in Mobile Gaming

Zynga: possible IPO valuation highlights upside potential in G5 Entertainment

As recently as March, Zynga was projecting a 2011 profit of $630 million on revenue of $1.8 billion, according to a New York Post report that cited a prospective investor who had seen Zynga’s financials. Zynga makes money by selling virtual currency for use in its games. Users pay to replenish their “energy,” which allows them to participate more fully in games. The company has about 250 million users.

The public won’t get a glimpse of Zynga’s financial details until the company files its S-1 registration with the SEC, which could come as early as Wednesday. Given Zynga’s rapid growth, which mirrors that of other hot internet firms like Groupon, Facebook and Twitter, it’s entirely possible that the company could raise its revenue forecast.

The valuation is rumoured to be somewhare between USD 15 and USD 20bn. A $15 billion valuation would mean Zynga is worth 23 times its 2011 earnings (using the $630 figure), which is not unreasonable for such a fast-growing company. Even at $20 billion, the company would be worth only 31 times 2011 earnings, which would be high for a mature company with slower growth, but is still reasonable for Zynga.

Listed in Sweden, we have G5 Entertainment (www.g5e/corporate) which is currently valued at less than 12 times its 2011 earnings (using current management guidance of SEK 1.90). G5 Entertainment is enjoying rapid growth as the smartphone market is exploding and and at the same the company is publishing almost 4 times as many games during 2011 compared to 2010.  With an EBIT margin of some 40% it is very profitable and sits on a net cash position. Tomorrow, the company will publish its first 5 games for Android and for early July, management’s mid-quarter update is on the agenda. Some of its latest published games have been very successful, such as “Jack of all Tribes” which was ranked number 1 top-grossing game in the important German market for several days.  Don’t miss the train…

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