‘FarmVille’ creator Zynga seeks sweet harvest with initial public offering of $10 per share
NEW YORK — Zynga is poised to harvest some cold hard cash in its initial public offering. Who knew that selling virtual cows and digital corn on Facebook would create a $7 billion company?
The online game developer best known for “FarmVille” priced its initial public offering late Thursday at $10 per share.
That’s at the top of its expected range of $8.50 to $10, a sign that investors are eager to get a piece of the latest in a series of high-profile tech IPOs this year. Zynga is selling 100 million shares and giving its underwriters the right to buy another 15 million shares. The company stands to raise slightly more than $1 billion from the offering, before subtracting for expenses.
Thursday’s pricing gives San Francisco-based Zynga a market value of about $7 billion.
Zynga will begin trading Friday on the Nasdaq Stock Market under the ticker symbol “ZNGA.” That’s when “Main Street” investors will get a chance to buy the stock. The offering rounds out a busy week for IPOs, the likes of which the market hasn’t seen since before the 2008 financial meltdown.
Founded in 2007 and named after CEO Mark Pincus’ dog, Zynga Inc. follows online deals site Groupon Inc. and professional network LinkedIn Corp. in going public. A bevy of smaller Internet startups, such as reviews site Angie’s List Inc. and Pandora Media Inc., have also taken the plunge. They’re the soup, salad and appetizer to the main course: Facebook’s public debut, expected sometime after April. The social network could rake in as much as $10 billion.
Pincus and Zynga’s 2,300 employees have built a business charging small amounts of money — a few cents, sometimes a couple of dollars — for virtual items in online games. The games themselves free to play. These items range from crops in “Farmville” to buildings in “CityVille,” its most popular Facebook game. This so-called “free-to-play” business model assumes that most people won’t want to pay anything to build virtual castles in “CastleVille” or take down rival mob bosses in “Mafia Wars.”
But with a large enough player base and a few loyal spenders, Zynga was able to earn a net income of $90.6 million in 2010. Though not unheard of, it’s unusual for a tech startup to turn a profit before going public.
Zynga has been criticized for being too dependent on Facebook and its 800 million users. Facebook takes 30 percent cut from what people spend on outside applications through its site. In the July-September period, 93 percent of Zynga’s revenue was generated through the world’s largest online social network.
That said, there’s no denying that Facebook’s vast user base and widespread popularity are directly responsible for Zynga’s meteoric rise. As of Thursday, Zynga’s games had more than 223 million monthly users on Facebook. If those gamers could form their own nation, its population would be roughly on par with Indonesia and Brazil.
Zynga’s growth has also been helped by the simple fact that its games are addictive. Just last week, actor Alec Baldwin got booted off a plane because he wouldn’t stop playing “Words With Friends,” Zynga’s Scrabble-inspired mobile phone game. Zynga is focusing on mobile gaming as a way to expand beyond Facebook.
Meet the Zynga IPO Millionaires (and One Billionaire) Club
Imaginary tractors and millions of hours of wasted time has made a handful of Zynga insiders stinking rich. The maker of diversionary games such as “CityVille” and Alec Baldwin’s favorite “Words with Friends” just priced its IPO stock at $10 a share, valuing the company at roughly $7 billion.
Here is a peek at some members of the Zynga millionaires (and billionaires) club, based on the IPO price. Remember that Zynga’smost-senior executives and early investors largely are holding onto their shares rather than sell them to public investors. That means the value of their holdings are mostly on paper for now.
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Mark Pincus
Zynga's Mark Pincus
Put yourself in Mark Pincus’s shoes. You’re old enough to be Mark Zuckerberg’s dad, which makes you practically geriatric by tech startup standards. You’ve kicked around Silicon Valley for awhile, and watched riches rain on your peers. And now, tada! You’re a billionaire. Pincus’s stake in Zynga is valued at $1.1 billion. He’s not selling any shares in the IPO, and his special class of stock gives him a commanding 37.4% voting stake in the company he founded. Back in 2005, the successful-by-normal-human-standards Pincus declared to the New York Times Magazine: “I’m not A-list.” He is now.
Bing Gordon/Kleiner Perkins
Kleiner Perkins *was* the dotcom boom the last time around, with investments in Amazon.com, Netscape and (later) Google. The venture-capital firm remains a big dog in Silicon Valley, though it has missed out on investments in some of the latest tech boom’s shining social-media stars. But Kleiner Perkins and its partner Bing Gordon, a former executive at videogame company Electronic Arts and a biking buddy of Mark Pincus, can console themselves with their $642 million worth of Zynga shares.
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Google
As if Google didn’t have enough money. The company made an investment in Zynga, and right now its stake is valued at $216 million. Google also may sell about $17 million worth of Zynga stock in the IPO, a tidy cash windfall. Driverless cars all around!
Yuri Milner
The man who never met a tech startup he didn’t love (or invest in) not surprisingly is a big investor in Zynga. The Russian investor’s companies, investment firm DST and Internet company Mail.Ru, together own Zynga shares that are valued at a collective $327 million based on the IPO price. That would buy a lot of furniture to pack Milner’s $100 million mega-mansion.
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Owen Van Natta He bolted Facebook. He was bounced from MySpace. And he resigned from Zynga last month. But Van Natta still holds more than 2 million vested Zynga stock options, good for more than $20 million in Zynga shares. Not a bad parting gift.
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