New York: Zynga Inc., the biggest maker of games on Facebook, is seeking a valuation of as high as $10 billion in an initial public offering (IPO), according to two people briefed on the matter.
Zynga plans to raise about $900 million by selling stock at $8-10 apiece, said one of the people, who asked not to be identified because the plans haven’t been made public. Zynga will sell 10% or fewer of its outstanding shares, which are scheduled to be priced on 15 December, the person said.
At $10 billion, Zynga would be the second largest US game company after Activision Blizzard Inc., which has a capitalization of $14.2 billion. Electronic Arts Inc., which bought Zynga rival PopCap Games in August, has a market value of $7.69 billion based on Wednesday’s close. The IPO would also value Zynga at as much as 9.8 times trailing 12-month sales, compared with about three times for Activision and two times for Electronic Arts, according to data compiled by Bloomberg.
The valuation creates a lot of pressure upfront to deliver high sales growth and earnings, said Walter Todd, co-chief investment officer at Greenwood, South Carolina-based Greenwood Capital, which oversees about $940 million. The proportion of stock that Zynga plans to make public is lower than in most IPOs. So-called low-float offerings can boost demand, but at the end of the day, the fundamentals are going to have to work, Todd said.
Dani Dudeck, a spokeswoman for San Francisco-based Zynga, declined to comment.
Under chief executive officer Mark Pincus, Zynga aims to capitalize on the popularity of social networks and virtual goods. The company lets users play games for free and then makes money by selling items—say, a townhouse in CityVille or a shipyard in Empires and Allies. Zynga is pressing ahead with IPO plans even as other Internet companies that recently sold shares, including Groupon Inc. and Angie’s List Inc., get hammered. Both were trading yesterday below their offer prices.
Founded in 2007, Zynga has hired Morgan Stanley and Goldman Sachs to manage the IPO. Zynga’s shares will trade on the Nasdaq Stock Market under the symbol ZNGA.