Zynga Seeks $1 Billion In IPO

bizwriter writes "Zynga finally filed its IPO paperwork today, as it wants to raise $1 billion. And while the reports of how well it did were significantly overstated, this is a company that still makes significant revenue and profit. If you thought that LinkedIn's IPO was hyped and hyper, Zynga's going to put that all to shame."

Comments

Though High, Not Even Close to LinkedIn Hype

[eldavojohn]

If you thought that LinkedIn's IPO was hyped and hyper, Zynga's going to put that all to shame.

Okay so let's take a look at the two IPOs. From Slashdot's own summary of LinkedIn's IPO we have this fact about what the shares were trading at on LinkedIn's opening day:

That price values the company at over 30 times its 2010 revenue ...

So now that we can see Zynga's financials, we see that its revenues for 2010 were $600 million meaning that if the shares hold at exactly the price Zynga opens at, they will be valuing Zynga at 1 2/3 times their 2010 revenues. Now, of course, last year's revenue doesn't mean everything as growth, market cap, etc come into play. But that 1 2/3 times is substantially less than the ridiculous 39x amount that LinkedIn's IPO skyrocketed to. If the total trading volume's valuation goes from $1 billion to $23.4 billion in the first day of trading then we'd be approaching LinkedIn-levels of bubble hype. How exactly is Zynga going to "put that all to shame"? Are you in possession of some proof that the trading will once again go ape shit past $23.4 billion? I think the recent MySpace sale has shown that a company that makes games (though shaky) is nowhere near as volatiles as a company that relies upon its social network to fill its coffers.

Remember, some folks estimate that Farmville alone is now worth more than EA.

I hate Zynga with a passion and am convinced that Words with Friends has completely destroyed my Android phone's battery life (all the while showing me ads to improve my battery life) but I think they're a far better bet than LinkedIn. I've commented on Zynga's 7 Eleven partnership long ago and I think that market penetration is massive and gives them an upper hand that I cannot fathom how the competition will beat -- especially if that's an exclusive contract.

Re:Though High, Not Even Close to LinkedIn Hype

[Anonymous Coward]

Actually, as Ars points out in an article today, Zynga relies on Facebook for ~100% of its profit. So, more than just relying on a social network, Zynga relies upon someone else's social network. Moreover, most of Zynga's profit comes from a very small percent of its customers (those who actually pay), making Zynga incredibly unstable. All this is from Zynga's on statement, BTW, not conjecture. Too lazy to post the link, but as I said, its on Ars Technica in summary format or in the first link under "risks" if you wanna look there.

Re:Though High, Not Even Close to LinkedIn Hype

[econolog]

What we actually have here is new companies filing for IPO's which allows the company to raise capital to expand and generate revenue. Many companies in other sectors launch IPO's long before they are profitable. Consider that we have seen relatively few tech IPO's in the last couple of years. Maybe this should be taken as a sign that there is some growth happening? I thought that before we had a bubble there had to be a build up... After all in the first bubble there wasn't a good frame work for many to generate revenue. Now several forms have been developed and new applications are becoming apparent. This increases the value of tech companies and the odds of new ones becoming profitable. On the other side it could be seen as entrepreneurs going for a mad dash to cash out on the equity they have developed in a scam-like fashion (eg: leaving shareholders with more or less worthless companies while cashing their stock options). I think that is largely how it is perceived in the general financial community but it remains to be seen if this is warranted. It could be a self enforcing effect where financiers see potential signs of a bubble -> cut funding -> entrepreneurs are worried about loss of hard work -> issue IPO. Summary: Could be a little early to call a bubble though the US isn't out of the woods yet.

Re:Though High, Not Even Close to LinkedIn Hype

[lotho brandybuck]

I'm not going to try to understand the whole prospectus, but if they're "raising" 1B, their total valuation will be over that unless the current stockholders want absolutely nothing for their shares. Somehow I doubt that's going to happen.

Does anybody know what the estimated market cap will be?

I'm sad that there's so much valuation in this virtual crap as opposed to investment in solid manufacturing or infrastructure, like solar and LED companies, probably becuase that's what I'm in. But some folks obviously think the relentless march to Idiocracy (buying shit in the real world to better play games with your friends in the virtual world???) in this country will be quite profitable, and they may be right.

Re:Though High, Not Even Close to LinkedIn Hype

[Yakasha]

I think the recent MySpace sale has shown that a company that makes games (though shaky) is nowhere near as volatiles as a company that relies upon its social network to fill its coffers.

A company that relies on the sales of games that rely on somebody else's social network is more stable?

I think if Zynga can separate themselves from their Facebook/Social Media reliance and their own past they'll have a chance of lasting 10+ years.

Linked-in has carved their niche as the professionals place to network. They may not have the seemingly limitless growth potential that a generic place like Facebook has, but I think their market is less likely to jump ship with the next new thing that comes out, and they have a well-defined target audience that they know for a fact has money.

The people that spiked Linked-In's IPO are the same people that spiked the first internet bubble and are the same ones that will spike Zynga's IPO, and will be the same ones jumping out windows when this bubble bursts: the ones that "play" the market.

Investing is not a game. It is just numbers and educated guesses based on those numbers. The people inflating these IPOs are just like the people in Vegas betting on black cause its "hot". To the pros they're either an annoying inconvenience... or a mark.

Re:Though High, Not Even Close to LinkedIn Hype

[MBraynard]

Your math would only be correct if it was issuing 100% of it's equity. It's probably issuing a tiny fraction.

Short that stock

[spire3661]

as fast as humanly possible.

Re:New bubble?

[fuzzyfuzzyfungus]

Skimming the real money off the undulating torrents of pretend money is one of America's most influential industries.

Now that the adventure in real-estate has largely dried up, a new fad is needed.

It doesn't really matter

[DogDude]

It doesn't really matter what the company's value is. Stock price is completely and totally unconnected to any kind of company value or profit. Stock price is purely a measure of how much people are willing to pay for a "share" of a company. It used to be that people bought stock because they pay dividends, but now few stocks pay any dividend, and people are simply gambling that one day in the future people will pay more for the "share" than they are willing to pay now. All of the analysis into a stock's "value" are about as useful as "analyzing" numbers on a roulette wheel.

Re:It doesn't really matter

[O('_')O_Bush]

That has no relation at all to what the person you are replying to says.

Any monkey understands compound growth and that stocks tend to grow faster than bank accounts. Nothing to do with how stocks are valued.

All aboard!

[roman_mir]

All aboard! The gravy train is leaving this station.

This is another bubble, which is being inflated now, and since people have short memories and no understanding of economics they are jumping right on it.

These new software service/product companies are going IPO now, while things are still moving. Wall Street wants to push these companies right now, one after the other, feeding the frenzy, as they know it won't last.

These insane valuations that Linked In and all these other new IPOs are going at are forward looking, they are assuming 100% profitability at current level. They have no space to go but DOWN.

Don't believe the hype.

Re:All aboard!

[roman_mir]

Linked In? You must be joking. Their valuation is 36 times their revenue I believe, isn't it right?

Do you know that it's very easy to have huge revenue but have no profit and then come up for an IPO nowadays if you are one of these newfangled 'Web2.0' companies?

Revenue is irrelevant. I can have all revenue all day, if I just buy a product and sell it cheaper than anybody else, I'll be bleeding red ink, but I can have more revenue than any competitor.

Then, based on today's 'reality', I can go for an IPO with a huge valuation based on nothing but revenue. Then I cash out and go drink moheetas on a white yacht somewhere in the Caribbean, and leave the schmucks holding the worthless coupons.

I'm all set

[ArhcAngel]

I've go at least 30 Billion in New York alone on Mafia Wars.

Re:New bubble?

[PickyH3D]

Except it's not even remotely new. Stock market bubbles have come and gone on a scarily common cycle.

How these idiots keep doing it is beyond me.

Rhode Island

[michaelmalak]

It's approximately the agricultural GDP of Rhode Island.

New facebook posts on my account

[The Great Pretender]

IPOville - Help your friends over value another useless company, click on this link...

Re:New bubble?

[dgatwood]

I'd imagine a lot of Zynga employees will do just that, if they're smart. Then, since they won't need to put up with being massively overworked and severely underpaid anymore, they'll flee the sinking ship in droves.

Translation: take your profits after a single-digit number of weeks, and then walk away.