Zynga Shares Slip Slightly as Company Raises $1B During IPO
Zynga’s shares hovered near their opening price at $10 as the company raised $1 billion in its initial public offering. It’s a momentous day for the San Francisco-based company and the entire social gaming industry as Zynga is now worth about $7 billion after being founded four years ago.
Shares opened at around $11 when the company started trading on NASDAQ around 11 a.m. Eastern, but are now at $9.65.
Long derided by more traditional and console-focused gaming companies for building casual, free titles on the Facebook platform, chief executive Mark Pincus built a company that is poised to gross more than $1 billion in revenues this year. Yesterday, the company priced its shares at the high end of the original $8.50 to $10 range it proposed two weeks ago. It sold 100 million shares of Class A stock, which have the lowest voting power of the three different kinds of shares it has in its financial structure. The other two classes of stock hold 98.2 percent of the voting power.
Zynga’s IPO is just the beginning — not the end — of a four year journey that helped legitimize both the Facebook platform and the virtual goods-oriented revenue model. Zynga made $30.7 million in net income on $828.9 million in revenue through the third quarter of this year, up from $401.7 million in revenue during the same time a year earlier.
The question now is what Zynga can do to keep up its rate of growth at time when it has saturated the Facebook platform. Daily active users have declined for two consecutive quarters and margins have also declined as Facebook coerced developers to use its platform currency, Credits, giving it a 30 percent revenue share. It has also cut back dramatically on viral channels since 2009, hurting growth for game developers.
Zynga’s net income has also declined from last year’s $47.6 million as the developer invested in research and development for new games. That trend may continue well into 2012; for example, Zynga expects to spend about $50 to $70 million this quarter on network infrastructure.
The company does have a few cards up its sleeve, however. Pincus said in an investor meeting last week that the company could probably double the number of paying players from 3.4 million out of 152 monthly unique users in the third quarter.
When Zynga posted a 30-minute video of its roadshow a few weeks ago, the company also emphasized that Zynga’s games tend to peak in revenues long after they’re launched. They pointed to FarmVille, which reached a peak in bookings about two years after it was released. Coupled with the fact that the last six months have been a busy launch period, Pincus says this lays the groundwork for near-term growth even as daily active users have declined for two consecutive quarters.
In addition to CastleVille, Zynga has recently launched Dream Zoo and ForestVille on mobile. The company has reached 13 million daily active users on Android and iOS, which is about one-quarter of its total usage every day. That suggests that Zynga may be able to reduce its dependency on Facebook, where it earned 93 percent of its revenue in the most recent quarter.
December 16th, 2011 at 9:40 am
IN my opinion if there going be dropping out Goals alot they need to provide more space to work on the Goals. And Make the game Fun for NON paying member’s as well as those that do pay. They also need to work on Fixing Errors and stuff to keep the game play smooth and less errors instead of working on Goals and new games.
December 16th, 2011 at 12:36 pm
[...] After four years of grueling hours, funnel analysis, and creating lots of art for virtual farms, Zynga employees and chief executive Mark Pincus had a modest and brief celebration this morning to mark the company’s $1 billion initial public offering. [...]
December 19th, 2011 at 5:30 am
I agree, and Zynga is also bleeding users at an incredible rtae. Their games are currently very annoying with pop ups every few seconds asking users to either spend money for overpriced game cash, or spam their friends with requests for virtual items.
That coupled with too many goals makes the Zygna gaming experience, unpleasant, annoying and frustrating. I have stopped playing most of their games when over time many of my freinds did as well becasue it became impossible to finish any game quests without in a reasonable amount of time without wasting money on overpriced game points, and that was after spending nearly 1,000 in 2 years.
I now plan to never spend anything again on these frustrating overrated time wasters.
If you have technical or other problem the Zynga customer response is essentially makes the user feel like they are an idiot and do not know how to play the “wonderful” game. Bad news for customer reetention!
I suspect many users feel like me, and I believe the clock is ticking down for these social media games, and even facebook will be hurt by declining users who get annoyed and simply drop the whole social media expereiment in favour of a real life!
Thank God I didn’t waste any money on Zynga stock!!!