The Zynga-Facebook Codependency Becomes More Clear
You can’t get very far into Zynga’s S-1 filing today without a mention of Facebook, the social network where Zynga does the vast majority of its business and which is itself another upcoming IPO candidate.
The filing gives a more substantial picture of the codependent relationship between Zynga and Facebook, who have signed a five-year agreement that includes provisions for Zynga to exclusively use Facebook Credits and give Facebook a 30 percent cut of all the revenue it obtains on the site. Zynga notes it has more monthly active users on Facebook than the next 15 social game developers combined, according to AppData.
Here’s Zynga describing how potential investors should view Facebook:
Facebook is the primary distribution, marketing, promotion and payment platform for our social 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. Facebook and other platforms have broad discretion to change their platforms, terms of service and other policies with respect to us or other developers, and those changes may be unfavorable to us.
And here’s how the Facebook-Zynga financial relationship breaks down:
Zynga had $597.5 million worth of revenue in 2010 and $235.4 million in the first quarter of 2011. The company said that as of December 31, 2010, 69 percent of its accounts receivable were owed by Facebook, and 83 percent as of this May 31.
That seems to mean, based on the 30 percent revenue cut, that Facebook made $176.7 million from virtual goods sold by Zynga in 2010 and $83.7 million in the first quarter of this year. That’s on a GAAP basis; if we used Zynga’s provided bookings for this calculation, Facebook would have made a little bit more.
Zynga also spends a substantial amount of money on Facebook advertising in order to acquire new players. It spent $83.4 million on all advertising in 2010.
Transitioning to Facebook Credits, which Zynga completed in April 2011, negatively impacted the company’s growth in revenue in the first quarter of this year, it said. However, Zynga’s payment processing fees decreased after it implemented Facebook Credits, down $3.8 million in the first quarter compared to that period in the previous year.
Please see the disclosure about Facebook in my ethics statement.
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