can even increase in value, so it is an investment as much as a cost; whereas computers invariably depreciate to 0 in the end.)

Somewhat, though companies (say Netlfix) may use the cloud even when they can fully utilize machines.

A similar analogy is also around core competence - focus on what you are good at (software vs real estate). Bathe world is littered with monuments to companies that overbuilt or overpaid.

ZNGA's market cap was 10x in 2012, when they bought the location for the 340/sq foot mentioned in the article. They occupied 65% of the building, which is a good capacity to be at if you're planning on growing.

Regarding buy vs. rent, I think at the time it made sense, if they were planning on sticking around for 5+ years, given the price per square foot they paid and the fact that they would fill up the entire space.

Hard to argue today that is was a mistake to buy it in 2012. Zynga was flush with cash after the IPO and "well timed" secondary offering[1]. That building is probably worth over $500 million today. Given that the entire company is worth around 1.7 billion it is likely the best investment they ever made.

[1] http://www.businessinsider.com/zynga-insiders-cashed-out-jus...

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