Zynga files for IPO, says its future is mobile

Social gaming giant Zynga has filed for its much-anticipated initial public offering in the US. While the company has yet to put a price tag on the shares, as part of the process of calculating its registration fees with the Securities and Exchange Commission (SEC), Zynga has estimated it will raise $1bn from the sale. The New York Times is reporting that approximately 10 per cent of the company’s shares will be offered for sale, raising over $20bn in revenues.

The company has said it will use the proceeds as working capital to drive development, marketing and other capital expenditure. A key component of this is likely to be the company’s mobile strategy. According to the registration statement submitted to the SEC, the company says “our growth prospects will suffer if we are unable to develop successful games for mobile platforms.” The submission adds that Zynga sees a “large opportunity to extend our brand and games to mobile platforms such as Apple iOS and Google Android,” and, as such will continue to focus “developing and acquiring mobile talent, technologies and content.” Although the filing doesn’t go into specifics, Zynga claims that its daily active user numbers on mobile platforms “grew more than ten-fold from November 2010 to June 2011.”

Recent months have seen a spate of social media-related public offering announcements. LinkedIn’s high-profile IPO in May marked the biggest Internet IPO since Google’s massive launch in 2004 and saw the company’s stock more than double on the first day, pushing the company’s value over the $8bn mark. While this led many observers to question whether the market is on the verge of a new dotbomb bubble, it’s clear that, with demand hotting up, many of the industry’s biggest success stories are hoping to cash in on the enthusiasm. Groupon filed for its IPO in June, having previously turned down a clear $6bn offer from Google; the company is widely expected to pull in more than $1bn, while rival Living Social is rumoured to be worth $15bn.

While Zynga racked up $235m in revenues in Q1 this year alone, some point to its over-dependence on Facebook as a potential spanner in the company’s long-term works. Concerns are added to by the reality that, while the company relies heavily on sales of virtual goods to users, such users constitute a tiny proportion of the overall numbers who play hugely successful games such as Farmville and Frontierville online. Users can buy credits or goods via PayPal, credit card or pre-paid cards; in 2009, the company was criticised for its lead-generation-based advertising strategy, which many users complained was verging on a scam, downloading un-requested software and facilitating what many said was unwitting sign-up to repeat subscriptions or expensive, unwanted SMS services. Some commentators alleged that Facebook, which receives 30 per cent of everything Zynga makes through the social media site, was complicit in the strategy. That profit-sharing arrangement is set to end in 2015.

Facebook, meanwhile, is rumoured to be readying for its public offering early in 2012. Under US legislation, once any private company has more than 500 investors, it is obliged to release quarterly financial results like any publicly listed company. With Facebook indicating that it expects to pass this point some time before the end of 2011, it’s only a matter of time before the company files for a public listing. As speculation on the social media giant’s IPO mounts, the company is expected to hit a valuation point in excess of $100bn.