Zynga, publisher of Facebook games like FarmVille and CityVille, will file for an initial public offering (IPO) as early as tomorrow, according to WSJ. The move has been expected for some time, as a wave of new tech companies have begun seeking public funding. Zynga hopes to raise as much as $2 billion and has picked Morgan Stanley to lead the offering. Other huge banks like J.P. Morgan Chase & Co., Barclays Capital, and Bank of America Merrill Lynch will also be involved in the IPO somehow. If there’s money to be made, the big guys want in.
Zynga is expecting to be valued between $15 and $20 billion, which would put it well above the huge publishers like EA, which is valued at only about $5 billion. Many claim that the the social “free” games publisher is overvalued, arguing that its reliance on Facebook is a liability and that social gaming itself may be more of a fad than a lasting trend. Still, investors are hungry to invest in social networks. LinkedIn and Pandora recently went public with Groupon in the process as well. Facebook, the real crown jewel of the social network pile, is likely planning its IPO for 2012.
However, it may not be entirely fair to lump Zynga in with all other social networks. It is actually profitable–extremely profitable. Nitsan Hargil, an analyst at GreenCrest Capital Management estimates that Zynga’s sales will reach $1.5 billion in 2011, with a third of that ($500 million) being profit. Not bad.
“Of all the companies we’re looking at, it’s the one we’re most excited about because it’s a real company with real revenues,” said Hargil.
Though many core gamers dismiss Zynga’s “freemium” games model, publishers like EA and Valve have already begun offering their own freemium games, which are free to play, and attempt to hook players into playing for months or years, baiting them with small, cheap microtransactions.
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