Zynga Enters IPOville; Valued at $20 Billion

Zynga, whose popular FarmVille and Cityville games have clogged millions of Facebook feeds worldwide, filed for an IPO today. Zynga had a 2010 revenue of nearly $600 million and is valued at a staggering $20 billion.

The company, which was named after founder Mark Pincus’s bulldog, is relatively young. It began just four years ago in 2007 but now boasts over a thousand employees with offices worldwide.

In it’s S-1 Filing, Zynga flouted its bona fides as the world’s biggest social gaming company. And the numbers are indeed impressive. 232 million monthly users log 2 billion minutes of game play daily. Its ability to utilize Facebook and other social media to get and keep users was an intelligent business strategy that, it seems, has paid off handsomely.

But in four short years, Zynga has had more than its fair share of legal controversy.

Let’s start with Rebecca Swift. Swift filed a class action suit against Zynga for unauthorized charges on her credit card. Essentially, Zynga games operate with the use of virtual currency. One way to receive this currency is by signing up for services from Zynga’s affiliate partners. These partners eventually charged Swift’s credit card around $200.  What Swift alleges is that these ads were “highly misleading” and, as of post, her suit remains undecided.

Zynga has also repeatedly come under fire from the gaming community for intellectual property theft.

First, there was Mafia Wars, which earned Zynga a lawsuit from the makers of Mob Wars. Zynga “copied virtually every important aspect of the game,” said an attorney for Psycho Monkey, the evocatively named creator of Mob Wars.

That suit was settled out of court for a reported 7 to 9 million.

Then, there was Cafe World, a “nearly identical” copy of Restaurant City.

And of course, there was FarmVille an “uncannily similar” facsimile of Farm Town.

There have been other gripes over the years but, to be fair, the Mafia Wars issue is the only one ever litigated. And certainly, other gaming companies have copied (or at least heavily borrowed) from Zynga games as well.

But it’s a troubling legal history for a company so young.

One thing shareholders can hang their hats on is that Zynga makes good money. Its games are free to install and free to play, but Zynga makes its money by the sort of affiliate partnerships we described above as well as direct payment to the company itself for in-game upgrades. There’s a real revenue model here and some insiders estimate the company’s current worth at $20 billion.  Their growing ad business — which involves in-game branding, as well as in-game surveys where users respond to questions about brand preferences for credits and upgrades — is certainly innovative.  And their games are undeniably successful.

If you add it all up, what you get is an aggressive, genuinely interesting company. Video games become more and more mainstream every year and Zynga seems uniquely positioned to take advantage of gaming’s broad and growing appeal. It’s an IPO that many will be watching with a keen eye.