Zynga filed for IPO recently and I dug up its S-1 filings to see how the business looks like. Below is a quick summary of Zynga’s business.
Key Facts
Solid Revenue Growth
Zynga’s revenue grew YoY 61% to $286.6M in March 2011 from $178.3M in March 2010.
Source: nextUp Report
Revenue Distribution
Key Source of revenue is virtual goods with advertising contributing just close to 5.5% in total revenue.
Key Operating Data
Zynga commands a solid Daily Average Users (DAUs) and Monthly Average Users (MAUs).
Numbers speak volumes of Zynga’s business. Close to 50 million daily average users and 200 million monthly average users over last 2 years clearly indicates that Zynga’s games have been highly engaging and addictive. Zynga has been successful in launching new games. One of the biggest contributor to success of new games was cross promotion to existing users. While this is good in general, we have to be aware that almost all of Zynga’s successful games and users are on Facebook - and this fact makes Zynga’s business highly risky. Zynga can suffer if it fails to maintain good relationship with Facebook or if Facebook decides to make policy changes that are not conducive to gaming business. This is exactly what happened in 2010 when Facebook changed its policies to require all payment made on Facebook platform through Facebook Credits. Facebook decided to keep 30% of the revenue generated from purchasing Facebook Credits by the users.
Another risk is over dependency on virtual currency as revenue stream. As you would have noticed from the charts above, close to 95% of revenue comes from virtual currency.
The biggest opportunity in front of Zynga is to expand into mobile gaming space. Android and iPhone are ubiquitous and reached to a number where it is possible to build a scalable gaming app business. However, launching new games on Smartphones is not going to be easy as Zynga wont have the same network effect that it has on Facebook with its existing games. Also, the mobile gaming space is already crowded with many successful and big players.
It’ll be interesting to watch what twists and turns lies ahead for Zynga.
