Who's laughing now? FarmVille maker Zynga files for $1 billion IPO
The filing says that Zynga plans to raise as much as $1 billion dollars, though that number is still murky at this point. Even so, that's not shabby for a company who built its foundation on simple games with not-so-state-of-the-art graphics that let you play, among other things, a virtual farmer, mafia member and city builder.
In a letter to potential shareholders, Zynga CEO Mark Pincus says its operating philosophies are the following: "Games should be accessible to everyone, anywhere anytime ... games should be social ... games should be free ... games should be data driven and games should do good."
The S-1 filing then talks about the risks to the stock holders, many of which would be applicable to most game companies -- with a few exceptions. Zynga's reliance, and possible over-reliance, on Facebook for its success. From the S-1 filing:
Then, there's also the note that Zynga makes most of its money from a small number of players who pay real-life cash for virtual goods in these games. The filing doesn't reveal what percentage of players are funneling cash into Zynga's coffers, but the industry standard for social games is between 1% to 5%."If we are unable to maintain a good relationship with Facebook, our business will suffer.
Facebook is the primary distribution, marketing, promotion and payment platform for our games. We generate substantially all of our revenue and players through the Facebook platform and expect to continue to do so for the foreseeable future. Any deterioration in our relationship with Facebook would harm our business and adversely affect the value of our Class A common stock.
We are subject to Facebook's standard terms and conditions for application developers, which govern the promotion, distribution and operation of games and other applications on the Facebook platform. We have entered into an addendum to these terms and conditions pursuant to which we have agreed to use Facebook Credits, Facebook's proprietary payment method, as the primary means of payment within our games played through Facebook. This addendum expires in May 2015."
"A small percentage of our players account for nearly all of our revenue. We lose paying players in the ordinary course of business. In order to sustain our revenue levels, we must attract new paying players or increase the amount our players pay. To retain paying players, we must devote significant resources so that the games they play retain their interest and attract them to our other games. If we fail to grow or sustain the number of our paying players, or if the rate at which we add paying players declines or if the average amount our paying players pay declines, our business may not grow, our financial results will suffer, and our stock price may decline."