The top risk factor mentioned in Zynga’s IPO filing this morning is its dependence on Facebook.
The company admits that basically all of its revenue comes from its partnership with Facebook: “We generate substantially all of our revenue and players through the Facebook platform and expect to continue to do so for the foreseeable future.”
Zynga also notes that since April, it has been using Facebook Credits — which requires all developers to use Facebook’s in-game payments system and turn over 30% of resulting revenues to the company. The deadline for implementing Credits was yesterday, and apparently Zynga was not big enough to negotiate an exception.
Zynga also warns that its customer base is not very broad — “we rely on a small percentage of our players for nearly all of our revenues” and “a small number of games have generated a majority of our revenue.”
The other risk factors are pretty standard boilerplate — rapidly changing industry, security breaches, and ineffective management of growth are all mentioned.
Here’s the full list:
- if we are unable to maintain a good relationship with Facebook, our business will suffer
- we operate in a new and rapidly changing industry, which makes it difficult to evaluate our business and prospects
- we have a new business model and a short operating history, which makes it difficult to evaluate our prospects and future financial results and may increase the risk that we will not be successful
- we rely on a small percentage of our players for nearly all of our revenues
- a small number of games have generated a majority of our revenue, and we must continue to launch and enhance games that attract and retain a significant number of paying players in order to grow our revenue and sustain our competitive position;
- a significant majority of our game traffic is hosted by a single vendor, and any failure or significant interruption in our network could impact our operations and harm our business;
- security breaches, computer viruses and computer hacking attacks could harm our business and results of operations;
- if we fail to effectively manage our growth, our business and operating results could be harmed;
- our growth prospects will suffer if we are unable to develop successful games for mobile platforms;
- expansion into international markets is important for our growth, and as we expand internationally, we face additional business, political, regulatory, operational, financial and economic risks, any of which could increase our costs and hinder such growth; and
- the three class structure of our common stock has the effect of concentrating voting control with those stockholders who held our stock prior to this offering, including our founder and Chief Executive Officer and our other executive officers, employees and directors and their affiliates; this will limit your ability to influence corporate matters.
See also: Here’s Who Gets Rich Off The Zynga IPO.