Zynga About to File for IPO

http://allthingsd.com/20110524/exclusive-zynga-about-to-file-for-ipo/?refcat=news

by ignifero • 15 years ago

61 66 15 years ago

zaius• 15 years ago

From a couple months ago, their estimated revenues for 2011 are $1.8 billion [1]. This is a completely different beast to linked in. I'm very interested in seeing how it goes.

[1] http://blogs.forbes.com/afontevecchia/2011/03/02/zynga-revea...

SwellJoe• 15 years ago

I smell something; maybe it's the smell of freshly cooked books? That article raises some questions for me in the context of Zynga (which, I'm pretty sure, has for its motto: "Evil is fine, as long as it pays."). Why would a company with $630 million in profits need to raise $500 million? Where is the revenue really coming from (maybe tit-for-tat deals like the ones Enron made to make profits look huge)? How will they sustain that revenue?

Zynga is mostly a modern spammer, as far as I can tell, and the spam business is a constant arms race. They can't win it forever, unless facebook remains mostly complicit in the process (which would hurt facebook in the long run, even if it is profitable for them in the short run).

So, I'd believe that Zynga is making money, even a lot of money, but I have a hard time believing they can sustain that level of profitability as people's tolerance for facebook spam declines. And, I have a really hard time believing those specific numbers. I guess there really is a lot of money in stupid.

ignifero11• 15 years ago

I 'd actually bet their profitability is even higher than that. You have no idea how much revenue these games generate, and we 're talking about massive user base. Just consider the fact that they have foregone display advertising in their apps - which should be a huge extra pile of cash. They really hit a gold vein.

dreamux• 15 years ago

I unfortunately know very little about their business model (advertising? pay-to-play? gifts/items?), but would be very curious to see how it all breaks down. Specifically, where their special-ness lies, and how high the barriers to competition really are.

I want to criticize the high valuation, but in fairness I don't know enough about the company or industry.

nikcub8• 15 years ago

It was sorta obvious after the success of LNKD last week that they were all going to pile in now. Profitable and related to social? By all means, after you..

Somebody had to test the market out.

If LNKD hit $12B then Zynga will hit .... a lot more.

ignifero11• 15 years ago

What makes you think so (the balance sheets maybe?). I think it's gonna be a hit-and-run.

nikcub8• 15 years ago

Zynga has 5x the revenue of LinkedIn and will likely file already showing 30-40% net profit.

brg• 15 years ago

Is there a valid estimate between time to file and time to trading? Or is this always on a case-by-case basis?

hugh37• 15 years ago

At some value in excess of ten billion dollars? I won't be buying.

Sure, they're making huge profits right now. But prices should reflect future earnings potential, and what are they going to be doing in ten, twenty, thirty years from now?

They were the first folks to stumble across the secret of making addictive social games. But I see these as a fad, not a long-term trend. There's only so many variations on [ * ]ville you can play before you get bored of it, and only so many times you can be talked into spamming all your friends.

Sure, maybe they'll keep on adapting and having hit after hit. But what are their real advantages? A few programmers who sort-of know how to make a sort-of good game, and some rather nebulous slice of social graph. Compare to some game publishers who have a lot of experience in making many profitable games instead of a little bit of experience making a couple of variations on just one:

Activision/Blizzard: $12.87 billion

Electronic Arts: $7.75 billion

Take Two Interactive: $1.38 billion

If it's 1967, you might want to buy RCA Records, but you don't want to buy The Monkees. The record company can keep on adapting to changing fashions and business conditions and will keep putting out hits for decades to come, but the band will have a brief revenue spike and then vanish.

yid• 15 years ago

I think your argument is that Zynga, essentially being a video game company like the other three you mentioned, can innovate itself out of the -ville space once people start getting bored out of it. While this is certainly possible, we haven't seen any hint of innovation from Zynga remotely at the level of Blizzard, etc. This makes their long term prospects questionable, and thus I would be wary of their IPO.

I also would be extremely wary of a company that is so reliant on a fickle third party for its very existence. Unless of course all this Zynga exuberance is at the prospect of a Facebook buyout...

hugh37• 15 years ago

My argument isn't that they can, it's just that they'll have to. I don't see any particular reason to suppose that they actually will, though, and that's why I personally wouldn't touch this deal with a ten-foot pole.

Unless of course all this Zynga exuberance is at the prospect of a Facebook buyout...

Does facebook have enough cash to buy Zynga at these valuations? I doubt it. (But they do have programmers who could clone Cityville in two weeks, and the ability to ban Zynga from their system with a few keystrokes if they felt like it...)

ignifero11• 15 years ago

The thing with Zynga, is they have zero innovation and zero IP capital. You might as well invest in a chinese ripoff and it would be the same. Sure they make tons of profits but they will never earn my respect. They stole everyone else's ideas, continuously spammed and manipulated their users, and did every horrible trick in the book. That's not hacker attitude; that's borderline criminal. To illustrate, here is a post in facebook's forum from Pincus himself, trying to make excuses for gambling ads they'd been running on games: http://forum.developers.facebook.net/viewtopic.php?pid=12983...

I would buy. I would sell before the end of the day though.

narrator• 15 years ago

IMHO, Zynga's moto should be "There's a lot of money in stupid".

noahth2• 15 years ago

I'm not saying that they're a paragon of virtue or anything, but if you don't have respect for Zynga's abilities then you're missing some really valuable insights. Sure, they "ripped off" the idea for almost every game they've ever made, but as many commenters here love to point out, it's not just the idea that matters, but the execution (setting aside for now the point that everyone steals ideas - remember when those jerks at Google "ripped off" the idea of a search engine?).

Zynga didn't just make another farm game, they used their familiarity with FB's viral channels to make it the biggest silly little farm game on the platform. Then they turned around and used that audience as a springboard for a number of other games that, while derivative, were simply the strongest distillations of their respective types.

I get it, everyone loves to hate Zynga, but the fact is that they are really good at what they do, and lots of people out there enjoy their games.

orangecat• 15 years ago

The thing with Zynga, is they have zero innovation

From a technical perspective, that's true. The innovation is the application of psychology to extract money from their customers via software Skinner boxes. Arguably evil, definitely profitable.

trotsky3• 15 years ago

It's hard to believe a company that only a couple of years ago was relying on scammy CPA deals to float itself and mostly churns out formulaic gamified skinner boxes for facebook users is looking at a public valuation north of $10B. I've been wrong plenty of times before, but I certainly won't be a buyer here, especially considering Eric Tilenius' comments last week that an appreciating IPO is a sign of a poorly priced IPO. Given lofty private valuations compared to existing gaming properties, the apparently opportunistic timing and a stated propensity to price at the top of the market it's hard for me to believe Zynga will even manage to keep pace with the S&P.

johnrob2• 15 years ago

What Zynga, Facebook, LinkedIn, Groupon (and other current hits) have in common is that they have found a way to serve customers all around the world. How many business can really do that? It's easy to underestimate them because we forget to multiply the value created times 6 billion (or whatever the current world population is).

ssharp• 15 years ago

Groupon isn't reaching people like Zynga, Facebook, and LinkedIn can. Those three sites are, at their core, web-based through the entire business.

Groupon requires sales people linking with local businesses to offer coupons. Groupon cannot scale like those other companies. Anyone in Uganda can access Facebook by just going to Facebook.com, logging in, and start finding people. The same people in Uganda can look at the Groupon site, but they'd get no use out of it because the coupons aren't local.

nikcub8• 15 years ago

Zynga has already innovated outside of the ville games, since Farmville was their second big hit after Texas Hold'em. Texas Hold'em is still ranked 4th[1], and if you look at who the developers are of the top games, Zynga completely kills the competition.

They were not the first company with simulation games either, which suggests that they have a secret formula figured out for how to build and market these games. The restrictions Facebook places on viral marketing hurt everybody else and only put Zynga further ahead.

As for IP, the reason why Pincus is a shareholder in Facebook, along with Reid Hoffman, is because Facebook licensed social networking patents from him. He has been in the field for a long time, long before the mainstream press was hot on 'social', and he has significant IP holdings in the space, which are with Zynga.

The other companies you point out are now being prices in the same way music and movie studios are - ie. as hit-based businesses. Gaming budgets have become so large, and so much of it is tie-ins and licensing, that for each of these companies it is one or two big hits or franchises plus dozens of big misses. They are all big, large and inefficient companies - again, no different to the music and movie studios.

The only one of the three performing well is Activision, and that is mostly because of the recurring revenue from the Blizzard merger. Prior to that they were also in a lot of trouble (at the time of the merger they were worth $18B, now $12B). EA has been bleeding money for years and unsure what to do - even their big old hits such as Guitar Hero and the FIFA franchise are costing them money. Take-Two hasn't made a profit in 3 of the past 4 years, and is currently valued at less than the revenue it receives from a single release of GTA - so the market has no confidence in them at all.

It is actually the traditional gaming houses who are having trouble producing constant hits. If Activision lost World of Warcraft tomorrow they would be in a world of trouble. EA and Take-Two already are. The virtual goods market is showing no signs of slowing down, $2B last year and growing at 50%+. This is as big a shift in the gaming market as arcades to consoles was, with EA being the only one of the three making a decent effort in the new market (4th largest, but almost 10 times smaller than Zynga)

Zynga, which represents the 'new model' is over 1,000 employees (vs 7,600, 7,600 and 2202 respectively) and near $2B this year in revenue (vs 4.47B, 3.5B and 0.7B respectively), and while there is a chance that their valuation will enter over-blown territory, there is little doubt that they are absolutely killing the old gaming companies atm. It might not be Zynga that is #1 in 10 years time, but it will be somebody - and atm nobody is even challenging Zynga in this space - but you seem to be arguing against a shift that is by all accounts very real.

Edit: and on the issue of Hold'em - with the government shutting down the online poker sites in the USA it has seen a spike in play, which means it will be in a very good position if UEGA is repealed or if poker is found by a court decision to not be gambling.

[1] http://www.appdata.com/

ignifero11• 15 years ago

The only innovation zynga did was changing the logos of other games (Farmville=Farm town, mafia wars=mobwars, cafe world=restaurant city, it's as if there's mass brain damage in that company and they can't come up with a single original idea). They are also among the most aggressive game euthanizers: they have shut down all their games that did not generate tons of cash, much to the chagrin of their players.

Let's not forget they have an exclusive agreement with facebook, the terms of which we don't know; not a very fair advantage.

Also, zynga and old gaming houses have different audiences, so i 'm not sure they're killing anyone

hugh37• 15 years ago

Zynga has already innovated outside of the ville games, since Farmville was their second big hit after Texas Hold'em.

Texas Hold 'em is a pretty minimalist form of "innovation". Take a popular card game and put it on facebook? Brilliant!

The virtual goods market is showing no signs of slowing down, $2B last year and growing at 50%+.

This is exactly what I don't believe can be sustained. There's only so long that people are willing to keep buying things that don't actually exist (hey, speaking of which, we haven't had a bitcoin article in a while...)

It might not be Zynga that is #1 in 10 years time, but it will be somebody - and atm nobody is even challenging Zynga in this space - but you seem to be arguing against a shift that is by all accounts very real.

Lots of folks are challenging Zynga in this space. Any one of 'em could have the next big hit, the thing that grabs the attention of a bunch of kids bored with clicking on cows... something with gameplay elements that are actually fun -- a game rather than a Skinner box.

Lewisham2• 15 years ago

Seeing how well LinkedIn did, I am very tempted to try and daytrade these stocks, buying at release then selling about lunchtime.

I'm only interested in trying it with about $200.

This would be my first time trading. Does anyone know which service would be good for this? ETrade?

jonknee• 15 years ago

With $200 you will not have the ability to purchase shares at the IPO price (or if it's anything like LNKD anywhere near the IPO price).

radicaldreamer• 15 years ago

You can't really daytrade with $200, most brokers require at least $1000 to start an account. You'll also be limited to 4 or 5 roundtrips until you get dinged by an SEC rule that limits day trading to accounts with at least 25k equity and margin capabilities.

Don't start trading with an IPO stock or anything that's bound to be volatile, it's just a bad idea in general.

Lewisham2• 15 years ago

Bummer. My Get-Marginally-Richer-Very-Quickly scheme is ruined!

nikcub8• 15 years ago

the easiest way is to find a CFD provider. It is like trading options with large leverage except that it is a contract with another party. CFD's are also a lot more expensive than the usual derivatives, but are a lot easier to trade and are a lot more accessible (you have two buttons to press and a chart)

When you open an account, they will start you on a 2:1 or 10:1 margin, and over time you can have this increased. You will need to link a source of funds to the account, and they will ask you a lot of questions in setting up the account.

You will likely blow the entire $200, but it will be a fun learning experience. The large trading firms out there have algorithms that look for trades just like the type that you will be making, and they intentionally shift the price around with large orders (that usually are not completed) in order to wip out your position.

Google up about it and read as much as you can. It is a dirty industry - many affiliate marketers who make good money sending new users to one of the large trading sites, which can afford to make large affiliate payments because they make a ton of money on these trades.

I have accounts with three different providers, and I get decent rates - but I opened the accounts ~10 years ago in one of the only jurisdictions where it was legal at the time, and had to lose a bit of money and establish a good relationship with them before they would give me a decent spread, interest rate, price, margin and access to some stocks etc.

Chances are if you open an account now they won't give you access to LNKD or Zynga and only the top ~30 NYSE and NASDAQ stocks until you have some trading history. post-IPO isn't the best time because you have a lot of latent demand to enter the stock from indexed funds and others - so you might want to wait for it to settle

I became disillusioned with it all since it is an insurmountable task. better to find stocks and companies you believe in and go long by buying them up on margin

Edit: forgot to mention that minimum deposits are usually $10k, but that might be different now. there is currently no traditional options market for LNKD, but there will be soon

tl;dr: google for CFD providers, game is rigged, watch out

MichaelApproved• 15 years ago

At best, it would cost you $7 to buy and $7 to sell in commission fees. That means $14 round trip or 7% of your initial investment just to break even.

Respectfully, the above is a very basic concept. Not knowing that means you're new to investing. In that case, don't even think about day trading until you've had many years of investment experience. Even with that, people still get killed day trading.

Apocryphon• 15 years ago

Zynga, FB, Groupon are the big ones besides LinkedIn... who else? I've heard Twitter, but perhaps they won't yet, they have a huge valuation but little in the way of a business plan. I've also heard Yelp and Pandora. Anyone else?

iphoneedbot• 15 years ago

Ok.. I gotta get in on this! I totally flaked on LinkedIN

veyron• 15 years ago

Go public before people get bored with social networking as a whole! I think that's what we are seeing now -- people actually seeing a slowdown in the explosive segment.

andrewdotcross• 15 years ago

And let the web 2.0 stock bubble begin.

People are just buying up these stocks cause they are cool, no thought to value.

Zynga About to File for IPO

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