Zynga files for $1 billion IPO

As predicted, Zynga plans on becoming public, hoping to raise $1 billion in an IPO. The company issued an S-1 filing today, revealing some key facts about the company. While the $1 billion IPO will give the company a $10 billion valuation, Zynga has only made $90 million of profit in 2010. However, as VentureBeat notes, "Zynga is by far the most profitable company to file to go public this year," besting well-known names like Groupon, Pandora, and LinkedIn. Most of that profit has come from the sale of virtual goods, which represented $575 million of revenue in 2010. According to the filing, Zynga currently has 60 million users that play on a daily basis, and over 230 million monthly active users across all its games. Charts provided by the company show that there is reason to believe that the company will continue to grow at its extremely fast pace:

Zynga's growth over three years has been tremendous

"By offering our shares to the public we hope to enable Zynga to invest more in play than any company in history," Mark Pincus, CEO and Founder of Zynga, explains in the filing. "To accomplish this, we will continue to make big investments in servers, data centers and other infrastructure so players’ farms, cities, islands, airplanes, triple words and empires can be available on all their devices in an instant." The biggest threat to Zynga's growth, however, is its relationship with Facebook which has sometimes been on shaky ground. The filing reveals how vital support from the social networks is. According to the filing--"Our business would be harmed if:
  • Facebook modifies its terms of service or other policies, including fees charged to, or other restrictions on, us or other application developers, or Facebook changes how the personal information of its users is made available to application developers on the Facebook platform or shared by users;
  • Facebook establishes more favorable relationships with one or more of our competitors; or
  • Facebook develops its own competitive offerings."
Even Google's foray into the social networking scene with Google+ can adversely affect Zynga's bottom-line, as it has the potential to usurp Facebook's dominance in the market. "If Facebook loses its market position or otherwise falls out of favor with Internet users, we would need to identify alternative channels for marketing, promoting and distributing our games, which would consume substantial resources and may not be effective." Undoubtedly, many investors will question if it is wise to invest in a company whose profit margin is determined entirely by a separate private entity.