Zynga Makes Big Claims With IPO Only a Week Away
Zynga is making some pretty big promises during its roadshow as it attempts to woo investors ahead of next week’s public offering.
The San Francisco social games company is looking to raise as much as $1.15 billion, which would make it the largest IPO from a U.S. Internet company since Google raised $1.7 billion in 2004.
Shares will likely be sold on Thursday, with the company trading under the ticker ZNGA for the first time on Friday. In the meantime, the company is trying to jockey for the best price and the most shares sold.
At a luncheon yesterday with potential investors, CEO Mark Pincus made one of his boldest predictions yet when it comes to how well its games will monetize.
Currently, Zynga has about 227 million monthly active users who play games for free on Facebook, such as FarmVille, CityVille, Zynga Poker and Mafia Wars. But only a small fraction — around 3 percent — pay for additional features, such as decorative items for a farm or new clothes for an avatar.
“We could see that doubling,” said Pincus, according to Reuters.
Doubling? That’s sure to whet investors’ appetites.
But it’s hard to know how the company will accomplish that.
To be sure, Zynga is about to enter one of its biggest growth periods yet and anticipates launching several new games over the next few months.
On one level, more games will likely translate to more players. But will it translate to more players willing to pay?
That seems like a leap of faith.
However, based on documents filed with the Securities & Exchange Commission, we have gleaned that some of Zynga’s growth prospects are guaranteed thanks to the company’s close – albeit complicated – relationship with Facebook.
As one of the conditions of its partnerships, Facebook is obligated to help Zynga meet certain growth targets. In return, Zynga has committed to offering Facebook a number of exclusive game titles.
The specific details of the relationship were redacted in the document, so it’s not clear how aggressive those growth targets are over the five-year life of the contract.
Zynga also has close ties with Google, which has recently launched its own games network. Zynga has already launched several titles there, including CityVille. Following the offering, Google will own 3.8 percent of the company.
Also during yesterday’s lunch, Zynga’s executives were grilled about player retention and churn rates and its growth prospects for mobile.
Among several responses, Pincus joked about how Alec Baldwin was recently kicked off a flight after getting caught playing Words With Friends while still at the gate.
It seemed investors were not as interested in hearing about recent negative reports that Pincus’s hard-charging personality has made it an unfavorable working environment or that some employees were asked to give up their stock options.
Plus, it’s a crowd that Pincus should be comfortable speaking in front of. This will be the second company the Wharton and Harvard Business School grad has taken public.
The company will continue to have meetings today and into next week. So far, reports indicate that the conversations are going well.
Zynga has apparently already received enough orders to cover all the shares being sold in its initial public offering, reports BusinessWeek, which talked to two people with knowledge of the situation. Zynga plans to sell 100 million shares for $8.50 to $10 apiece, which would value the company at as much as $7 billion.