Zynga’s public offering has been one of the most awaited tech IPOs of all time. It filed its first S-1 IPO filing back in July 2011, and has filed more than 6 amendments to the original filing since, with updated numbers and user metrics for its games.
It was supposed to go public before Thanksgiving, but obviously, that didn’t happen. According to a report by Fortune, Zynga will kick off its IPO process with a roadshow on December 5. We may soon see its last S-1 amendment, which should lay out all the details, including the number of shares it plans to offer and the exact valuation at which it expects to go public.
Unlike Groupon, Zynga is a profitable business and hasn’t been mired in controversies (at least not as many as Groupon). It has made nearly $828 million in revenue in the first 9 months of 2011, with a run rate of more than $1.1 billion, but its profits have dropped significantly due to increased operating expenses.
It was recently in the news for forcing some senior employees to return some of their unvested stock and threatening to fire them if they refused to, but that isn’t really much of an issue. A major concern has been the drop in the number of monthly active users, the primary metric which determines its growth. Most of its new games except CastleVille and Words with Friends have peaked early, and are already seeing a drop in active users. Zynga will need to continue churning out successful new games to compensate for the drop in users playing its older games, which is becoming difficult in the increasingly competitive social gaming market.
My analysis suggests that Zynga’s fair valuation should be in the range of $10 billion to $15 billion, based on a range of user and revenue growth estimates. Let’s wait and watch how it plays out for Zynga.
Groupon is possibly the most hated (by analysts) technology startup since the dot com bubble. It is the fastest growing company in terms of revenues, but it has been lambasted ever since it filed its first S-1 filing months back in order to go public. While everyone was first awestruck at how defiantly Groupon refused Google’s buyout offer of around $6 billion, once its financials were revealed, almost all analysts turned against it.
It had a very turbulent journey to the IPO – with issues like shady accounting measures, leaked memos in the quiet period, insiders and early investors cashing out early – but it finally listed with a significant pop – at around $25, reaching a high of $31. Its stock price was helped by the fact that it had a very small float, and that shorting it was too expensive.
However, in the last two days, it has shed most of its gains, and is now priced below $17, about 15% lower than the offer price of $20.
It’s trapped in a catch-22 situation – if it tries to bring down its marketing expenses, customer growth also drops. And if it doesn’t, it doesn’t turn a profit. Additionally, due to increasing competition by Living Social, Google Offers and the other 1457 daily deal players, its margins are getting squeezed. There is almost zero loyalty in the daily deal business – after all, coupon clippers will jump on to the cheapest deal, which may not necessarily be Groupon’s. It hasn’t been able to capture significant market share in most of the international markets it operates in, and deals in North America remain its largest business.
The stock still seems to be a bit overvalued and may drop even more in the coming days. The Groupon bubble has finally burst and the bloodbath doesn’t seem to be over.
Zynga, which was planning an IPO in the week after Thanksgiving, may have to consider postponing its IPO a bit more, considering the turbulent market conditions and the possibly low confidence of investors in tech stocks right now, after the Groupon debacle.
Finally, we have some news about the most awaited IPO of the year – Facebook. Apparently, a rumor is floating in Facebook offices that the social networking giant will file its first S-1 before the end of 2011. Mark Zuckerberg has himself said that it is coming, according to a report by Business Insider.
Facebook has long surpassed SEC’s 500 shareholder limit because of which it will be required to disclose its financial data to the public before the end of April 2012.
There are mainly two main reasons why companies choose to remain private – secrecy and control. After it’s forced to disclose its financials, it will lose the advantage of secrecy. Going by the current trend in tech companies, Mark Zuckerberg will be able to maintain a significant amount of control even after going public, thanks to supervoting shares.
It is rumored to have a valuation of around $80 billion currently, and I expect it to go public in the $100 – $120 billion range, assuming it has continued to grow at the same rate in the past few months.
Going public will also enable Facebook to keep its employees happy, by giving them a way to cash out, and become actual millionaires, not just paper ones.
Going by the encouraging response to the Groupon IPO despite being fraught with problems, I expect Facebook will easily be able to list at a $100 billion+ valuation.
A lot of newly minted millionaires are going to be roaming around Silicon Valley soon, thanks to companies like LinkedIn, Groupon, Zynga, Yelp and now Facebook going public.
Zynga, the social gaming giant, which created games like Farmville, Cityville, Frontierville and Zynga Poker has finally filed its S-1 with the SEC. According to its S-1 filing, Zynga aims to raise about $1 billion in the offering, implying a valuation of close to $20 billion. The IPO will be underwritten by Morgan Stanley, BofA Merrill Lynch, Barclays Capital, Allen & Company, Goldman Sachs and J. P. Morgan.
Zynga was founded in 2007 by Mark Pincus, and has been the creator of some of the most popular games on Facebook. It has grown extremely fast, either organically or through acquisitions. It makes most of its revenues by selling virtual goods to Facebook users who play its games. While it does have millions of users, whether or not it will be able to monetize them well and generate enough revenues to justify the $20 billion valuation is what many are worried about. It places Zynga at a valuation which is roughly the same as EA and Activision Blizzard combined.
It had revenues of $597.46 million in 2010, and made close to $235 million in revenues in the first quarter of 2011. While it has good revenue figures, its net income and profit margin isn’t all that impressive considering that its primary product is virtual goods. It had a net income of just $90.56 million in 2010, implying a P/E of 222. It has had tremendous growth in the past 2-3 years, but it seems to have plateaued in the last couple of months.
Besides, the very first risk factor that they state in their S-1 says it all: “if we are unable to maintain a good relationship with Facebook, our business will suffer”. Zynga’s entire business depends on its relationship with Facebook. It has been trying to expand its offerings to other platforms, but without much success.
News of the Zynga IPO will undoubtedly trigger discussions of whether we are in a tech bubble, which even I’m starting to believe now. Zynga may turn out to be the Pets.com of 2011.
According to the latest auction on the private secondary marketplace SharesPost, Facebook stock sold at $25 a pop, which takes Facebook’s valuation to an all time high of $56 billion.
The total amount of outstanding Facebook shares is 2.24 billion. The recent SharesPost auction sold 165,000 shares at a price of $25. This is significantly higher, almost 77%, than the price of Facebook stock just 3 months ago.
The actual valuation of Facebook might be much lower if its stock were being traded on the open market. Apparently, many investors still think that Facebook is worth much more, and SharesPost is going to conduct another auction soon, because this auction was “significantly oversubscribed”.
At this rate, Facebook could be worth more than Google ($190 billion) by as early as 2015.
Facebook, which has been growing exponentially will not offer an Initial Public Offering (IPO) till 2012. This was confirmed by Peter Thiel, who is a board of director on Facebook to FOX Business Network.
In an interview on FOX Business Network, Peter Thiel confirmed that Facebook will not offer an IPO, at-least until 2012. The revelation was made during an Regulation and Innovation interview at FOX Business.
Thiel who was also the first investor in Facebook said:
Facebook will not IPO for awhile. I think we will follow the example of Google which is you do not go public until very, very late in the process. This is a by-product of Sarbanes-Oxley. At least two years. I think the company is on record saying it will not go public until 2012 at the earliest.
Skype has filed for an Initial Public Offering (IPO) with the SEC today. The Luxembourg based company will be offering American Depository Shares and will trade on NASDAQ.
It aims to raise about $100 million through the IPO. The IPO will be managed by Goldman Sachs, J. P. Morgan and Morgan Stanley. The initial price band or the number of shares on offer haven’t been revealed yet.
A 65% stake of Skype was sold to private investors by eBay last year at a $2.75 billion valuation. It is fast turning profitable and had revenues of $406 million in the first half of 2010 with a net income of close to $13 million. It has 124 million monthly active users with 8.1 million of them paying to use the service.
They say “Content is King” and truly so. DemandMedia is one of the largest content producers that provide supplemental income to thousands of freelance writers every month. The company that owns popular reference site “eHow” today filed for an IPO.
The California based content creator is represented by GoldmanSachs and Morgan Staneley in this effort to raise appropriate capital. There is no information yet on how much they expect to raise, but the filing discloses that DemandMeda had revenues of $198 Million in the first 6 months of 2010 mainly generated through advertising sales and domain registrations. The complete text of the filing can be viewed here.
Besides eHow, other properties owned by DemandMedia includes Cracked.com, LiveStrong.com, Trails.com, GolfLink and AnswerBag. Over the last few years, the importance of structured content, such as that offered by DemandMedia properties, has increased exponentially with the increase in number of web users. In addition to accumulating content regarding a specific topic at a single platform, these properties also portray as more authentic to users compared to thousands of put-together web pages by individuals.
The response to DemandMedia’s IPO would be a good indication of the Silicon Valley’s economic health in general and a good example for many tech companies that are ready to go public. It is also interesting to note here that another content company AssociatedContent was recently acquired by Yahoo! for a little over $100 Million. Similar companies, same time frame, different exit strategies, let see which one proves to be better.
Based on conversation with some insiders, BusinessWeek reports that Facebook will probably not do an initial public offering in 2011, something that has been speculated pretty often. The company would instead focus on growth for the next year or two and acquire more users before it eventually goes public. While no one really knows, it is totally in the hands of 26 year old Mark Zuckerberg who controls the board.
However, should Facebook really wait till 2012 for cashing in on the massive success it has already received? Right now the company is valued at around $25 Billion, but that may change very quickly if the rumors about a competing social network from Google have any truth to them. Whatever Google launches will definitely not shut down Facebook but if it is a successful enough product like AdWords or Gmail, it will have a significant affect on Facebook’s value.
Secondly, with one privacy Fiasco after another, Facebook can get a massive class action lawsuit anytime and if a large financial penalty comes there way, it would directly affect Zuckerberg and the handful of investors. Plus, once Facebook goes public, the added scrutiny would insert pressure for greater transparency which can be a really good thing in terms of public image.
Last, but not the least, a lot of people who aren’t happy with Facebook are just waiting for a suitable alternative to switch, they are waiting for the next Facebook to launch so they can go to a more evolved social network. It doesn’t necessarily has to come from a giant like Google, Apple or Aol; it can be from anybody and as long as it addresses the privacy concerns that Facebook so often chooses to ignore, people will switch.
Any of these factors can hurt Facebook’s valuation significantly and may not prove waiting through 2012 to be the best of ideas.