Social games companies are hot property right now. Some eyes may have rolled when EA forked out £178.5m for Playfish a few months ago, but that increasingly looks like a bargain. Zynga is now issuing shares at prices that place the total value of the company at £2.65bn. At this growth trajectory Zynga would be worth £6.5bn by 2015!
Can Zynga, a company only in it’s fourth year of operation, really be worth the same as the market cap. of ITV, or is this another example of inflated internet valuations?
The numbers seem to suggest that Zynga may indeed be worth this much. According to Lightspeed Venture Partners, Zynga has a revenue run-rate of c. $600m, driven from it’s 120m user base, from hit games Farmville, Mafia Wars, Fishville et al. The business model is working extremely well, combining in-game transactions and sponsorship. Extend these profitable models to mobile devices, and it’s not too hard to justify these revenue multiples.
Compare this to ITV, who posted a £25m profit in 2009, from ad revenues of £1.3bn. Zynga is more innovative, growing more quickly, and is almost certainly generating stronger profits. This comparison speaks to the strength of emerging social games companies, but also to the size of the remaining opportunity for traditional broadcasters, if only they can realise the potential of digital brand extensions.