Zynga plays for $1bn listing as revenues soar

Zynga, the social networking games developer, revealed that it generated revenues of almost $600m last year as it embarked on an initial public offering of $1bn worth of shares.

While the amount of money raised could change from the initial filing, it demonstrates the scale of the ambition of the world’s largest provider of social networking games, capitalising on Facebook’s popularity to become a hotly sought-after video game developer. It is the latest in a string of recent tech IPOs that some investors fear may be overvalued.

In its filing to the Securities and Exchange Commission, Zynga reported having 232m average MAUs, or monthly active users, or the number of people who engage with a game in a monthly period, across 166 countries in the first quarter of this year. That puts it ahead of Disney’s Playdom and Electronic Arts’ Playfish, according to market tracker AppData.

Zynga, like Groupon and other social network companies, has grown explosively since its founding in 2007. Gross revenues were $597m last year, versus $121m in 2009. However, that figure is substantially less than the $850m widely estimated and used as a baseline in secondary market trading.

Profits last year were $90.6m, reversing a loss of $52.8m the previous year. Profit in the first quarter of this year was just $11.8m, against revenues of $235m.

It primarily generates revenues from users buying add-ons to its games, such as FarmVille and Mafia Wars. Of its revenues this quarter, $222m was generated by game purchases.

However, it adjusts its profits and revenues to reflect an arrangement with Facebook. Facebook users pay for items in the game using Facebook Credits. Facebook keeps 30 per cent of the cost and delivers the rest to Zynga. Zynga defers those revenues.

Including that adjustment, Zynga’s earnings figure before income taxes, depreciation and amortisation was $112.3m in the first quarter, up from $93.5m in the same period last year. Its annual ebitda in 2010 was $392m, up from $168m in 2009.

The filing does not shed light on its hoped for valuation, previously reported to be between $15bn and $20bn. Mark Pincus, founder and chief executive, is the largest shareholder, owning 16 per cent.

It has yet to choose which market, the New York Stock Exchange or Nasdaq, to list on. The offering will be led by Morgan Stanley and Goldman Sachs, along with Bank of America Merrill Lynch, Barclays Capital, JPMorgan and Allen & Company.

A similar group of banks are also set to take Groupon public later this year as well, likely around the same time as Zynga.

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