Zynga's IPO filing shows a weakness

Zynga has filed its IPO with the Securities and Exchange Commission, as Neowin has previously reported. The company is known for making games for Facebook, such as Farmville, Cityville, Frontierville, and other games; one of its newer games is Empires and Allies.

Zynga had $597 million in revenue for 2010, with a profit of $90.6 million. In the first quarter of this year alone, Zynga brought in $235 million in revenue, with profits of over $11 million. The company, however, is very dependent on Facebook, they even admit so in their filing:

"Facebook is the primary distribution, marketing, promotion and payment platform for our games. We generate substantially all of our revenue and players through the Facebook platform and expect to continue to do so for the foreseeable future," the filing explains. "Any deterioration in our relationship with Facebook would harm our business and adversely affect the value of our Class A common stock."

In addition, their future is very uncertain. Zynga also notes that "[a] small percentage of our players account for nearly all of our revenue. We lose paying players in the ordinary course of business... we must attract new paying players or increase the amount our players pay," the filing states.

The filing shows the rapid growth of Zynga, but it gives fair warning: It is dangerous to rely on a third party for your customer base when that company can exist without you.

 

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Can their 'Social' games not be integrated with Twitter and Google+?
This way they'll have more partners.

I had never heard of them, probably because I don't play any of those stupid games on Facebook. Here's hoping that Google+ isn't blighted with the same things (if I ever get invited that is).

$597 million = revenue.
$90.6 million = profit.

Hmmm, why would it cost them $506.4 million in operating costs?
Something seems very odd to me.

That is very common. In 2010 GE had a revenue of ~150 billion, and net income (profit) of ~12 billion. Remember profit is after they have paid all their staff. Staff costs can be quite high, and I would imagine they had a high growth rate leading to requiring more capital to be laid out on infrastructure.

smithy_dll said,
That is very common. In 2010 GE had a revenue of ~150 billion, and net income (profit) of ~12 billion. Remember profit is after they have paid all their staff. Staff costs can be quite high, and I would imagine they had a high growth rate leading to requiring more capital to be laid out on infrastructure.

Perhaps but taking an average of:
$100K for the servers,
$100K Misc costs (Inc utilities and rent),
that leaves
$90.2 million.

Taking an average of $100K per employee, that means they had over 900 members of staff.

I think someone hired a creative accountant.

agreenbhm said,
$100K for the servers? That's it? Where are you getting these numbers from?

Just making an assumption. Even if $200K was allocated to the costs of the business, or even a $200 million, I do not see them making a profit of $90.2 million. There is clearly something wrong here and it needs to be investigated before an IPO is granted,

Brian Miller said,
$597 million = revenue.
$90.6 million = profit.

Hmmm, why would it cost them $506.4 million in operating costs?
Something seems very odd to me.


At least they're profitable. Facebook, LinkedIn, and others still technically aren't profitable or are now but still in debt.

"We lose paying players .... we must attract new paying players or increase the amount our players pay," yes, this is exactly what Zynga ever did and do, and this will be the biggest problem for Zynga in the long run. It seems to me that Zynga only look if the amount of new players is higher than the amount of players who leave the game. They don't care about the reasons why players leave the games.

Google investing a couple hundred million in them last year didn't seem to add any consumer confidence.

Google is starting to be seen as more of the personal information broker they are, which people don't like when they get what this means. Zynga needs to make it clear they will not be handing over 'trends' or 'information' about their customers to Google or they will not sustain.

The whole idea of Google money was to get games on Android, and yet, even Zynga has taken forever in getting something of quality to run on Android, and this is where the failings of Android as a credible platform show.

thenetavenger said,
Google investing a couple hundred million in them last year didn't seem to add any consumer confidence.

Google is starting to be seen as more of the personal information broker they are, which people don't like when they get what this means. Zynga needs to make it clear they will not be handing over 'trends' or 'information' about their customers to Google or they will not sustain.

The whole idea of Google money was to get games on Android, and yet, even Zynga has taken forever in getting something of quality to run on Android, and this is where the failings of Android as a credible platform show.

I'd say it's more telling of Zynga's credibility as as a developer. Many other big devs have no problems releasing in a timely manner once they start working on Android games.

Tech Star said,
Don't rely on facebook only then. There problem solved.

There are plenty of platforms to release their games on. Assuming they have competent coders, you have iOS, Android, and possibly Google+ (though I hope not). They could probably start a site similar to Pogo and offer a premium membership if they wanted.

I trust they know all of this and more and have plenty of options.

Elessar said,

There are plenty of platforms to release their games on. Assuming they have competent coders, you have iOS, Android, and possibly Google+ (though I hope not). They could probably start a site similar to Pogo and offer a premium membership if they wanted.

I trust they know all of this and more and have plenty of options.

Problems with this though... Many of the 'constructs' of what makes their games 'profitable' is the construct and platform the game is built on. Farmville without Facebook is not as profitable as an independent game model on a generic OS or browser. It is the 'gift requests' and using the intercommunications of Facebook that go outside the game for 'ad display' revenue is where the money is.

Farmville as just a game is not impressive, there are a ton of online games, social games, and even free MMOs that provide the same rewards and features to users, but don't make money like Farmville does. And the difference is Facebook...