Zynga IPO Ambitions Could Matter For Many Private & Public Companies (LNKD, ATVI, ERTS, GME, COOL)

LinkedIn Corporation (NYSE: LNKD) came public and shares opened at a high enough premium that Jim Cramer called it a sham.  There was one obvious issue that came up from this, and that is “When will Facebook come public, and at what valuation?”  Facebook is likely to have another proxy now that reports are out all over that Zynga Inc. is planning an IPO over this summer.  This is no shock to any of our readers.  Zynga was listed as one of our Top 17 IPOs of 2011 To Watch.  CNBC listed some 250 million monthly users, although we had a daily figure of over 50 million users.

Do not think for one second that this will not matter to Facebook.  It matters to other social and gaming companies as well.  If you use Facebook regularly, you have either played the games of CityVille and FarmVille and Mafia Wars or you have seen invites to play them.  Zynga makes the games and Facebook is the key social networking platform for Zynga to get its valuation higher and higher.

CNBC used a figure with sales north of $800 million. We do see a key risk here though, or at least a real issue to consider.  Social gaming and game sales via “apps” have far fewer barriers to entry than creating mega-hit traditional video games in a field dominated by Activision Blizzard, Inc. (NASDAQ: ATVI) with a market value of $13 billion and by Electronic Arts Inc. (NASDAQ: ERTS) with a market cap of $7.8 billion.  GameStop Corp. (NYSE: GME) has even seen the writing on the wall and gotten in on the digital distribution model with acquisitions of Spawn Labs, a deal with Jolt, and portal Kongregate.

To show just how much the move to digital can make for games, a small video game company with shares worth just under $100 million in market-cap is Majesco Entertainment Co. (NASDAQ: COOL).  Shares have come back to $2.64 from over $4.00 at the peak in April, but this one started out 2011 under $1.00. 

Reuters and other outlets claim a valuation of roughly $10 billion, but this seems to be anyone’s guess.  With sales of $850 million per CNBC and others, we’ll have to wait for a formal S-1 filing with the SEC before assigning a true valuation.

Zynga matters.  It matters for Facebook, it really matters for Digital Chocolate, it matters for Groupon and LivingSocial, and it matters elsewhere to more than a dozen smaller companies.  What we care about more than anything is how the company will be valued.


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