Zynga, Facebook close in on IPOs

SAN FRANCISCO -- Zynga and Facebook are lining up at the starting gate for an IPO dash.

Zynga, the company behind popular social games CityVille and Farmville, is expected to file its final initial public offering prospectus as soon as today, paving the way for a stock offering by mid-December, said a person familiar with the matter, who requested anonymity because the plans are private.

The San Francisco-based company intends to start an IPO roadshow on Monday in New York, the source said. Zynga's IPO is expected to debut at $8 to $10 per share, and raise $900 million on a $10 billion valuation. Zynga declined to comment.

Zynga is one of the social-networking world's success stories, with 227 million monthly users. Through September, it has notched $829 million in revenue, twice as much as in the same period a year earlier. Zynga has earned $121 million since the start of 2010, according to its S-1 filing.

The IPO fortunes of Zynga are a crucial litmus test for the tech IPO market. Despite the success of LinkedIn, IPOs for Groupon and Pandora have sputtered. Groupon closed its first day of trading in early November at a $16.5 billion valuation but has lost nearly 40% since and is now valued at about $10 billion.

Zynga's performance will also weigh on the outlook for Facebook, which is expected to go public in the first half. As the largest gaming company on Facebook, Zynga is a major contributor to Facebook's revenue. Zynga purchases advertising on the site and shares a portion of virtual goods purchases with the social network.

Facebook is expected to file for an IPO in April, when it is required to disclose financials now that it has reached 500 shareholders. A public offering could reach a valuation of up to $100 billion and raise $10 billion, according to a source familiar with the matter who is not authorized to speak on behalf on Facebook.

Facebook's revenue will climb to $4.3 billion this year, double the $2 billion it rang up in 2010, estimates market researcher eMarketer. Advertising will comprise a huge chunk — $3.8 billion — as it did in 2010, when Facebook registered $1.86 billion in advertising revenue.

By 2013, Facebook is expected to earn $7 billion in advertising revenue, according to eMarketer.

Facebook's challenge, after a public stock offering, will be to grow revenue to match IPO expectations, says Internet analyst Greg Sterling. "There will be pressure to use more ads, and convert (members') personal data into revenue," Sterling says.

Zynga also faces issues, including its heavy reliance on Facebook, which grabs 30% of any revenue Zynga generates by the selling of virtual goods that users buy when playing its games. In addition, CEO Mark Pincus, who owns 38.5% of Zynga's voting power, exerts a great deal of control over the business.

Zynga is making moves to wean itself off Facebook as a platform where most of its customers play its games. In October, Zynga discussed plans for its own platform, code-named Project Z. Zynga has a deal with Facebook that runs through 2015.