Zynga files for $1 billion IPO

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Social gaming company Zynga filed for a $1 billion initial public offering (IPO) on July 1. The company reported $235.4 million in first quarter revenue, according to documents filed with the US Securities and Exchange Commission.

Zynga reported that its first quarter revenue grew by 133% compared with the prior year. The company's total revenue for 2010 climbed to $597.5 million, after reaching $121.5 million in 2009. Zynga recorded its first net income profit in 2010 at $90.6 million and said that its net income profit for Q1 2011 was $11.8 million, a 183% year-over-year increase.

Zynga earns most of its revenue from virtual goods purchased through Facebook Credits in its online games, such as FarmVille, CityVille and Words With Friends. Per an agreement with Facebook that expires in 2015, Zynga retains 70% of the face value of Facebook Credits purchased for use in the company's games.

Advertising generated $13 million in revenue for the quarter, a 321% year-over-year increase. The company broke down the $9.9 million jump with in-game offers rising by $3.6 million and “other advertising activity” growing by $6.3 million. Revenue from advertising accounted for 5.5% of the company's total first quarter revenue, up from 3.1% last year.

Brands can advertise with Zynga by running branded in-game display ads or sponsorships, or ads featured in the company's mobile apps. Companies that have advertised with Zynga include The Coca-Cola Co., Amazon.com, American Express Co. and Wal-Mart.

Zynga's full-year advertising revenue fell from $35.7 million in 2009 to $22.8 million in 2010, a 36% drop. The company attributes the decline to a reduction of in-game offers “in order to improve player experience.”

“Zynga is a company with more than 2,000 amazingly talented employees dedicated to engaging, surprising and delighting an audience that has grown to 148 million monthly unique users in 166 countries,” said Zynga founder and CEO Mark Pincus, in a letter to potential shareholders included with the filing. “And because our users typically play more than one of our games each month, they account for 232 million MAUs [monthly active users]. Our players create and store more than 38,000 virtual items every second and spend 2 billion minutes a day with our service. In just over four years, we've generated over $1.5 billion in bookings.”

Zynga's billion-dollar filing may fuel debate among industry analysts regarding whether the technology market is in a bubble akin to the dot-com bubble that burst in 2000. Groupon's $750 million IPO in June met with derision because the company has yet to turn a profit.

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