Zynga boosted the amount it may raise in its upcoming initial public offering to $1.15 billion with a potential valuation of between $5.9 and $7 billion, according to a new amendment to its SEC filing today. The capital it may raise is $150 million higher than the $1 billion it originally said would be the maximum size of the offering when it filed in July. The IPO is on track to happen in two weeks during the week of Dec. 12.
As was reported earlier this week, Zynga lowered its prospective valuation further. At $8.50 to $10 a share and with 699.4 million total outstanding shares, the company would be valued at between $5.9 and $7 billion. That’s lower than the $15 to 20 billion range the company reportedly originally sought. It’s also less than half the $14.05 billion valuation that a third-party Zynga hired back in August put the company’s worth at, according to the filing.
With Zynga on track to make around $1.1 billion this year, a $15 to $20 billion valuation would have proved to be a high revenue multiple compared to other publicly-traded gaming companies like Electronic Arts, which has a market capitalization that’s roughly twice its trailing twelve-month revenues. Zynga lower the valuation because of the market backdrop, according to a source knowledgeable about the company’s deliberations. Not only have offerings from Angie’s List and Groupon been weaker than expected, investors are speculating about the stability of the euro by driving up borrowing costs for weaker economies in the European Union.
Zynga has also posted a 30-minute video of its roadshow here. In the video, the company emphasized that Zynga’s games tend to peak in revenues long after they’re launched. They pointed to Farmville, which reached a peak in bookings about two years after it was released. Coupled with the fact that the last six months have been a busy launch period, Pincus says this lays the groundwork for near-term growth even as daily active users have declined for two consecutive quarters.
He also pointed out growth on mobile platforms where Zynga has 11.1 million daily active users, up from 991,000 thousand a year earlier. Android and iOS are likely to be the most promising way for the company to diversify off Facebook, where it earned 93 percent of its revenue in the most recent quarter.
We didn’t pick up much that was new with the filing, excepted an attached letter showing that several of Zynga’s minority investors including Google, Russia’s Digital Sky Technologies and Union Square Ventures also expect to be selling about 15 million shares, or up to $150 million at the high end of Zynga’s pricing range. Google owns 23.3 million shares in the company, or about $233 million at the high end of Zynga’s price range.
Zynga has made $30.7 million in net income on $828.9 million in revenue through the third quarter of this year. That’s up from $401.7 million in revenue during the same time a year earlier. Net income, however, has declined from last year’s $47.6 million through the third quarter as Facebook levied a 30 percent tax through Credits and Zynga invested in research and development for new games. Zynga expects to spend about $50 to 70 million this quarter on network infrastructure, for example.
The company is selling 100 million shares of Class A stock, with an extra allotment of 15 million shares if there is demand. Keep in mind that Zynga has a three-class stock structure, where Class B shares have seven times the voting power of Class A shares. Class C stock — which are wholly owned by chief executive Mark Pincus — have 70 times the voting power of Class A shares. The company is structured so that the Class B and Class C shares, which investors in this IPO have no access to, hold 98.2 percent of the voting power.