Zynga prices shares between $8.50 and $10

Is Zynga Inc. worth $9 billion? 

The social gaming juggernaut on Friday told potential investors that it planned to price its stock between $8.50 and $10 a share in order to raise up to $1.15 billion.

The price range implies that the San Francisco-based company that began a little more than four years ago with an online poker game on Facebook could be worth up to $9 billion.

Zynga's initial public offering has been one of the most anticipated of the year since the company in July declared its intent to sell its shares on Nasdaq. But the company held off its IPO when the stock markets collapsed mid-August. The European financial crisis that ensued further eroded investor confidence.

Given that global financial markets remain highly volatile, Zynga's decision to press play on its public offering this month is somewhat vexing. Furthermore, few companies choose to go public in December, when mutual fund managers who are likely buyers are loathe to make risky bets that can upset their portfolios' performance for the entire year at the last minute.

But the maker of FarmVille, CityVille and other social games is apparently confident it can overcome those difficulties. Its executives are set to begin a road show Monday to meet with potential investors in an effort to drum up excitement for the company, culminating two weeks later in the stock's debut on Nasdaq.

A lot can happen in that period of time as investors grill Zynga's officials on the company's business plans, its ability to consistently turn big profits and its ability to maintain its torrid growth pace. Depending on how well the company satisfies those questions, the amount Zynga ultimately fetches can fluctuate right up to the minute before its shares hit the trading floor.

Zynga has already anticipated some of those concerns in a series of documents it has filed since July with the U.S. Securities and Exchange Commission outlining its financial performance and arguing that the market for online social games is poised to explode, nabbing a significant share of the $49 billion video game market that has thus far been dominated by console games.

The company, whose games are played by more than 150 million users a month, last year made a profit of $90.6 million on $597.5 million in revenue, largely from advertising and selling virtual goods for its games, which include Mafia Wars, Zynga Poker and Words with Friends. A year earlier, Zynga reported a $52.8 million loss on $121.5 million in sales. 

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Photo: Zynga general manager Erik Bethke speaks at a Zynga event in San Francisco in October. Credit: Jeff Chiu / Associated Press.

Rumble game start-up scores $15 million in funding

Rumble, a newly formed online gaming company with a roster of industry veterans, has shaken $15 million in funding from two of Silicon Valley's bigger money trees -- Google Ventures and Khosla Ventures.

What Google and Khosla seem to be betting on is not Rumble's games; the company hasn't published any. Instead, they're putting their money on Rumble's business strategy and its high-wattage management team.

First, the strategy: Rumble aims to become a publisher for the next generation of online games -- titles that are easy to jump into, have high-quality graphics and are free to play, but supported by sales of virtual goods or enhanced game features. Although the Redwood City, Calif., company will develop some of its own titles, its primary goal is to help independent publishers bring their games to market.

That's been a good recipe for Chillingo and Ngmoco, two companies that publish mobile games and were sold a year ago for generous sums. Ngmoco, known for the games Godfinger and We Rule, went to Japanese social networking company DeNA for $400 million in October 2010. That same month, Chillingo, which publishes Angry Birds and Cut the Rope, was snapped up by Electronic Arts Inc. for just under $20 million.

Second, the management team: Greg Richardson, Rumble's chief executive, was head of BioWare/Pandemic, a game development studio that was sold to EA for $860 million in 2007. John Yoo, Rumble's design director, worked on a long list of online games, including CityVille, World of Warcraft, City of Heroes and Star Trek Online. Rumble's general manager of games, Mark Spenner, hails from EA, where he was vice president of social games. And Rumble co-founder David O'Connor was EA's chief technology officer.

The proof in Rumble's pudding will presumably reveal itself next year, when it plans to release its first title, an online game targeted at men 18 to 35. Richardson declined to reveal further details of the game.

"In the entertainment industry, quality is the only business plan that matters in the long run," Richardson said. "That embodies who we are."

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Photo: Greg Richardson is chief executive and co-founder of Rumble. Credit: Rumble.

 

Executive shuffle at Zynga as Owen Van Natta steps down

Owen Van Natta, whose high-profile hire at Zynga Inc. made headlines 15 months ago, has relinquished his role as chief business officer at the San Francisco social gaming company.

Van Natta, the former chief executive of Myspace and chief operating officer of Facebook, has instead taken on an advisory role at Zynga and will remain on the company's board, according to documents the company filed Thursday with Securities and Exchange Commission.

The company did not name a replacement for Van Natta, who last year collected more than $28 million in salary, bonuses, stock grants and options, according to the filing.

Zynga's spokesman declined to elaborate on Van Natta's diminished role. Executives familiar with the decision who were not authorized to speak publicly said Van Natta specialized in developing business strategy, and less on the type of operational expertise currently required at the company.

Zynga, whose games include Farmville and Mafia Wars, has grown to employ 2,789 workers, up from 576 less than two years ago.

The company is planning to sell shares on the public stock market and is required to notify the SEC of major changes, including senior executive shuffles.

Zynga also disclosed that Brad Feld, a venture capitalist and early investor in the company, would leave the board. The board appointed Sunil Paul, a partner in Spring Ventures, to replace Feld.

Although Zynga filed papers with the SEC in July to raise as much as $1 billion through an initial public offering of stock, the company has not said when it will start selling its shares. Some analysts have speculated that Zynga is waiting for the stock and credit markets to recover before launching its IPO.

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Photo: Owen Van Natta. Credit: Zynga

Zynga's 3rd-quarter revenue is up, but so are costs

Social gaming company Zynga Inc., which has a widely anticipated initial public offering in the works, nearly doubled its revenue in the third quarter.

But a fourfold increase in research and development costs damped profit as the San Francisco company continues to spend hundreds of millions of dollars to build out its development capabilities.

For the quarter ended Sept. 30, Zynga took in $306.8 million in revenue from advertising and the sale of virtual goods within its games which include CityVille, Mafia Wars and FarmVille. 

Zynga, whose games are played by more than 150 million users a month, had reported revenue of $170.7 million in the same period a year earlier. Net income, however, fell 54% to $12.5 million in the third quarter, down from $27.2 million last year. In its second quarter, the company's profit dropped 90% to $1.4 million from $14 million a year earlier.

Some of the gyrations in Zynga's margins have to do with the nature of the social games business, where the costs of creating games are largely made upfront and meaningful revenue from those titles don't begin to flow in until several weeks or months following their launch. This can lead to lumpy quarterly profits, particularly if a portion of the new titles flop.

To smooth out the financial picture, Zynga has been on an aggressive tear to launch as many games as possible to minimize the effect of a few failures.

In the short run, that means spending a lot of money acquiring both manpower and computer power. In the third quarter alone, Zynga spent $114.8 million on research and development, up from $39.8 million a year earlier. That includes buying thousands of computer servers to handle the vast amount of Internet traffic that goes through Zynga's games.

At the same time, Zynga's payroll grew from 576 employees at the end of 2009 to 1,483 at the end of 2010. As of Sept. 30, the company counted 2,789 workers, doubling its workforce in nine months through acquisitions and aggressive hiring.

In some ways, Zynga benefits from making its big purchases before it goes public, when investors are quick to pummel companies that post profit declines. With major expenses out of the way, its bottom line can suddenly seem a lot smoother.

Then the only question becomes: What's Zynga's next big hit? The company hopes that its next big game, CastleVille, to be released in the next two weeks, will work its magic on the bottom line.

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http://twitter.com/alexpham

Photo: George, a character in Zynga's upcoming game, CastleVille. Credit: Zynga. 

Zynga: One click closer to IPO?

Zynga Inc., the social gaming company that has some investors chomping at the bit for its initial public offering, on Thursday took one small step closer to its IPO, stating that it plans to sell its shares on the Nasdaq under the ticker symbol ZNGA.

The disclosure came in the company's fourth revision to its initial IPO papers, filed in July with the Securities and Exchange Commission.

In addition, there were a couple of zingers in the new filings, including hints that Zynga's players may be giving up on its games more quickly. SiliconBeat's Chris O'Brien reported that Zynga has shortened the time it amortized sales of some virtual goods to 15 months, down from earlier estimates of 19 months. O'Brien said the figures suggest "people are playing the games for shorter periods of time."

The amendment comes on the heels of another disclosure: Zynga's net income in the quarter ended June 30 fell 90% as its costs ramped up to support the launch of new games such as Empires & Allies and a barrage of titles announced at a splashy event this week at the San Francisco company's headquarters.

On the other hand, the documents also contained some good news for Zynga. FarmVille, launched in June 2009 and one of Zynga's oldest games, continues to harvest cash. Although more than half of its players have deserted the game since it peaked last year at 83.8 million monthly users, the remaining 35 million FarmVille players continue to shell out money to plow virtual crops.

In the first six months of 2011, Zynga said it saw a 122% leap in virtual goods sales, to $493.9 million, a good chunk of that from FarmVille, according to the filing: 

Online game revenue increased $271.5 million from the six months ended June 30, 2010 to the six months ended June 30, 2011. FarmVille, FrontierVille and CityVille accounted for $76.6 million, $70.5 million and $46.6 million of the increase, respectively. 

Zynga remains mum on when it expects to pull the trigger on selling its shares, but analysts predict that the company will hold off until the current market turmoil settles and investors feel more confident in shelling over real cash for a virtual goods business.

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Photo: A speaker at a Zynga event in San Francisco, Tuesday, Oct. 11, 2011. Credit: Jeff Chiu / Associated Press

The Sims Social siphoning neighbors from Zynga

The Sims Social, which clicked past FarmVille as the second-biggest social game on Facebook back in September, has cemented its No. 2 rank in recent weeks.

How? The Sims managed to lure players away from Zynga, whose games (such as FarmVille) have long dominated the leader boards of Facebook applications, according to a survey released Wednesday by Raptr, a social network for game enthusiasts.

Electronic Arts Inc., the developer of The Sims Social, "has stolen 10% to 25% playtime from Zynga's top games," Raptr reported, based on a survey that tracked online game activity of its 10 million users. "The negative impact to Zynga's game is notable."

FarmVille players, for example, reduced their time on the game by 25% on average when they started to play The Sims Social, Raptr found. In addition, about half of the 66 million people who played The Sims Social in the last 30 days were Zynga players, Raptr estimated.

There's a flip side. The Sims also is cannibalizing EA's other games, including Pet Society and Bejeweled Blitz.

But that's part of the brutal nature of social games, one that Zynga has learned to turn to its advantage. Within weeks of starting a social game, players will get bored and swing to another game. What Zynga has been so adept at is making sure that the next game players defect to is another Zynga title.

Up until recently, Zynga has had the field largely to itself, occupying four out of the top 5 games on Facebook and happily shifting its players from one Zynga game to another.

Now, however, players have a popular alternative in The Sims Social. What's more, EA can now play the same game and begin shuttling Sims Social players to its growing portfolio of social games, including Restaurant City, Zuma Blitz, Dragon Age: Legends, Madden NFL Superstars and FIFA Superstars.

EA, through its acquisition of PopCap Games, also has a number of franchises it can convert to social games and bulk up its portfolio further, including Peggle, Plants vs Zombies and Bookworm Adventures, Raptr noted.

But EA may need to step up the pace. Zynga, whose logo is an outline of a bulldog, on Tuesday promised to "unleash" four new games and a new casino franchise in the coming weeks to increase the odds that whatever people are playing next would be a Zynga game.

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Zynga's 90% drop in second quarter profits unlikely to derail IPO

When Zynga Inc. quietly released its second quarter earnings late Wednesday, some seized on the 90% drop in the social game publisher's second quarter net income.

One news outlet, Reuters, questioned "whether the company can sustain its growth ahead of its much-anticipated" initial public stock offering.

Zynga's profit fell to $1.4 million in the quarter ended June 30, from $14 million a year earlier, according to the San Francisco developer's most recent filings with the Securities and Exchange Commission.

The company did not respond to a message seeking comment.

Analysts, however, say the alarms are unwarranted, pointing to the company's revenue, which grew 115% in the same period to $279.1 million, up from $130.1 million last year.

Rather, Zynga's expenses were partly to blame for the profit dip, said Michael Pachter, analyst with Wedbush Securities.

The company booked development and marketing costs for two major games, Empires & Allies and Adventure World, in the second quarter, with little in the way of revenue from those releases in the period. Empires launched in June, and Adventure World was released earlier this month. Those two titles were among Zynga's most ambitious and costly to build.

Those expenses caused "lumps" in Zynga's second quarter income, Pachter said. 

Zynga's IPO is more likely to be affected by the roiling stock market, analysts said. The company in June declared its intent to publicly sell shares to the public, but has yet to pull the trigger on a date to begin trading. Some market observers speculate that Zynga and others are waiting for the turbulence in the stock markets to abate before diving in.

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Kabam to bring The Godfather to Facebook

Social games on Facebook, sometimes derided as wimpy by some hard-core gamers, may soon make an offer its users can't refuse.

Kabam, a San Francisco developer of social games, on Thursday announced it will come out with a title based on "The Godfather" movie trilogy.

The game, licensed by Viacom's Paramount Pictures, takes place in New York City in the 1930s, 10 years before the beginning of the first movie. Each player is born into one of the five mob families featured in the films and must fight or scheme their way to the top to become a don of a family.

It's not the first time The Godfather franchise has been adapted to a game. Electronic Arts Inc. made two, one in 2006 and another in 2009. The company declined to make a third because of poor sales of the second game. Nor is Kabam's game the only mob-themed title on Facebook. There's also Mafia Wars, Mob Wars, Gangster Battle, Gangster City and Underworld.

But The Godfather: Five Families will feature a signature Kabam formula -- hard-core game tactics that might turn off squeamish novices but are popular with serious players who are more accustomed to difficult or complex missions with big wins and losses. A player, for example, could spend months building up territory only to lose big chunks of it overnight to another player. They'll also be able to form alliances, attack rival families and even backstab members of their own family to get ahead. In other words, they'll keep their friends close and their enemies closer.

"We're bringing a hard-core Mafia experience to social games," said Chris Carvalho, Kabam's chief operating officer and the former head of business development at Lucasfilm, who struck the licensing deal with Paramount. "We think there's a completely untapped audience for that."

Right now, many in that hard-core audience are tapped into so-called massively multiplayer online games such as Eve Online, World of Warcraft and EverQuest II, all of which charge players a monthly fee. 

Like most social games on Facebook, Kabam's Godfather title will be free. Instead, the company plans to make money by selling virtual weapons or special abilities that could give players an edge over others, said Larry Koh, the game's general manager.

Kabam's approach is unusual in that it targets a narrow range of players who aren't normally associated with social games. Other developers such as Zynga and Electronic Arts' Playfish social games division go after a mainstream audience with games that are simple to play and don't involve much in the way of upsetting losses, but Kabam sees profit in building games for a primarily young, male player.

The privately held company, which has attracted $124.5 million in venture financing, does not divulge its financial figures, but says it is profitable.

Terms of The Godfather license are confidential, so it's difficult to say how much cost the license added to developing the game, which is estimated will have involved 25 employees working a full year once the game launches this fall.

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CityVille's new neighborhood: China

Zynga Inc., whose social games already dominate traffic on Facebook, is expanding its reach to China.

The developer of Mafia Wars and other popular online titles on Monday said it has struck an agreement to bring a version of its CityVille game to Tencent, a Chinese Internet portal whose instant messaging service boasted 674.3 million active users as of March 31.

San Francisco-based Zynga, which has filed papers to sell its stock in an initial public offering, needs to show investors it can grow its audience beyond Facebook, where it already commands a significant share of traffic.  

"International and mobile represent two major areas where Zynga would need to go into in order to grow," said Justin Smith, founder of Inside Network, a market research firm in Palo Alto.

The game, renamed Zynga City, retains the major features of CityVille, played by 80.1 million people a month, according to AppData.com. The Chinese version will incorporate local architecture and quests designed to appeal to an Asian audience and is being developed by XPD Media, a Chinese game developer that Zynga acquired in May 2010.

The game will initially appear later this week on Tencent's new social network, called Pengyou, which literally translates to "friend" in Mandarin. The game will debut later this year on Tencent's larger social network, Q Zone, which counted 504.8 million active users as of March. Pengyou had 101.4 million active accounts.

CityVille is already playable in Spanish, French, Italian, German, Portuguese, Indonesian and Turkish.

For Zynga, recruiting players for its games is just the first step because their games can be played for free. Zynga generally makes money when it can persuade those players to pony up actual dollars, or in this case Chinese yuan, to get special virtual items or to advance more quickly in the games. In the U.S., the percentage of players who pay for social games ranges from 2% to 4%, according to Parks Associates, a market research firm.

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Photo: Screen shot of Zynga City, the Chinese version of Zynga's popular CityVille game. Credit: Zynga.

 

 

 

 

 

 

 

Google+ to introduce social game platform

Google, whose recently launched social network Google+ has amassed 20 million users in three weeks, is planning to launch a platform for social games that would compete with the offerings on Facebook.

The search company has approached a number of developers to put their games on Google+, according to people knowledgable with Google's plans and who did not want to be identified because of confidentiality agreements. The plans, reported on Friday by AllThingsD, could come as early as August, they said.

A Google spokesperson declined to confirm, saying only that the company plans "to add a lot of features and functionality to Google+ over time."

Google+ is Google's most credible effort yet to counter the growing reach of Facebook, which is competing with the Internet search giant for eyeballs and advertising dollars. Google appears to be countering with its own efforts to grab a slice of the fast-growing market for social games, which has become an important revenue stream for Facebook.

The market for social games in the U.S., which reached $1 billion last year, is projected to grow five-fold to $5 billion by 2015, said Pietro Macchiarella, a game analyst with market research firm Parks Associates. Much of the revenue comes from games played on Facebook, the largest social network in the world with more than 750 million active users.

Facebook requires applications on its platform to pay 30% of the revenue collected from selling virtual items on the network. One way Google could compete is by offering to take a smaller portion of game publishers' revenue.

Google's success in recruiting publishers, however, will hinge on its ability to continue its momentum in adding users to Google+, Macchiarella said.

About 250 million people play social games, but only about 2% to 3% of those spend money on virtual items or power-ups for those games. That means social games require a large pool of players in order to cull a handful who will pay.

"Most publishers will be happy to extend their offerings to Google+," Macchiarelli said, "but the significance of their business on this social network will be intrinsically connected to the success of Google in migrating people from Facebook."

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