Gaming Powerhouse Zynga Files for $1B IPO

 |  Includes: DNKN, GRPN, LNKD, P
by: Renaissance Capital IPO Research

Zynga Inc., an online game developer for social networks and mobile platforms, filed on Friday with the SEC to raise up to $1 billion in an initial public offering. The San Francisco, CA,-based company, which was founded in 2007, enters the IPO pipeline following the broadly successful reception of other fast-growing Internet companies such as LinkedIn (NYSE:LNKD) and Pandora (NYSE:P).

Zynga has developed a series of popular games on Facebook including Farmville and Mafia Wars, attracting over 232 million active users per month, and more than 60 million active users per day, representing a 78% CAGR since 3Q09. Zynga offers these free browser-based games primarily through Facebook as well as other social networking sites such as MySpace and Yahoo. The company generates most of its revenue through the sale of virtual goods and services to players of its games and to a lesser extent through targeted online advertising. Industry reports suggest that the worldwide market for the sale of virtual goods was $7.3 billion in 2010 and is expected to more than double by 2014.

Zynga booked $732 million in sales for the 12 months ended March 31, 2011, and has generated over $1.5 billion in bookings since inception. Recent trends indicate that players are spending more per user, causing growth in bookings year over year. The company's adjusted EBITDA was $112 million for the quarter ending March 31, 2011, a 20% increase from the prior year period. Part of the company's success can be traced to its ability to market its virtual goods. Impressively, bookings per unique user during the most recent quarter came out to nearly $2, up 37% year over year.

Zynga's widely anticipated filing adds to the list of high profile names in the IPO pipeline, including Dunkin' Brands (NASDAQ:DNKN), Toys R Us (TOYS) and Groupon (NASDAQ:GRPN). With these potential deals, the global IPO market is on track to see a resurgence in activity in the coming months.

Morgan Stanley (NYSE:MS) and Goldman, Sachs (NYSE:GS) are the lead underwriters on the deal. No pricing terms were disclosed.