Zynga gaining power, how close is the IPO?

By: ispeculatornew
Date posted: 09.16.2010 (5:00 am) | Write a Comment  (13 Comments)

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We have discussed Facebook’s IPO frequently but as was made clear in yesterday’s post, it seems unlikely that Facebook will do its IPO in the near future so we are left looking for other candidates that could fall into our pool of stocks that we follow. Zynga, which we have discussed in the past is looking like a great candidate at. Initially, we had written about Zynga’s dependance on Facebook but it did reach a long term deal to ensure its place on Facebook and has also been gaining market share on other gaming platforms through Yahoo and more importantly through Apple’s Ipod/Ipad/Iphones on Itunes.

Just as a reminder, Zynga is a company dedicated to gaming,but has been reaching out to gamers on non-traditional platforms. Instead of targeting users of Xbox, Playstation and Wii platforms, it has been gaining access through social networks such as Facebook and is now making a big name of itself on Itunes. The company is taking over an area that “traditional” gaming companies such as Ubisoft and Electronic Arts took too long to get involved in.

The games

Zynga’s success has come because instead of working on dozens of games, it has focused on games that are highly addictive and that can be played with/against friends. Ever thought of managing your own farm? Probably not. But if you have signed up to manage one at Farmville (named WeFarm on Apple devices), you are probably taking good care of that farm and are probably checking out your friend’s farms in order to see how they are doing, do commerce together, etc. The result has been a growth like none other. Just to give you an idea, on Facebook’s structure alone, Zynga now welcomes over 50 million users every day!! That is amazing by any metric….

Branding

If you have a Facebook account, you for sure have heard about Farmville but even newer ventures such as Mafia Wars are quickly getting a name for themselves through aggressive marketing. The company has been able to multiply marketing efforts on its games in many different ways, mostly through social media (getting users to talk about the game and invite friends) but through non-conventional ways as well. For Mafia Wars, Zynga hired an agency that printed “fake” dollars with information about the game and have them put in streets across major US cities. It has been controversial because of the cleanup costs (which will end up being paid by the company) but has certainly generated advertising…

Revenues

Just in case you were wondering, Zynga is already making money through its games. While playing them is free, many users pay up to gain an advantage. For example, you could buy extra land (virtual of course) to help you build a more efficient farm, you would be forking over real dollars. Zynga aspires to build several successes similar to the one that rival Vovia has had with “Angry birds”. The game, which has been downloaded 6.5 million times and costs 5$, is now also launching a new “power bird” that will cost real dollars and a movie inspired from the game is being worked on. These are just a few of the examples of how such games can mean big dollars. For now, Zynga seems mostly concerned (rightly so) with users but revenues will surely become a bigger priority in time.

How much is it worth?

In my opinion, there is no doubt that Zynga has a model that would be very interesting from an investor’s perspective. Gaming in the US, especially on mobile devices is a fairly new model that can generate high growth for many years with very solid margins. Honestly, Zynga has an ideal position, a partnership with the top social network (Facebook of course) and is growing stronger on Apple’s devices. I would be a buyer if/when the IPO happens if the prices is fair. How about you?

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13 Comments

  1. Comment by Catarina — September 16, 2010 @ 7:48 am

    I don’t think I would invest in this one day.

    I got the iPad a few weeks ago and I found the best apps to be Angry birds!! What an addictive game and, like you said, it’s all about branding! I love it!! The birds, the graphics, the colors, the game itself… but not sure, after watching the cinematic trailer released on YouTube, how this can make a movie. hopefully it’s going to be nice!!

    I’ve also downloaded the game “we farm” which is similar to Farmville (is not on ipad right now). I just love it too!!

    Neways, have to get back to my farm 😉

  2. Comment by IS — September 16, 2010 @ 1:38 pm

    @Catarina – Could you see yourself paying for an app like that? I guess so if you got Angry Birds! If so, don’t you agree that there are good potential business opportunities?

  3. Comment by Catarina — September 16, 2010 @ 2:08 pm

    of course there are great potential opportunity, however I, myself, wouldn’t invest in zynga 😉

  4. Comment by Catarina — September 16, 2010 @ 2:17 pm

    for me it is still in its embryonar development

  5. Comment by IS — September 16, 2010 @ 2:18 pm

    @Catarina – Can see that, it might become very expensive when it’s past that phase though;)

  6. Comment by The Passive Income Earner — September 16, 2010 @ 11:57 pm

    PlayFish was purchased for 350 million $. It was another free to play company developing games for Facebook before Electronic Arts purchased them. I don’t know what the growth of paying user is on a free to play game but it’s challenging I would say. World of Warcraft has owned the market for massively multiplayer games. (I just finished playing a couple of hours of StarCraft 2 getting my but kicked …) Anyone else attempting to compete has failed or only made modest money.

    It’s really hard to retain users in Free 2 Play. Subscription, like WOW, is much more lucrative. The thing about Facebook and Apple/Smart Phones is that the number of devices significantly outpaces xbox 360, PS3 and Wii. It means you can reach more paying customers. You just need to find the sweet spot for your ROI. Zynga had significant venture capital going in there.

    It’s a cut throat business. I would stay away if there was an IPO. In my book, that would be gambling as you assume someone has an insight into the human brain. The next innovation is always around the corner …

  7. Comment by IS — September 17, 2010 @ 12:55 pm

    @The Passive Income Earner – Very interesting comment, thanks a lot. No doubt, world of warcraft is a huge business, I was actually surprised to see that the company that owns it is listed? I thought it was just a small portion of Vivendi. ATVI will need to be looked into.

    Thanks for getting me to look more into it:)

  8. Comment by The Passive Income Earner — September 21, 2010 @ 5:53 pm

    Here are some interesting tidbits about social gaming landscape. There is some heavy hitters in there.
    http://www.industrygamers.com/news/game-trader-the-casual-gaming-arms-race/

  9. […] have discussed Zynga a few times on this blog. If you are not aware, Zynga is a gaming company that has adapted […]

  10. Comment by Catarina — October 21, 2010 @ 1:08 pm

    Zynga brings Farmville into iPad yahooooo!!! that’s great news!

    http://techcrunch.com/2010/10/21/zynga-brings-farmville-to-the-ipad/

  11. Comment by IS — October 22, 2010 @ 4:15 am

    @Catarina – Haha, yes that should be very interesting!! Think you’ll be playing Catarina?

  12. Comment by Catarina — October 22, 2010 @ 6:39 am

    I have an iPad and Farmville on Facebook and just love them both!! For sure I’ll be playing!! not sure how much the apps will cost

  13. […] Just today, reports surfaced that Zynga has just raised $500 million at a $10 billion valuation, bigger than other huge gaming […]

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