Report: Zynga Should Be Worth $5 Billion

A detailed analysis of Zynga’s revenue, audience size and potential growth has estimated Zynga’s market cap at $5 Billion. Zynga’s shares do trade in small quantities in private markets at around $9 per share at a market cap of $2.8 billion, and the report estimates that would be double if the shares were public.

In a discussion at Business Insider with Lou Kerner, an analysis of the report talks about the three key points – reach, growth of revenue and their market leader position – that give Zynga such a huge valuation. Kerner also notes that while the huge valuation may ring bells of 1999 and the dot com bust, the fact is we’re closer to 1997, where the first major players such as eBay and Amazon proved their true revenue potential to the world. Kerner and the report’s authors believe Zynga is a company that will also demonstrate its true revenue potential.

In a sample from the report itself, we see that Zynga has 6 of the top 7 games on Facebook. This kind of lead is dominant, but the dominance of Farmville can also pose a threat for Zynga. 45% of their revenue appears to be coming from the one game, and if another farming game were to usurp the top position, it would mean a huge loss of revenue for Zynga.

Another great point made by Kerner is the dependence on Facebook and external payment providers. If Facebook were to ask for any sort of tax from game makers, that would cut in heavily into the games’ revenues. Also, most of these games leverage offer walls and other similar payment schemes, and those companies will continue to take percentages of revenue as the model changes and evolves. Recently, Facebook put a ban on certain types of offers and all game companies had to remove them from their games overnight, which undoubtedly hurt revenues.

Zynga owns 6 of the top 7 games on Facebook, with EA being the only other developer with more than one game in the top 10. You can download the entire report here.