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Zynga Updates Growth & Financials For IPO... Risks & Pitfalls
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Zynga Inc. has updated its IPO paperwork with the SEC for its second amendment to its prospectus. Many might be worried about market conditions due to the extreme volatility, but Zynga is still preparing to proceed with its IPO. The financial terms are not yet set for shares or a price and there is still no ticker nor listing exchange selected. The social gaming company is best known for its FarmVille, CityVille, Empires & Allies, and Hanging with Friends. While Zynga has some real caveats, this was one of our own TOP 17 IPOs TO WATCH IN 2011.
The one issue we have is that there is still going to be a very complicated share class structure with A, B, and C shares in the company. This implies that we have yet another IPO that will have a limited float and likely carry an artificially high market capitalization solely because of a small float.
The underwriting group is huge: Morgan Stanley; Goldman Sachs; Merrill Lynch; Barclays Capital; J.P. Morgan Securities; and Allen & Company. Zynga’s stats are amazing when you consider that there is no true value other than the entertainment value (not to knock entertainment value, of course). Zynga has customers in 166 nations, 60 million daily active users, 232 million monthly active users, 2 billion minutes of game play each day, and 4 billion “in-game user-to-user connections.
For the three months ended March 31, 2010 and 2011:
From 2008 to 2010:
There is a warning in here on how many customers are free users that pay the company nothing:
The risk section is also full of caveats that you might not see elsewhere in other online businesses. The first and foremost risk is FACEBOOK: “if we are unable to maintain a good relationship with Facebook, our business will suffer.” Other business risks are as follows:
So here is the deal in a nutshell: Zynga is a massive growth company. You will be getting a sliver of the company and will never have any real voice as a shareholder no matter what. The company is almost entirely Facebook-dependent.
JON C. OGG
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