Zynga Ups the Ante on IPO to Raise as Much as $1.15 Billion
Zynga is officially on its way to IPO-Ville.
The company filed documents with the Securities & Exchange Commission this morning, indicating that it intends to raise between $850 million and $1.15 billion in its public offering.
At the high end of the range, that would translate to roughly $150 million more than it had previously estimated it could raise.
The company is seeking to sell 100 million shares at $8.50 to $10 a share and will reserve 15 million additional shares for extra demand. It expects to trade on the Nasdaq under the ticker ZNGA.
Under the best circumstances, the company will be valued at nearly $7 billion based on 699.3 million shares outstanding. That falls below some of the rumored expectations that have been floating around over the past few weeks.
Still, at that value, it will come close to the public valuation of Electronic Arts, which hovers around $7.8 billion, but falls short of other game publishers, like Activision, which has a value of $14 billion.
Zynga has made its riches off selling virtual goods in social games on Facebook. Some of its most recognizable titles include FarmVille, CityVille, Poker and Words With Friends.
Virtual goods often allow players to continue to play the game and level-up faster, such as an energy boost. They also can be decorative in nature, like an outfit for an avatar or seeds to plant on a farm. Of the roughly 230 million monthly active users, very few players ever bother making a purchase.
Since the beginning, the company has a very close relationship with Facebook, which has been contentious at times, especially since the platform started collecting a 30 percent tax on all virtual goods sold. More recently, the company has tried to expand to other platforms, including the launch of several games on mobile and Google+. It also has its own online game network in production.
The company’s IPO will be one of the largest tech offerings in recent memory.
In early November, Groupon raised $700 million including overallotments. It had originally sought to raise $750 million. Other recent tech IPOs include Angie’s List, Pandora and LinkedIn.
But some critics think Zynga is rushing its offering before a broad financial collapse. If it waited until reporting fourth-quarter results, it could paint a stronger growth story as it completes the busy holiday period.
The San Francisco company, which was founded in 2007, was named after Founder and CEO Mark Pincus’s dog named Zinga.
In 2010, Zynga recorded a profit of $27.9 million on revenues of $597.5 million. In the first nine months of 2011, it broke even on revenues of $828.9 million.
While its revenues continue to grow, the number of daily active users that play its games has fallen two quarters in a row and some critics question whether the company can keep up its aggressive growth.
In recent weeks, Pincus has come under harsh criticism for his heavy-handed leadership approach. But to his credit, he has overseen rapid growth, including the acquisition of dozens of smaller game studios. Today, his company has 2,500 employees.
At the mid-range of its expectations, Zynga will bring home proceeds of $889.4 million after selling shareholders take their winnings.
The primary purpose of the sale is to increase its visibility in the marketplace and create a market for its stock. Proceeds will go towards working capital, but also $83.6 million will be spent to satisfy tax withholding obligations related to stock of current and former employees. Additionally, it plans to use a portion of the proceeds for charitable causes through its Zynga.org initiative.
As part of the sale, the company will have three classes of shares. Class A stock will have one vote per share; Class B stock will have seven votes; and Class C will have 70 votes.
Pincus owns some Class B shares, and all of the company’s Class C shares. Following the offering, he will control 36.2 percent of the company’s voting power.
As Kara Swisher previously reported Pincus will not sell any shares in the offering.
No other executives have plans to sell stock, either. But a number of the company’s early investors will sell stock, including Institutional Venture Partners, Union Square Ventures, Foundry Venture Capital and Avalon Ventures. Other interesting names that made the list include Google, which will sell 1.7 million shares.
The company’s largest institutional holder, venture capital firm Kleiner Perkins Caufield & Byers, which owns 11 percent of the shares, will not sell any of its stock in the offering either.