Via VentureBeat. Zynga is the darling of social games, but it’s hard to believe that the maker of Facebook apps and websites is worth $5 billion, as estimated by SecondShares.com. That research firm, run by a group of former equity analysts, estimates the value of private companies and what they would be worth if they were actually public.
While Zynga has no near-term plans to go public, the analysts say they can surmise its value based on a variety of measures, such as the price that employees and investors are getting by selling shares on the secondary market. There is a lot of black art to this kind of evaluation, and the high value for Zynga is likely to stir a lot of debate.
Ed. According to the report itself, the relevant public comparables are all Chinese– the Tencent gaming company in particular. So Caveat emptor.
Tencent is the dominant gaming company in China, with ~400 million MAU’s, and revenue almost triple the 2nd largest Chinese gaming company. Tencent’s games are played on Tencent’s own platform, and the money used to buy virtual goods is Tencent’s currency (QQ Coins). Due to its size, and its ownership of its platform, we believe Tencent trades at a premium to where Zynga would trade at if it were public.
The authors of the original report are all fans of social media– like Zynga games– two have experience in equity research but that’s about it. Zynga is just like Blizzard and the company will naturally go after hits like Farmville and Mafia Wars– and they’re very addictive. But the company at $5 bil?! Too, too risky to even play the guessing game
Related Article: Zynga Valuation by NeXt Up
AGENCY NEWS 
A few clarifications regarding the above from the authors of the report
1) The ONLY public comps are Chinese companies, which we used mostly to comfort ourselves that our $3.50 projection for annual revenue per user was conservative relative to the $5 earned on average in the more mature Chinese social gaming market.
2) We surmised value by projecting what we believe to be reasonable projections for 2015 revenue and profit and discount that back (risk adjusted) to come up with a value today.
3) Finally, you’re right that valuing companies is as much art as science, but after careers spent as equity analysts, we’ve become pretty good artists.
Lou,
I certainly appreciate the update. Tnx!
Wasn’t there another report by NeXt Up presuming that Zynga is in fact valued at $$$ bil mark but not $5 bil. NeXt Up’s previous projection, and the numbers were similar as yours, was also downplayed (now bet. $2.8- $3.3 bil) to probably look more pragmatic.
Commented another industry analyst (M. Pacther):
“A $3.3 billion valuation would suggest sustainable cash flow of $200 million or more. Clearly, Zynga isn’t there yet, as their revenues are probably only a tad above that level, and they incur costs to generate those revenues. Yet, it’s possible to come up with that value if the company can show a path to $200 million in annual cash flow or higher.”
The opportunity for Zynga to be a cash cow is huge (and I’m not dismissing both reports btw).