Zynga, the online gaming company responsible for Mafia Wars and FarmVille, filed for a $1 billion I.P.O today, and may ultimately offer up to 10% of its shares at a valuation of $20 billion or more. The company has chosen Morgan Stanley (NYSE:MS) to lead the offering, with help from Goldman Sachs (NYSE:GS), J.P. Morgan Chase (NYSE:JPM), Bank of America (NYSE:BAC) Merrill Lynch, Allen & Company, and Barclays (NYSE:BCS).
Zynga is behind some of the most popular games on Facebook, helping it to record a $90.6 million profit last year on revenue of $597.5 million. The company has been profitable each year for the last three years. At the end of March, Zynga has nearly $1 billion in cash on hand.
Zynga is one of many online companies looking to go public this year. The financial crisis put a hold on many I.P.O.s, but now as things begin to turn around, internet start-ups are looking to cash in on their recent success. LinkedIn (NYSE:LNKD) went public in May, and is currently trading at nearly double its offer price. Groupon recently upped the valuation of its I.P.O from $1.4 billion to $30 billion, and Facebook could be the most hotly anticipated I.P.O of them all, as the social networking site continues to account for the largest share of internet traffic of any site, even more than Google (NASDAQ:GOOG).
Zynga’s $20 billion valuation is 220 times its profit in 2010, and 33 times its revenue. The company currently has 279.5 million monthly active users, most of whom play the games via Facebook, for which Zynga remains the top game developer. Four of Facebook’s top five games were created by Zynga. Zynga’s CityVille, released late last year, takes the top spot, with 87 million monthly active users.
However, while Zynga owes its success in large part to Facebook, that could also be its downfall when filing its initial public offering. If their partnership should somehow suffer, so would their business, possibly irrevocably. Their relationship with Facebook has already been strained in the past over disputes over Facebook Credit payments and changes to the site’s notification system. However, Facebook is unlikely to terminate the relationship, as Zynga is a large part of why Facebook logs so many user hours per day.
Get Actionable Investing Insights: Check Out Wall St. Cheat Sheet’s newest Feature Trades of the Month!