NEW YORK (Reuters) - "We beget almost all of a income and players by a Facebook height and design to continue to do so for a foreseeable future," Zynga wrote in a IPO prospectus.
Technically, a acknowledgment is called a risk factor. But given Zynga, a extravagantly renouned builder of mobile and amicable games such as "Mafia Wars" and "FarmVille," generates about 95 percent of a income by Facebook, a worry for investors is that a attribute with Mark Zuckerberg's social network is reduction a risk cause than a business model.
And how Zynga eventually performs as a open association -- it is aiming to lift $925 million during a $9 billion gratefulness when it starts trade on a Nasdaq on Friday -- will count in vast partial on a ability to mangle giveaway from Facebook. Or during slightest a ability to remonstrate investors that it can do so.
So far, however, a skeptics sojourn unconvinced. At Zynga's IPO roadshow luncheon in San Francisco on Monday, investors spent many of a doubt and answer time with Zynga executives seeking about Facebook.
"Any time we have such a vast faith on a singular company, we have to be concerned," pronounced Dan Niles, arch investment officer of AlphaOne Capital Partners, who didn't attend a luncheon though watched one of Zynga's presentations over a Internet.
From an investment perspective, ignoring a fact that all though 5 percent of Zynga's $828 million in income in a initial 9 months of this year came from Facebook could be detrimental.
Zynga conceded that indicate in a IPO prospectus, observant that, "any decrease in a attribute with Facebook would mistreat a business and adversely impact a value of a Class A common stock."
Facebook takes a 30 percent cut of a income Zynga derives from a social network, that facilities some-more than 222 million monthly active Zynga users, according to a information tracking website AppData. Zynga itself creates many of a income from reduction than 3 percent of a players who buy practical equipment like trucks and poker chips.
Being so contingent on one association clearly poses risks to Zynga's expansion potential. If Facebook's user expansion slows, for instance, Zynga's expansion is expected to delayed as well. Or, in an impassioned case, if Facebook unexpected motionless to banish games, it could mistreat Zynga's whole business.
Zynga is also gratified to Facebook in other ways. According to a regulatory filing on Jul 18, a association has to tell some of a games exclusively on Facebook before other platforms.
What's worse, Zynga competence have botched one categorical try it has so distant done during perplexing to mangle pided from Facebook.
When a association denounced a new online height "Zynga Direct" during a singular media eventuality during a San Francisco domicile in October, it was billed as a approach for Zynga to understanding directly with a consumers but an intermediary.
But when players visited Zynga's website to pointer adult for a user name, called a "Z Tag," they were told to initial implement a Zynga app on Facebook, giving a sense that it was being some-more closely integrated with a world's largest amicable network instead of being weaned off of it.
FACEBOOK FLIPSIDE
The opposite evidence is that Zynga's faith on a height competence attract investors looking to gamble on Facebook's growth. With Facebook's IPO during slightest several months away, there now are not many ways to benefit bearing to Facebook on a batch market.
"Ahead of Facebook's IPO, Zynga is a closest substitute investors have," pronounced Robert W. Baird & Co researcher Colin Sebastian. "As of today, Zynga is rarely contingent on Facebook and could move in investors who are looking to find ways to benefit bearing to amicable media."
Akram Yosri, handling partner of 3i Capital Group, attended Zynga's roadshow display in New York and pronounced he was confident with how government responded to questions about Facebook and how Zynga can grow in partnership with a amicable network.
"They didn't evasion a question," pronounced Yosri, whose organisation has $1.4 billion in resources underneath management. "As prolonged as it's a operative relationship, it's a and for Zynga given Facebook is going to be there a prolonged time and has a proven business model. "
Zynga also gathers lots of information on a millions of users, some-more than half of whom are female, that marketers could find attractive.
CHINA AND BEYOND
Still, Zynga faces a prolonged highway to a reduction Facebook-dependent future. According to regulatory filings, Zynga's agreement with Facebook doesn't come adult for examination until 2015. This gives it 3 years to find new income sources outward a amicable network such as relocating into new markets like Asia and creation some-more games for mobile devices.
In July, Zynga entered mainland China's games marketplace for a initial time, partnering with Chinese height Tencent for a internal chronicle of a persion "CityVille."
"Zynga has during slightest until that time to enhance a participation in Asia and it is perplexing to do that aggressively in mobile," pronounced Steve Sorrano, an equity researcher during Calvert Investment Management, that has $12 billion of resources underneath management.
Sorrano added, however, that investors competence find Zynga too unsure to gamble on while it is building out a business in these new areas given it is misleading either a association can broach a high adequate or tolerable lapse on collateral investment.
"That's a relations different for a immature association in an attention that is building this rapidly. This raises risks for going in(to a stock) that early," Sorrano said.
Zynga's sum losses rose 115 percent to $747.9 million in a initial 9 months of a year, a pointer that a general ambitions are adding to costs.
With courtesy to mobile, while games such as "Words With Friends" have turn hits, a roughly 13 million mobile users are lilliputian by a hundreds of millions of users who play it on Facebook.
While Zynga was one of a beginning persion makers on a Facebook platform, it lacks that initial inciter advantage on mobile. For instance, Disney expelled a mobile persion in Sep called "Where's my Water" that is ranked forward of some Zynga titles in Apple's App store.
And investors pronounced that Zynga competence already be losing marketplace share on Facebook itself, as video persion companies such as Electronic Arts make vast acquisitions to contest with it. Indeed, AlphaOne's Niles forked to EA's "The Sims Social" game, that has 28 million monthly active users, as a successful instance of intrusion by another video persion association on Zynga's turf.
Over time, however, there is wish a Zynga can mangle giveaway from Facebook with services like "Zynga Direct." Though that use still has no date for when it will launch or that games will be available, Sterne Agee researcher Arvind Bhatia pronounced that it "should assistance revoke Zynga's height risk somewhat."
(Reporting By Liana B. Baker in New York, additional stating by Alistair Barr; Editing by Peter Lauria and Steve Orlofsky)
(Corrects dateline to Dec. 14)
News referensi http://news.yahoo.com/analysis-zynga-break-free-facebook-000838336.html
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