Zynga's IPO Filing: Analyzing the S-1
In the year of Internet IPOs, social gaming juggernaut Zynga finally filed for its IPO today. So we finally get to get a good look at its financials. And they are strong ... to quite strong.
Here's a quick snapshot:
- Total 2010 Revenues: $597mm
- First Quarter 2011 Revenues: $235mm
- Cash and Cash Equivalents: $996mm
- Operating cash flow: $103mm
Revenues have grown at an incredible pace, up 392% last year alone. Nearly 95% of the company's revenue comes from selling virtual goods, which has increased 127% between Q1 2010 and Q1 2011. The profit margins on these virtual goods is good at 28% but not as high as some were forcasting (~40-50%). Turns out that there is still a lot of R&D, sales and overhead costs that go into making highly addicting, successful games.
All this adds up to good things for the most important numbers for investors, profits:
- Total 2010 Net Income: $90mm
- First Quarter 2011 Net Income: $12mm
They also have a TON of cash stockpiled up, to the tune of almost $1 billion. As Dustin Curtis noted, if Zynga's revenue dropped to zero right now and their costs remained constant, the company would not go bankrupt until June, 2012. In short, they have enough cash on hand that they don't really need to go public right now. I think they are absolutely right to take advantage of the hot IPO market though.
Certainly there are risks. Zynga is quick to acknowledge the importance of Facebook to its business model, saying that it generates "substantially all of our revenue and players through the Facebook platform." Indeed, Facebook is mentioned over 204 times through Zynga's S-1.
Here are some other numbers that stood out to me:
- 62 million - Daily Active Users
- 236 million - Monthly Active Users
- 38,000 - virtual item are created every second
- 2 billion - minutes a day spent on Zynga games
My favorite part of the S-1 though was when Zynga founder and CEO Mark Pincus leads the prospectus off with a personal letter, which I think is a great touch:
At Zynga, we feel a personal connection to our games through our friends and family. I love that my brother in-law, who has five kids and no free time, religiously plays our game Words with Friends.... My kids decided a few months ago that peek-a-boo was their favorite game. While it's unlikely we can improve upon this classic, I look forward to playing Zynga games with them very soon. When they enter high school there's no doubt that they'll search on Google, they'll share with their friends on Facebook and they'll probably do a lot of shopping on Amazon. And I'm planning for Zynga to be there when they want to play.
via sec.gov
By the way, have I mentioned that I really love S-1s? You can talk all you want, but the GAAP numbers don't lie. Everything is laid out for all to see. Know of any other interesting analyses of their S-1? Feel free to email any I might be missing. Just shoot me a note or comment below.
Also: The Groupon, Angie's List and Yelp IPOs Proved One Thing: Local Is Really, Really Hard
