Online games developer Zynga is rumored to be the next social media company to be considering an initial public offering, possibly as early as the end of June. Sources told Bloomberg that Zynga principals have met with reps from Morgan Stanley and Goldman Sachs to discuss which bankers would best help it prepare regulatory filings. Neither investment banker nor Zynga itself has confirmed these rumors.
With 247.8m monthly active users on Facebook – many of them big fans of Zynga’s popular Texas Hold’em poker game – Zynga is considered second only to Activision Blizzard Inc. as the most valuable US game company. Zynga is currently valued at $8.2b on SharesPost Inc., the exchange for privately-held companies.
In the wake of the spectacular reception given last week to professional networking site LinkedIn’s IPO, Zynga seems determined to strike while investors are still in an irrationally exuberant mood. LinkedIn produces an estimated $15m in annual profits, but the frenzy surrounding its IPO drove the company’s shares up to the $100 mark (more than double the $45 opening price), putting the company’s overall value at a staggering $9b. That’s a price-earnings ratio of about 275. It’s like we stepped into a time machine and set the dial for 1999. (Alright! Another Y2K/millennium party!)
It’s worth noting that the same companies now said to be nudging Zynga into the public markets are the same ones that brought Betfair to the London Stock Exchange late last year. It’s also worth remembering that, after starting life at £13/share, Betfair’s stock quickly rose a few pounds, then began a virtually uninterrupted decline that saw it hit new lows this week. (Betfair closed trading Tuesday at 768p/share.) Can Zynga avoid this fate? A lot depends on Zynga continuing to hit home runs with new game products. That might prove difficult, considering Zynga CEO Mark Pincus was once quoted as describing his business strategy thusly: “ I don’t want fucking innovation… Just copy what [Zynga’s competitors] do and do it until you get their numbers.” (Is that why Zynga’s copying LinkedIn’s initial public offering?) Or maybe investors believe Zynga will be the white knight that fills the online poker void left by the indictments of Black Friday and Blue Monday. Only time – or time travel – will tell.