Last week Zynga stole headlines with news of its SEC filings towards a $1 billion IPO expected later this year. The company, which develops and markets games playable on social network platforms and mobile devices, is one of web 2.0s most coveted young businesses and could make for the year’s most lucrative public offering. Zynga will follow the trendy “low float” offering strategy, selling up to 10% of its shares as a valuation of $20 billion, more than double earlier projections of the company’s net worth. Lead underwriters on the IPO will be investment banks, Morgan Stanley (NYSE:MS), Goldman Sachs (NYSE:GS), BofA (NYSE:BAC), and others.
What separates Zynga from other recent upstart tech IPOs, such as Pandora (NYSE:P), LinkedIn (NYSE:LNKD), and soon to be public Groupon, is its financial strength. The company reported profits of $90.6 million in 2010 on revenues of $597.5 million, landing in the black on its balance sheets for the third consecutive year. Zynga CEO and Harvard Business School Alum Mark Pincus is demonstrating a very cunning business acumen, also accumulating $1 billion in cash reserves v. $234 million in liabilities. Other impressive stats for the company are its 2,000 employees, 148 million users (across 166 countries), and the fact that none of its senior management is under 40 years old (contrary to the usual fare for tech startups).
Zynga’s only weakness is thought to be its reliance on Facebook. The two have a deal which sends some 30% of Zynga’s virtual purchase revenues to Facebook, in exchange for hosting the platform for games such as FarmVille and CityVille. Lou Kerner of Wedbush Securities comments on the complex relationship, “They do exist at the whim of Facebook, but it’s certainly in Facebook’s own self-interest to have a vibrant gaming ecosystem.” While some see this as a weakness, others believe that Zynga’s ties to the world’s leading social network are precisely what make it so valuable. The company has virtually no competition in terms of the scale of its mobile-gaming user-base, and may continue to be perceived as more valuable while the hype surrounding Facebook’s IPO (early 2012) continues to stir.
Look for Zynga to make its official public debut early this fall.
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