December 01, 2011, 12:34 PM — Online games maker Zynga will be hitting the road next week to stoke investor interest in its initial public offering tentatively scheduled for mid-December, said people allegedly in the know who don't like to get quoted by name.
Bloomberg reports that "two people briefed on the matter" say Zynga is shooting for a valuation as high as $10 billion:
Zynga plans to raise about $900 million by selling shares at about $8 to $10 apiece, said one of the people, who asked not to be identified because the plans haven’t been made public. Zynga would sell 10 percent or fewer of its outstanding shares, which are scheduled to be priced on Dec. 15, the person said.
Meanwhile, the Wall Street Journal writes that Zynga "is expected to launch its IPO road show next week."
The San Francisco-based company's IPO is being managed by Morgan Stanley and Goldman Sachs Group, both of which managed Groupon's recent successful IPO.
Successful, that is, if you were one of the insiders dumping shares on Day 1 for a big profit. Not so successful if you were one of the early public buyers who expects your investment to pay off in the near future, if ever. Shares of Groupon (NASDAQ: GRPN) were trading at 17.78 early Thursday, down 43% from 31.14 high they reached when the company went public on Nov. 4.
As I wrote recently, Groupon shares face downward pressure because the daily-deals site continues to lose money even as revenues soar. Groupon's growth also shows signs of slowing and competitors are crawling out of the woodwork to enter the low-barrier online discount market.
Zynga has a better -- though hardly perfect -- story to tell Wall Street. First, it's profitable. Zynga early this month reported $30.7 million in net income for the three quarters ended in September, down from $47.6 million in the year-ago period. In addition, revenue for the first nine months of this year was $828.9 million, more than double the $401.7 million a year ago.
But the maker of games such as FarmVille, CityVille and Mafia Wars has a potential Achilles heel: Its heavy dependence on Facebook. "Currently, substantially all of our revenue is generated from players accessing our games via the Facebook platform," Zynga said in a recent S-1 filing.
Let's put some numbers on "substantially all of our revenue": In the third quarter, 93% of Zynga's revenue came from its Facebook games.