Zynga prelim IPO filing legitimizes social gaming market

EL SEGUNDO, USA: Zynga is expected to file the required S-1 financial form as a precursor to its initial public offering (IPO) during the next few days. Zynga’s S-1 will reveal the company’s incredible growth since its founding in 2007. IHS Screen Digest estimates Zynga content generated $544 million in 2010 from PC social network games alone—excluding the company’s activities in the mobile space, revenues from its own direct portal, and revenue from highly lucrative and one-off brand sponsorship deals.

“Although Zynga’s S-1 filing has been widely anticipated, the impact of this event is likely to be significant,” said Piers Harding-Rolls, head of games at IHS. “Not only will this preliminary filing completely legitimize the social network games market, which has experienced tremendous growth since its inception three years ago, it will also underline the game sector’s increasing shift away from a traditional product-based business to a digital, online and service-based growth opportunity. The filing will also demonstrate the games sector’s central role in growing and engaging users of social networks. I believe that Facebook’s incredible growth in users has been aided significantly by the rollout of its app platform, a central element of which is represented by gaming titles from Zynga and other companies.”

Global social gaming revenue exploded to $1.4 billion in 2010, up by a factor of 20 from $66.7 million in 2008, according to IHS. Revenue by 2015 will increase to $2.7 billion, or approximately double the total in 2010.

Zynga in 2010 expanded its leadership in the social gaming market based on the success of its CityVille and FarmVille offerings, new IHS Screen Digest research indicates. Zynga held a 39.1 percent share of the global market in 2010, a 4.2 percentage point increase over 2009. This represented the largest increase among the Top 5 operators.

Revealing Zynga’s performance will legitimize the use of freemium and microtransactional business models for games content in Western markets, Harding-Rolls added. Asian consumers are well-accustomed to buying virtual currency and items while playing online games, and there has been a shift toward using freemium models in massively multiplayer online games in the West as a result. However, exposure to Zynga’s 300 million monthly active users means mainstream adoption has been realized and will drive adoption of this monetization approach in the West.

Revenue details in the filing also will show the massive difference in scale between Zynga and its competitors in the social network games market. IHS Screen Digest estimates revenues for EA Playfish, the second biggest company in this games segment, to be between six to eight times smaller than Zynga’s. Like Blizzard with its dominant role in the massively multiplayer online games sector, Zynga’s scale will not be matched by another competitor in the medium term, but this fact is unlikely to deter some of the more tardy investors and startups from trying their luck as a result of Zynga’s performance revelations, in what is already a highly competitive segment.

Source: IHS iSuppli, USA.