Empires & Allies

As had been expected for some time now, Zynga has filed for an initial public offering today. A form S-1 was filed with the Security and Exchange Commission in the hopes of raising $1 billion that will be used for things like game development, marketing, and possibly further acquisitions.

Zynga, founded in 2007, has been believed to be a massive success for some time now. A report last year suggested its value had surpassed that of Electronic Arts, and word this week was that a valuation of the company could see it be worth upwards of $20 billion.

As of May 31, 2011, it had 2,268 full-time employees and currently operates the top four games on Facebook: CityVille, FarmVille, Empires & Allies, and Zynga Poker. It’s proven that it isn’t a one-hit wonder, and its financials reflect that. It saw $36 million from the sale of virtual items and advertising in 2008. That number jumped up to $328 million in 2009, and all the way up to $839 million in 2010.

Sparing you things like non-GAAP revenue and other such business, there are some interesting facts to be found within the SEC filing. In a message to potential Zynga shareholders, founder and CEO Mark Pincus reveals that its games see 148 million monthly unique users from 166 countries. A total of 232 million monthly active users play its games (this number accounts for individuals who play more than one Zynga game) and 2 billion minutes are spent playing them each day. Every second, 38,000 virtual items are sold, which is mind blowing. Zynga’s data warehouse, which Pincus calls the “greatest” in the games industry, processes 15 terabytes of “game data” on a daily basis.

Pincus also outlined the company’s operating philosophies: games should be accessible to everyone, anywhere, any time; games should be social; games should be free; games should be data driven; and games should be good. He went on to say that Zynga “will continue to make big investments in servers, data centers and other infrastructure so players’ farms, cities, islands, airplanes, triple words and empires can be available on all their devices in an instant. We will also continue to fund the best teams around the world to build the most accessible, social and fun games.”

According to All Things Digital, Zynga will be the first publicly-held company to make its money mostly by selling virtual items.

Also worth noting is that Zynga very heavily relies upon Facebook to drive users to its games. Buried within the filing is a note that reads, “A substantial majority of our 2008, 2009 and 2010 revenue was generated from players who accessed our games through Facebook.” As of December 31, 2010, 69% of accounts received were owed to Zynga by Facebook, while that figure reached 82% as of March 31, 2011. Elsewhere, it’s stated, “To date, we have derived substantially all of our revenue and acquired substantially all of our players through Facebook. We expect to continue to derive a substantial portion of our revenue and to acquire a substantial portion of our players from the Facebook platform for the foreseeable future.”

Zynga has a deal with Facebook that will see it use Facebook Credits until 2015. It gets paid 70% of the value of credits spent on any of its games; that’s a big chunk it surrenders to Facebook.

The company has already made it clear that it’s unlikely to bring its games to consoles. There is the chance Zynga’s games will expand to the newly-launched Google+, which appears to be preparing itself to support games.

Zynga IPO infographic

By Chris Pereira