A source close to social games maker Zynga tells us that the widely-circulated estimate of its projected revenues for 2009, about $100 million, is “conservative.”
It wasn’t the first time we heard it. So when a Silicon Valley executive who interviewed for Zynga’s open COO seat told us he thinks the startup could IPO in the next 18 months, we believed it.
We’ve also heard that Zynga founder and CEO Mark Pincus, who developed a reputation for poor management skills at his last startup Tribe, has finally learned to delegate. Some considered Mark’s reputation to be the final roadblock on Zynga’s way to an eventual IPO, so this development is great news for the startup.
Zynga makes its money selling virtual goods — a long promising, but unproven business that’s seen lots of investment — so Zynga’s IPO would be good for the entire industry. But before we order the champagne and cigars for an IPO anytime soon, we should consider the sceptics’ take. And there is one, to be sure.
A source less friendly to the company than the others so far cited here offered us four reasons Zynga might have trouble getting to an IPO so soon. To paraphrase:
- Because Zynga spends $2-3 MM per month just on MySpace ads and they have 260 employees, they barely make any profit on their revenues
- The majority of their revenue is from Poker which is of very dubious legality. As soon as they disclose that, they will be indicted. They need to shift revenue from Poker to be below 10% so that they don’t disclose it.
- All of the intelligent bankers and potential acquirers have concluded Zynga is a “no or little terminal value” business. The only way to build “terminal value” in the games business is with IP (for future franchises). They have built no IP.
- They have a massive retention/churn issue, which, if disclosed, would undermine any value in the company.
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