Social-gaming juggernaut Zynga filed with the Securities & Exchange Commission for an IPO to raise up to $1 billion. The company behind hit games such as "FarmVille," "CityVille" and "Mafia
Wars" earned a profit of $90.6 million on revenue of $597.5 million in 2010, according to its S-1 filing.
For the first quarter of 2011, it reported net income of $11.8 million on sales of $235 million. As of March 31, Zynga had a whopping $995 million in cash and
cash equivalents. That's after spending $114 million on sales and marketing efforts last year, and $40 million in the first quarter.
The widely anticipated filing had been expected as early as
June 29. Zynga is likely to benefit from the revived market for Internet IPOs this year, especially for social media-related start-ups. Professional networking site LinkedIn raised $238 million for an
IPO last month that saw its $45 opening price soar above $100 on the first day of trading. Internet radio service Pandora took in $235 million in an IPO earlier this month. And Groupon this month
filed to raise $750 million through its own debut offering.
But Zynga is poised to be the biggest so far.
The company makes money mainly from selling virtual items for in-game use, from
poker chips to tractors, boasting 232 million monthly active users in 166 countries. On a daily basis, that translates to 60 million active users. Players create and store more than 38,000
virtual items every second and spend 2 billion minutes a day with the service.
Facebook is where most of that game play takes place, along with other social networks and mobile platforms. In
addition to selling virtual goods, Zynga also generates revenue from ad efforts, including branded virtual items, sponsorships and engagement ads within games.
Despite the company's explosive
growth over the last four years, ambitious goals remain. With the funding raised, Zynga said it expects to make capital expenditures of $100 million to $150 million in the second half of 2011 to
invest "in network infrastructure to support our expected growth and to continue to improve the player experience."
Specifically, the company plans to launch additional games, continue to expand
its brand and games and mobile platforms like iOS and Android, and ramp up international growth by making games available in more languages. It also aims to boost monetization of games through better
selection and merchandising, and pursuing more advertising opportunities.
Because of Zynga's interdependence with Facebook, a number of the risk factors listed in its IPO registration could
undermine that core relationship. They may include Facebook limiting access to its platform or developing its own competitive offerings.
Last year, the social network began requiring app
developers including Zynga to accept payments only through its own virtual currency -- Facebook Credits -- taking a 30% cut of transactions in the process. As of April, Zynga said it had updated all
its games on Facebook to comply with new policy. Among other risk factors, Zynga noted that a small number of its games accounted for a majority of its revenue, and that it has continued to come
out with additional hits to maintain growth.
Investors that stand to hit it big from the Zynga IPO are venture capital firms Kleiner Perkins Caufield & Byers and Union Square Ventures, as well as
individual backers including LinkedIn founder Reid Hoffman and Digg founder Kevin Rose.