Need another sign that social games are big business? A new report suggests that Zynga, the publisher of games such as FarmVille and Mafia Wars could be worth more than $3 billion — more than half that of Electronic Arts ($5.4 billion).
With a monthly active user audience of about 230 million just on Facebook, Zynga is “one of the largest developers of social entertainment widgets and games,” says the report from Next Up! Research and SharesPost, an online service for trading shares of private companies.
Thanks to expected compound annual growth of 35% until 2014, the analysts estimated Zynga’s value at $2.8 billion to $3.3 billion with a projected share price of $14.97 to $17.68. (There has been rumblings that Zynga is poised to go public.)
The report notes that five Zynga games — FarmVille, Café World, Texas HoldEm Poker, FishVille and Mafia Wars — rank among the top 10 Facebook apps. And Zynga has a “significant presence” on sites such as MySpace, Bebo, Friendster, Tagged, Yahoo and iPhone.
Analyst Michael Pachter with Wedbush Morgan Securities says that even though “nobody but Zynga knows enough about the company’s revenue, margins and growth trajectory to have an informed opinion about what the company is worth” he considers it “reasonable to believe a high value for the company.”
A $3.3 billion valuation, he says, “would suggest sustainable cash flow of $200 million or more. Clearly, Zynga isn’t there yet, as their revenues are probably only a tad above that level, and they incur costs to generate those revenues. Yet, it’s possible to come up with that value if the company can show a path to $200 million in annual cash flow, or higher. If we accept that Zynga will have much higher revenues in a few years (highly likely), and assume that the incremental margin on revenue growth is very high (also highly likely), it’s easy to see how they could get to $200 million in free cash flow at a realistic $500 million revenue level, and how they could get there in a few years.”
The report projects revenue of $460 million this year, increasing to $1.1 billion in 2014.
Other notes from the report:
Zynga’s user base has increased from 30 million in April 2009 to 228 million in January 2010.
Only 2% or 3% of users spend money on Zynga games and less than 1% consistently purchase virtual goods. Zynga makes nearly 40% of its revenue from those sales. Other revenue sources include in-game advertisements and marketing offers.
Upcoming Facebook changes could affect Zynga’s apps. Next month, Facebook is expected to adjust its notification policy for games, something that could “affect Zynga in unintended ways.” The report notes a Facebook change in July 2008 that turned off viral components for the Super Wall application. As a result, average daily users fell from 2.4 million to 0.6 million in a month. Currently, Super Wall users number 0.3 million average daily users.
Next Up! Research made news in November with its evaluation of Twitter, estimating it at perhaps half that of its popularly held $1.1 billion valuation. Next Up! also estimated Facebook at roughly $5 billion-to-$6.5 billion, compared to some estimates of up to $14 billion.
Source:http://content.usatoday.com/communities/gamehunters/post/2010/02/value-of-social-game-company-zynga-perhaps-more-than-3-billion/1
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