Zynga is eyeing a lower valuation of around $10 billion for a public offering expected in about two weeks. Reuters first reported the news, and we confirmed the details they reported with a source knowledgeable about the company’s plans. Zynga declined to comment.
Zynga expects to raise about $900 million with a price of roughly $8 to 10 a share. A $10 billion valuation would be lower than the company’s most recent valuation of $14.05 billion as estimated by a third-party firm Zynga hired in August, according to their most recent SEC filing. An updated filing is expected toward the end of the week with a pricing range for the shares.
The change was done to reflect the quickly changing market conditions as instability the European Union rattles investors, according to the source. They said it wasn’t a reflection on the fundamentals of the business.
Comparable publicly traded gaming companies like Electronic Arts have a market capitalization of $7.75 billion while Activision Blizzard Inc has a valuation of $14.15 billion. A $10 billion valuation would be about ten times what Zynga is on track to make this year at around $1.1 billion or more. Electronic Arts, in contrast, trades at about two times its trailing revenues.
Such a multiple would imply that investors expect significant growth in Zynga’s future even as its base of daily active users has shrunk for two consecutive quarters. With a series of new releases this quarter like Castleville, Dream Zoo and Mafia Wars 2, the company is trying to prove that it can keep its Facebook users engaged while finding new growth opportunities on mobile.
It also looks like Zynga may move in the direction of supporting third-party games after the company poached Sony executive Rob Dyer to become its head of partner publishing. We’re also hearing that Zynga is engaged in early-stage M&A talks with Tapjoy, a move that would give it broader distribution on iOS and Android.