Search engine Google could land as much as 2.7 times return from its backing of US-based internet games company Zynga, as Google is set to own a 3.8% stake post-initial public offering. The IPO reportedly values the company at $7bn.
US based search engine Google could make as much as an estimated 2.7 times return from its investment in Zynga, based on calculations by Global Corporate Venturing. Other corporate venturing units, such as Japan-based Transcosmos, made bigger returns, after taking shares in the online gaming company having sold its portfolio company Unoh last year.
Zynga filed for its initial public offering (IPO) in an amended S-1 with the US Securities & Exchanges Commission today, and is looking to raise up to $1bn from the release of 100 million shares. The shares will be priced between $8.50 per share and $10.00 per share.
The shares are set to make up an about 14.3% stake in the company, news provider the Wall Street Journal said, valuing the company at about $7bn. Google now holds 4.1% of Zynga’s shares, which will go down to 3.8% as part of the flotation, valuing its stake at approximately $270m.
Zynga has raised more than $845m from its three funding rounds, including a $490m series C round in which Google was reported to have invested more than $100m.
Underwriters Morgan Stanley, Goldman Sachs, Allen & Company, Merrill Lynch, Barclays Capital and JP Morgan Securities will have the option of buying an extra 15 million shares.
Founder and chief executive officer Mark Pincus is still the largest shareholder, owning 16%, while other significant shareholders include venture capital (VC) firms Kleiner Perkins Caufield & Byers (11.2%), VC firms Institutional Venture Partners and Foundry Venture Capital (6.1% each), and VC funds Avalon Ventures (6.1%) and Union Square Ventures (5.4%).
Zynga’s investors also include Russia-based e-mail site Mail.ru, investment firm Digital Sky Technologies which used to be a Mail.ru subsidiary, investment manager Tiger Global, private equity firm Silver Lake Partners and Japan-based marketing chain management company Transcosmos, which is one of the largest global corporate venturing units. Transcosomos sold portfolio company Unoh to Zynga to help the US company expand into Japan and an insider said it would make a four-times return from its about1% holding.
Zynga’s revenues, which depend on players paying money to buy items which are transferable to their range of free-to-play games, continue to rise – reaching $597.4m for 2010 and $828.8m for the nine months up to the end of September this year.
However, net income has dropped this year. The nine month figure of $30.7m compares to the $47.6m figure for the same period in 2010, a figure which eventually reached almost $90.6m.
In addition, Groupon’s post-IPO share price, which only began to recover more than three weeks on from its flotation, may weigh on the minds of prospective buyers. As a result, a shareholder saidthe IPO was being priced at about half its July secondaries market trading levels in order to ensure a positive after-market.
Pincus said: "By offering our shares to the public we hope to enable Zynga to invest more in play than any company in history. To accomplish this, we will continue to make big investments in servers, data centres and other infrastructure so players’ farms, cities, islands, airplanes, triple words and empires can be available on all their devices in an instant. We will also continue to fund the best teams around the world to build the most accessible, social and fun games.
Zynga originally filed for an IPO in July but postponed in the autumn for a time later in the year. The company is expected to price the shares around the middle of the month and to float shortly afterwards.
Additional reporting by Robert Lavine and James Mawson
