Report: Zynga Worth More Than $3.3 Billion

A new report by Global Silicon Valley Partner’s NeXt Up Research states that Zynga, the world’s top Facebook Application developer, may have a valuation of more than $3.3 billion. This is based on 35% growth over the next four years to expand this year’s revenue projection of $460 million to $1.1 billion in 2014. In addition to the valuation, the report’s analysis includes some interesting facts about their sources of revenue and user behavior.

Specifically, the report mentions that Zynga has grown from 30 million to 230 million over the last 10 months, and is continuing to grow, largely on the strength of Farmville at close to 80,000,000 MAU. When analyzing monetization, we see that Zynga makes 40% of its ottal revenue from microtransactions and virtual goods, the rest coming from advertising and marketing offers. Breaking down the audience, we see 2% or 3% of Zynga users spend money on Zynga games. Less than 1% follow up to purchase multiple virtual goods.

Discussing the valuation, the managing director of equity research for Wedbush Securities.Michael Pachter stated that “nobody but Zynga knows enough about the company’s revenue, margins and growth trajectory to have an informed opinion about what the company is worth.” He wasn’t completely dismissive of the report, saying that a high valuation “is reasonable to believe”. He went on to say:

“A $3.3 billion valuation would suggest sustainable cash flow of $200 million or more. Clearly, Zynga isn’t there yet, as their revenues are probably only a tad above that level, and they incur costs to generate those revenues. Yet, it’s possible to come up with that value if the company can show a path to $200 million in annual cash flow or higher.”

Overall, the news just further validates the potential financial value of the massive audiences that social games companies have amassed. The companies revolve around monetizing their user base to increase the average revenue per user (ARPU), and with new developments like Facebook Credits appearing to facilitate an easier process for gamers, we could potentially see even higher valuations for these companies as their massive traffic and great monetization systems generate unprecedented ARPUs. Furthermore, with purchases like EA’s purchase of Playfish for up to $400 million, the industry is no longer theoretically valued: the money is real.