My friends over at the WSJ have been knocking it out of the park lately, reporting last night that social gaming phenomenon Zynga is raising a new $250 million round of funding that values the company at between $7 – $9 billion according to, eh hem, sources.
Then today Bloomberg piggybacked on the news, naming names in terms of players in the talks, including Fidelity investments and T.Rowe Price (who coincidentally also has signifigant shares in gaming company Electronic Arts).
Bloomberg also reiterated the same price for the round at $250 million and bumped the valuation range up to “close to ten million,” continuing down the well worn path of hinting at market exuberance by running down the checkpoints signifying a tech industry investment bubble, er frenzy: Facebook now at $52 billion, Groupon at $15 billion, Twitter at $8 – $10 billion as well as the laundry list of IPO filings including Demand, LinkedIn and Pandora.
Last time the media concretely checked in on Zynga’s valuation it was at $4 billion, when it filed papers issuing new stock. The Bloomberg article states that Zynga’s valuation on secondary market Sharespost is currently equal to about $6.2 billion versus NASDAQ’s $6.2 billion market cap for console and PC gaming giant Electronic Arts, which was once rumored to be considering Zynga as an acquisition prospect. A quick glance today shows those numbers are about $6.15 billion on Sharepost versus $6.17 billion on NASDAQ respectively.
This means, that even when you put aside the overlapping valuation range reported by Bloomberg and the WSJ, the market is willing to pay more for Zynga than traditional gaming company EA right now, however incremental.
Venturebeat’s Dean Takahashi pointed out in October that EA’s estimated $3 billion in revenue for 2010 runs laps around Zynga’s $850 million (with $400 million in profit), but as we’ve seen again and again with Facebook, the market is not gaging in multiples of current revenue, it is gaging in perceived opportunity with regards to potential audience and ad spending.
The metrics for what constitutes a gaming hit have changed since Super Mario Bros. According to AppData, Farmville and CityVille now have between 96 million and 51 million monthly users respectively. In contrast, it took a decade for a best selling EA title like the The Sims to pass125 million units sold.
Zynga has its sights set much higher than moving units or in its case virtual currency, it wants to to be the Google a.k.a the entrypoint of gaming. The company now has 275 million active monthly users across all its titles, numbers higher than the traditional video game industry has ever seen. It has acquired 9 companies in just as many months and has offices in 6 countries. User numbers are comparable to half the population of Facebook (valuation: $52 billion). Divide the current Facebook valuation numbers being tossed around by two and you’ll understand the company’s ambition.
In the meantime I’ll leave you with a pro tip that is perhaps the scariest part of living in the frenzied now: The easiest way to get people to shut up about skyrocketing valuations is to say, “It’s what the market will bear.”