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Zynga filed its IPO today. Here is a brief look at its valuation in comparison with traditional video game companies.
Company Name
Ticker
Market Cap.
PE (ttm)
EV/EBITDA (ttm)
Activision Blizzard
$13,550 mn
27.4x
6x
Electronic Arts
ERTS
$8,010 mn
NM
11x
THQ, Inc.
THQI
$244 mn
NM
NM
Take Two Interactive
$1,340 mn
27.85x
8x
Game Stop
$3,810 mn
9.81x
5x
Zynga- Low Case
$10,000 mn
357x*
22x
Zynga- Mid Case
$15,000 mn
536x*
34x
Zynga- High Case
$20,000 mn
714x*
46x
* I have used 2010 net income attributable to common shareholders (Page F-4 of prospectus) for calculating PE
In addition to a high valuation another concern worrying investors is over-dependence of Zynga on Facebook. And if Facebook alters any terms with Zynga, Zynga's business might suffer. I don’t necessarily agree with this concern given Zynga’s popularity and expertise in making games which strike a proper cord with Web 2.0 users. Facebook needs Zynga and other good app developers as much as these developers need Facebook. Web 2.0 is about providing users choices and options and users are the final judge. Zynga definitely has received a thumbs up from users.
On a related note, a recently launched networking site by Google (GOOG), “Google plus,lacks apps which make me a bit skeptical about its prospects. However, I do believe the stock price of Google is attractive at 13x next year EPS.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Source: Zynga's Valuation Compared With Traditional Video Game Companies