By Lynn Cowan
Online games developer Zynga Inc. set the terms of its planned initial public offering Friday, seeking as much as $1 billion by selling 100 million shares at a price between $8.50 and $10.
At the $10 end of its IPO range, Zynga commands a valuation of nearly $7 billion, according to an updated prospectus filed Friday.
The company is best known for such social games as FarmVille and Mafia Wars, played on Facebook's social networking website. Zynga is scheduled to launch its marketing road show Monday, and expected to begin trading on the Nasdaq under the symbol "ZNGA" by Dec. 16.
Zynga's IPO is smaller than what the company originally hoped it could obtain from the public markets. When it first filed to go public in July, it was seeking to raise $2 billion with a valuation of $20 billion, people familiar with the matter said.
But the proportion of the stock it is floating in the IPO is a bit larger than at many other Internet-related IPOs in recent months. The company plans to sell about 14.3% of its outstanding shares, compared to the 5.5% offered by Groupon Inc. (GRPN) and 11% offered by Angie's List Inc. (ANGI), excluding over-allotment options.
When Zynga first filed its IPO plans, it was part of a rush of technology offerings hitting the market. Professional networking site LinkedIn Corp. (LNKD) doubled on its first day of trading in May and real estate website Zillow Inc. (Z) gained 79% in July. But the steep market selloff that hit in August led both the daily deals site, Groupon, and Zynga, as well as many others, to hold off on their IPOs because of the high level of investor jitters.
Groupon, which priced above its expected range last month and rose nearly 31% on its first day of trading, is currently beneath its IPO price. Angie's List, which priced at the high end of its range and gained 25% during its debut last month, is also below its IPO price of $13 a share. Zillow has given back almost all its gains since July; it is now 8% above its IPO price, compared to its 79% pop months ago.
But Zynga differs from the others in several ways. Neither Groupon, Zillow nor Angie's list were profitable when they debuted, and there have been concerns raised about the amount that Groupon and Angie's List must spend to market themselves to new users.
Zynga's top line revenue is growing swiftly, but it has also been booking profits since last year. Its games are free to play, so it makes its money primarily by selling virtual goods to players, and also through advertising. In the first nine months of the year, its total revenue doubled to $829 million from the same period a year earlier. Its net income declined 35% to $31 million during the same time, solely on higher income taxes; income before income taxes was up 48% at $82 million.
Although Zynga's games are available on other social networks and mobile platforms, substantially all its revenue is derived from Facebook-accessing players. It has the largest player audience on Facebook, with more monthly active users than the next eight social game developers combined, according to AppData, an independent service that tracks application traffic on Facebook.
An obvious risk for Zynga is its reliance on Facebook, which has a lot of muscle when it comes to changing its rules for applications that appear on its platform. The social media site now requires apps to use Facebook's proprietary payment method, Facebook Credits, as the primary means of payment collection. As a result, Facebook now receives a greater share of payments made by Zynga's players than it did when other payment options were allowed.
Morgan Stanley (MS) and Goldman Sachs Group Inc. (GS) are managing Zynga's IPO.
