Zynga Plan IPO Float: Valuing Company at US$20 Billion

American social media gaming company Zynga could become the most valuable video-game company in the US after filing its intention to raise US$1 billion in an initial public offering that would value the company at US$20 billion.

The creator of popular Facebook games such as Cityville, Farmville and Mafia Wars, Zynga would be the first publicly traded company whose profits solely depended on the sale of virtual goods.

American social media gaming company Zynga could become the most valuable video-game company in the US after filing its intention to raise US$1 billion in an initial public offering that would value the company at US$20 billion.

The creator of popular Facebook games such as Cityville, Farmville and Mafia Wars, Zynga would be the first publicly traded company whose profits solely depended on the sale of virtual goods.

The IPO will represent a remarkable upswing in fortunes for the San Francisco based company. In 2008, Zynga’s revenue stream was less than US$20m – compared to just under US$600m last year.

In the prospectus submitted to the US Securities and Exchange Commission, Zynga’s Chief Executive Mark Pincus stated that the company was looking to make between US$100-150 million of capital expenditure in 2011.

Pincus also emphasised on the ever-present appeal of gaming, claiming that gaming would soon become a core function of the Internet.

[quote]”Play is one of life’s big macros – it’s an activity people love to do and do often… Zynga was founded on a deeply held passion for games that family and friends play together – connecting, collaborating, gifting, bragging, nurturing, admiring and sometimes just doing silly stuff together.”[/quote]

However, the prospectus also warned of potential risks for the company, especially with its dependence on social media platforms – particularly Facebook.

[quote]“If we are unable to maintain a good relationship with Facebook, our business will suffer…

Beginning in early 2010, Facebook changed its policies for application developers regarding use of its communication channels.

These changes limited the level of communication among users about applications on the Facebook platform. As a result, the number of our players on Facebook declined.”[/quote]

As such, the company has looked towards diversifying its gaming channels, with the mobile phone gaming sector identified as the next key area for growth.

Presently, Zynga has over 232 million active monthly players on its numerous online games. The rapid growth of the virtual-goods economy is expected to grow at a rapid rate as more and more gamers get involved in the “less traditional” form of social media gaming. According to Research firm eMarketer Inc., social gaming revenues will grow to US$1.09 billion in the United States alone this year, compared to US$856 million in the previous year.

Story from The Independent