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.
Zynga is planning to raise nearly $1 billion, at a rumored valuation of around $15 – $20 billion. However, given the bloodbath that Groupon’s stock has seen in the last week, its underwriters may price it lower to attract investors.
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.
In other news, even Facebook is expected to go public soon.