One Explanation for Why Zynga Is Holding Off on Its IPO

Zynga’s IPO has been rumored to slip from before Thanksgiving to sometime before the end of the year.

But there’s probably a simple explanation for that: It has to prove it is worth the $1 billion it is asking for.

The San Francisco-based social games company filed for an initial public offering back in July, valuing the company at around $15 billion to $20 billion, according to some estimates.

To pull off a blockbuster IPO like that, Zynga will have to be at the top of its game. Literally.

Two sources told AllThingsD that Zynga’s IPO plans have been delayed until after Thanksgiving, and earlier this week, Bloomberg reported the same thing. Although the sources also say Zynga is also keeping its strategy very quiet.

A company spokesperson declined to comment.

In October, the company appeared to be ramping up for its public debut.

It hosted a splashy press conference at its new headquarters, affectionately called the “dog house,” where it unleashed 10 new products.

But it’s nearly a month later, and almost none of them have launched yet,
including the two most critical: CastleVille, which is the first update to its ’ville franchise in a year, and Project Z, which is a big part of showing some independence from Facebook (Even though there are signs of Facebook everywhere on the platform.)

More to the point, the company has to launch some of these games in order to juice revenues.

In September, critics were worried that the company was showing signs of slower growth. In the second quarter, it reported its first-ever dip in the company’s preferred measure of sales. Zynga attributed the 4 percent decline in “bookings” to three million fewer daily active users.

But like it or not, the company is a hits-based business. Fewer hits = less users.

And, in the first half of the year, Zynga launched only one major game — Empires & Allies, which broke a five-month hiatus. After that, it announced two other major releases: Adventure World and Mafia Wars 2, and a couple of minor releases.

But with a few more weeks under its belt, Zynga may get a couple more of these 10 launches out the door and have a better sense of how its fourth-quarter numbers are shaping up.

That’s the forward-looking story it would want to tell to investment bankers on its road show.

If all goes well, it will launch CastleVille in the next couple of weeks. The game is not revolutionary, but rather is a very polished fresh take on the same genre of social games Zynga is famous for. Players must build kingdoms and fulfill quests through the help of their friends, and in this case, it has some very fancy background music recorded by a professional orchestra. Zynga did not disclose when Project Z would launch.

The game plan of having a strong quarter going into the road show follows Groupon’s plan.

In the third quarter, the daily deals giant cut back on marketing expenses while maintaining a profit in North America. Plus, it demonstrated it could deliver on a number of other key metrics. The week after reporting Q3 results, it went on its road show, and then, ultimately, was able to increase the number of shares sold from 30 million to 35 million to raise $700 million.

On the same day, Zynga coincidentally reported its third-quarter earnings, including higher revenues and profits compared to the previous period.

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