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Zynga files for $1 billion initial public offering

by Phil Hornshaw

Social gaming powerhouse Zynga, which dominates Facebook and runs its ’Ville games on mobile platforms like Apple’s iOS and Google’s Android, filed an S-1 with the U.S. Securities and Exchange Commission today and wants to issue a public stock offering pretty much as soon as possible.

According to a story from Gamasutra, Zynga’s estimating the offering at $1 billion in aggregate initial sales in class A common stock, which apparently, somehow, is kind of low – below the valuation rumored recently that would earn as high as $2 billion.

But the huge valuation speaks to just how insanely popular Zynga games really are. The SEC filing claims that Zynga saw 2010 revenue of $839 million with 148 monthly active users across 166 countries. Those players were harvesting crops and reading text about shooting gangsters for 2 billion minutes in 2010, the filing says, and first quarter 2011 revenue has already hit $287 million – an increase of 61 percent over the same time last year. By way of comparison for all these numbers: Zynga’s 2008 revenue was just $36 million. Yikes.

Here’s a quote from the filing care of Gamasutra:

‘By offering our shares to the public we hope to enable Zynga to invest more in play than any company in history,’ Zynga CEO and founder Mark Pincus writes 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.’

But in the filing, Pincus also reveals some chinks in the Zynga armor: namely, that while it has many games that are popular and many players, most of the revenue comes from a small number of both. Once again, from Gamasutra:

Later in the document, Zynga warns potential investors that it ‘rel[ies] on a small percentage of our players for nearly all of our revenue,’ that ‘a small number of games have generated a majority of our revenue,’ and that ‘if our top games do not continue to be popular, our results of operations could be harmed.’

That might account for the moves that Zynga has been making to bolster its stable of games during the last year. In 12 months, Zynga has acquired 12 games companies, including the makes of the super-popular cross-platform Scrabble-esque game Words With Friends, Newtoy (which is now called Zynga With Friends). The company seems to be using its successes and inundation of cash to diversify itself so that it can remain competitive, even if FarmVille and CityVille suddenly tank or slowly begin to lose player interest.

Obviously, another billion dollars will help with that process, too. It’ll likely mean Zynga will continue to grow and gobble up smaller game companies. It has quickly become a major force in the App Store, and with more money backing it, there’s no telling how Zynga will change the shape of mobile games.