IPO of Zynga, maker of FarmVille, to produce new billionaires

James Ryan Jonas

The dot-coms are back. In recent months, several websites have underwent initial public offering (IPO) raising billions of dollars for their owners and investors.

In May 2011, professional networking site LinkedIn went public and its price surged 109% over the IPO price on the first trading day. The company is currently valued at $9 billion.

The most-awaited tech-related IPO is no doubt Facebook. The social networking site, which boasts of more than 600 million users as of January 2011, is estimated to have a value of $50 billion.

But before the Facebook IPO craze starts, a Facebook games maker has already decided to be ahead of the game. Zynga, maker of popular Facebook games such as Farmville, Cityville and Zynga Poker, filed paperwork today paving the way for their upcoming IPO.

The company expects to raise at least $1 billion, although it did not specify how many shares will be released to the public and at what price. Zynga’s valuation is currently estimated to be between $15 million and $20 million.

Zynga follows the “freemium” business model, where they offer games for free but cashes in on premium in-game items that they sell to Facebook users. In the first three months of 2011 alone, Zynga earned revenues of $235.4 million and booked earning before interest, taxes, depreciation and amortization (EBITDA) amounting to $112.3 million.

In May 2010, the company finalized a 5-year deal with Facebook regarding the use of Facebook Credits, the social networking site’s online currency. The transaction gave Facebook a 30% share on all items purchased by its users playing Zynga games.

Zynga has 60 million active daily users, 232 million monthly users, and sees 2 billion minutes of play per day.

Assuming a low-end valuation estimate of $15 billion, its founders and investors are expected to be worth the following on Zynga’s first trading day:

1. Mark Pincus – $2.4 billion

Founder Mark Pincus (shown in the picture with his late bulldog Zinga from which the company name was taken) is expected to be worth at least $2.4 billion after the IPO, thanks to his 20 million+ shares of Class C (founder’s) shares and 16% Class B (common shares).

2. Kleiner Perkins Caufield & Byers – $1.65 billion

Top Silicon Valley venture capital firm Kleiner Perkins owns at least 40 million Zynga’s common shares, while CEO

3. Institutional Venture Partners – $915 million

4. Foundry Ventures – $915 million

5. Avalon Ventures – $915 million

6. Digital Sky Technologies – $870 million

Yuri Milner, founder of Digital Sky Technologies (formerly Mail.ru Group), will seal his billion-dollar wealth upon Zynga’s IPO. He recently bought a $100 million house in California, one of the most expensive houses in the worproduces .

James Ryan Jonas teaches business management, investments, and entrepreneurship at the University of the Philippines (UP). He is also the Executive Director of UP Provident Fund Inc., managing and investing P3.2 Billion ($56.4 Million) worth of retirement funds on behalf of thousands of UP employees.