Multi-billion dollar valuations continue, with social gaming start-up Zynga said to be valued at $US10 billion after a group of investors has been discussing the possibility of a $US250 million investment in the FarmVille creator.
The report is the latest in a string of extremely high valuations reminiscent of the dot-com boom, with Facebook, Twitter, music streaming service Pandora and the Huffington Post all valued at very high multiples.
The valuations also come as a number of Australian tech companies have received more than $US300 million in investments during the past six months, fuelling speculation of another local digital boom.
The latest report, according to Bloomberg, says Zynga is in talks with T. Rowe Price Group and Fidelity Investments about the possibility of raising $US250 million, valuing the company at between $US9-10 billion.
That comes after a report in the Wall Street Journal claimed Zynga is seeking more funding.
Various reports from tech trades have pinned Zynga’s revenue at $US850 million with $US400 million in profit.
It makes money primarily from its two games, FarmVille and CitiVille, which have about 96 million and 50 million users every month.
The games are available on Facebook and players can buy digital items and other goods from within the games.
The platform has also turned out to be quite lucrative for advertising, with more than 275 million active users across all of its games.
The latest valuation highlights how powerful a market social gaming has become, with games by far the most popular category on the Apple App Store.
Last year various companies – including Google, Disney and Electronic Arts – were interested at one point or another in the new social games.
In a move that shows how valuable social gaming is the $US10 billion valuation makes Zynga worth more than giant Electronic Arts, which has a market capitalisation of just over $US6 billion.
EA reportedly considered buying Zynga at some point last year and Google reportedly invested $US200 million in Zynga too, adding it to a group of backers that includes Digital Sky Technologies, Tiger Global, Institutional Venture Partners and Andreessen Horowitz.
Whether Zynga will be able to maintain its huge customer base over a long period of time remains to be seen but reports from Bloomberg and the WSJ indicate that the company is looking to go public within two years.
Chief executive Mark Pincus hasn’t been shy about the company’s strategy, reportedly telling employees: “You’re not smarter than your competitor … just copy what they do and do it until you get their numbers.”
Such a move would place it alongside other tech giants including Facebook, now valued at $US50 billion; Groupon, valued at about $US10 billion and Twitter, which was recently valued at $US8-10 billion.
All those companies have considered going public and a number of other IPO filings from companies such as LinkedIn, Pandora and Skype indicate that the tech sector is heating up.
Patrick Stafford is a freelance journalist and a former deputy editor of SmartCompany.
