Social games developer Zynga Inc. of FarmVille fame is all set to file its paperwork for an IPO, reports Bloomberg, quoting Nitsan Hargil, director of research at the private equity firm GreenCrest Capital. The paperwork primarily consists of the S-1 form (an SEC filing submitted to the U.S. Securities and Exchange Commission), which is a formal notice announcing a company’s intention to start a publicly traded entity.
Zynga is expected to raise $1.5-$2 billion, and has reportedly acquired the services of Morgan Stanley as the lead undertaker, along with Goldman Sachs. Zynga’s valuation is currently hovering in the region of $15 billion in secondary markets, and the IPO can push it up further to around $20 billion. This not only puts Zynga ahead of closest rival gaming companies like Activision and Electronic Arts, but also pegs it closer to Yahoo!, which has a current market cap of $19.48 billion. Incidentally, Zynga’s current chief operating officer John Schappert used to be the COO of Electronic Arts.
This high-profile IPO comes in the wake of a few other similar offerings from the likes of LinkedIn and Pandora, and S-1 filing by Groupon. In fact, it seems to be an ideal time to be a part of the social media wave. Facebook is currently valued at $70 billion (up 40 per cent since January this year) and Google has just entered the business. Naysayers, however, remind investors that the all-sweeping dotcom boom a decade ago had went bust and history may repeat itself even in the social media space.
In Zynga’s case, the timing is especially appropriate as it ends up saving more than a couple of hundred million dollars in taxes. In fact a law was passed in San Francisco on June 2 this year, keeping in mind local companies like Zynga and Twitter, says a report in the San Francisco Examiner. Had it not been passed, Zynga would have been compelled to pay 1.5 per cent of the compensation its employees earned by exercising their stock options. At a valuation of $20 billion, that would have amounted to $300 million. As per the new rules, these taxes cap at $750,000; therefore, Zynga gets to keep the rest of the millions as an incentive to continue doing business in the city (and thereby, hopefully, stimulating the local economy).
Zynga is best known for its game FarmVille on the Facebook. The company also offers games for mobiles (iPhone, Android), MySpace, MSN Games, Yahoo! and Tagged. Zynga games are wildly popular, especially titles like Mafia War, Café World, Empires & Allies, FishVille, Zynga Poker and the recently launched CityVille.
The company was founded in January, 2007, by Harvard Business School graduate Mark Pincus and was named after his bulldog. It had released Texas Hold’Em Poker for Facebook in September that year and regularly comes up with innovative and intriguing games. The San Francisco-based company has more than 215 million active monthly users and over 50 million daily users. It employs about 1,300 people.
Zynga has raised $219 million in four rounds of funding so far. Its investors include Digital Sky Technologies, Kleiner Perkins Caufield & Beyers, Andreessen Horowitz, Avalon Ventures, Foundry Group, Institutional Venture partners, The Pilot Group, Tiger Global Management, and Union Square Ventures. Private investors include Reid Hoffman, LinkedIn founder and executive chairman, and Peter Thiel, co-founder of PayPal and currently the president and the chairman of Clarium Capital. Google is also believed to have invested over $100 million in the company.
“Zynga gets 80 per cent of its revenues from selling virtual goods (credits goods for high milk-yielding cows or virtual sub-machine guns with more killing power). Its games are, however, free of charge, and only about 3 per cent users spend money on the same. Still, that has been enough to bring its revenue run rate to above $1 billion per year. The rest 20 per cent of its revenues come from advertising,” according to a blog post by Hargil.
The company has made 14 acquisitions in the last 12 months or so.