Zynga, the social network game developer behind mega hits like Farmville, Mafia Wars, and Zynga Poker, has seen its shares soar 15% in trading today in response to Facebook’s IPO filing yesterday. Zynga’s success is tied directly to Facebook, as the overwhelming majority of its revenue is generated from users purchasing Facebook Credits to play its games, of which Zynga keeps 70% (Zynga also generates a small portion of revenue from advertisements it displays in games). This partnership also goes both ways, however, as Facebook’s S-1 filing released yesterday revealed that 12% of the company’s total revenue comes from the cut it collects from users purchasing Facebook Credits to play Zynga games.
Since the fates of both Zynga and Facebook are closely linked, any good news for one company will be good news for the other. And based on yesterday’s response, Facebook’s IPO filing can be categorized as really good news. Facebook has been in the black for three straight years, and profits have grown substantially, reaching exactly $1 billion for 2011. With the switch to Timeline, it’s possible that the per-user value can still grow, and as Facebook pushes their Credits payment system even harder, Zynga is sure to reap the benefits. However, Zynga’s continued growth will rely on the release of great games that attract players to open their wallets, and according to recent reviews, Zynga’s latest releases have been mediocre at best. This is also a problem for Facebook, since 12% of their overall revenue comes from Zynga.
Zynga had seen its share price drop 15% in its first several weeks of trading, though it had rebounded recently even before its sharp increase in price today. The share price will likely keep moving upward in the next quarter as the buzz over Facebook’s IPO continues, but ultimately it is still about dollars and cents, and to keep the money rolling in, Zynga will have to find some new hits among it’s new game releases. Zynga could also venture into the app-based game market, which has been a boon for Angry Birds developer Rovio, but that would be a substantial shift in focus for the company. Nevertheless, at least for today, Zynga stock holders are quite happy.
Zynga is traded on the Nasdaq under the symbol “ZNGA”.
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