As the largest and most aggressive social gaming company on the market today, Zynga is a great target for rumor, speculation and criticism. And so we have a few more data points on it, both internal numbers and independent reports.
Traffic — Last week, the company crossed the 200 million total monthly active user market on Facebook, according to AppData — with more than half of those users coming since the beginning of September. Today, in a press release, the company says it has 100 million monthly unique visitors. How do we explain the difference? It’s simple: Zynga heavily cross-promotes its games within each app, in a toolbar that runs beneath each game window, and it spends millions on Facebook advertising. So the company has millions of users who play more than one of its games. Zynga’s 100 million number, however, is a little more complicated: The company is also one of the larger developers on MySpace, and it has some iPhone apps, and games on smaller social networks, so the number includes Facebook and these other sites. That means that the ratio of total monthly active Zynga users on Facebook to number of uniques is more than 2:1. However, AppData also shows that Zynga has more than 60 million daily active users (non-deduped) on Facebook alone — that is an amazing engagement rate, even if some of it is from users playing more than one Zynga game.
Revenue — We’ve heard all sorts of wild estimates about Zynga’s revenue, including that it is reaching towards half a billion. To be clear, our own calculation, in the Inside Virtual Goods report, is that the company was on track to make north of $200 million in revenue this year, and our Justin Smith, co-author of the report, estimates that Zynga revenues will grow to over $355 million next year. Zynga’s audience has grown much bigger in recent months, via games that clearly monetize through virtual goods. While Zynga’s costs have been going up for game production (it now employees more than 600 people), and for advertising, we hear the company is profitable. There’s been some speculation that the company’s decision to remove offers has cut into its bottom line, as it has said that offers previously made up around 30% of its total revenue. However, today the company says that offers were only 10 percent of revenue — at least up until the company cut them. However, we expect offers to come back at some point.
Valuation — Zynga had at one point talked to Electronic Arts about a possible acquisition for up to $1 billion, we heard last month. Instead, EA bought smaller rival Playfish in a deal worth up to $400 million. But, the $1 billion price tag has shown itself again, in a Bloomberg report that cites a number of analysts who have benchmarked the company’s worth against others in the gaming industry. Given Zynga’s traffic and likely revenue growth, especially in the past few months, we think this number sounds right.
For Zynga watchers, all of these data points raise interesting questions about the $15.1 million that the company supposedly raised recently, and we heard at a $625 million valuation. That question is: why would a profitable company that’s huge and making hundreds of millions of dollars raise such a small amount? If it had wanted or needed to raise money, we would have expected a huge round, like RockYou’s recent $50 million round. Indeed, this is why we and our sources believe that the Zynga funding was months old, and just happens to have been filed recently.
So what’s next for the company? We continue to expect an initial public offering at some point, but the company doesn’t appear to need money. Like Facebook, Zynga is in no rush to an IPO, and it’s possible we won’t see one next year.