Zynga Seeks More Than $1 Billion In IPO

Founded in 2007, Zynga has rapidly grown atop Facebook to an estimated $15 billion to $20 billion valuation.

Charles Babcock

July 1, 2011

3 Min Read
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Zynga, the social networking gaming company, has filed a S-1 form with the Securities Exchange Commission, the first step in making a long anticipated, initial public offering.

Neither the number of shares to be issued nor their price range have been determined, the statement said. The IPO is expected to raise between $1.5 billion to $2 billion for the San Francisco-based company, according to reports in the Wall Street Journal and on the CNBC news website.

The number of shares issued and their price is expected to show an estimated value of between $15 billion and $20 billion for the company, the reports said. At four years old, that would make Zynga one of the fastest growing Internet start-ups.

Zynga's revenues were $597.5 million in 2010, compared to $121.5 million in 2009, according to its S-1 filing. Its first quarter revenues for 2011 of $235 million were more than double those for the first quarter of 2010 at $101 million.

In Zynga's online games, most players simply play for free. But in FarmVille, players can pay Zynga real money to gain assets like tractors or choice seeds to be used on their virtual farm plots. The skill with which assets are used and crops harvested determines whether the farm prospers or falls into debt. Most of Zynga's revenues stem from players purchasing virtual assets in games. Zynga's data center and infrastructure as a service strategy were described in Lessons From FarmVille: How Zynga Uses The Cloud.

Morgan Stanley and Goldman, Sachs will be joint underwriters of the IPO. Bank of America Merrill Lynch, Barclays Capital, and J.P. Morgan securities also will be joint bookrunning managers. Allen & Co. will be senior co-manager for the offering.

Zynga, named for founder Mark Pincus' late American bulldog (Zinga), has ridden to prominence on such social networking games as Mafia Wars, FrontierVille, and CityVille. It's recently increased the pace at which it's willing to make new launches. On May 31, it launched Empires & Allies. It's latest, Hanging With Friends, is a word play game that allows a group of friends to guess at the meanings of made-up words. Guessing the meaning correctly allows a player to hang on in a game; failing to guess correctly prompts the player's avatar to fall from the screen. It was launched in Canada for a trial run on June 6.

The company also launched GagaVille, a celebrity game focused on Lady Gaga's latest album, "Born This Way," inside FarmVille, on May 10.

Its rapid growth has paralleled the popularity of Facebook. Zynga uses the Facebook application as a Web platform for its games. It generated so much traffic on Facebook that the firm demanded a year ago that Zynga use Facebook Credits as the currency in its games. Facebook then collects 30% of the revenue. After locking horns with Facebook on the issue, Zynga agreed. Its filing cites this relationship as a risk factor in the IPO. "If we are unable to maintain a good relationship with Facebook, our business will suffer," the company said.

Zynga reported 232 million active monthly players in its filing. It has 2,000 employees.

Among the beneficiaries of an IPO, in addition to Pincus, would be Zynga investors Reid Hoffman, founder of LinkedIn, and Peter Thiel, also an investor in Facebook.

Copies of the prospectus, when it becomes available, will be distributed through Morgan Stanley offices in New York.

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