Zynga Delays Its IPO to Keep the SEC Happy
Social game phenom -- and potentially the most successful tech company looking to go public in 2011 -- Zynga will delay its IPO, possibly until November. According to the New York Post, Zynga will delay its IPO for two reasons.
One is -- surprise! -- that share prices are generally down. Let's all say it together, now: It's the economy, stupid! The other is heightened scrutiny of the S-1 by the SEC, according to the New York Post, which broke the story. In short, when even companies with the best stories to tell have trouble making the IPO march, other tech companies could also face some serious challenges.
Companies that really need the money, like Brightcove, aren't likely to put off their IPO unless they really, really have to. Not so for Zynga, which has plenty of cash and a healthy income stream, and so could keep rolling along without a public payday.
But the company's strong position helps highlight the difficulties that any company will face. Not only are the markets in general rattled and volatile, but the SEC has apparently become a bit weary of high tech's creative accounting. Zynga apparently faces two issues:
Like Groupon, Zynga has faced similar criticism for emphasizing some non-traditional accounting measures. For instance, regulators told Zynga to stop touting a metric it calls "bookings" ahead of strict quarterly revenues.Focusing on bookings may be unusual, but it's not unheard of, depending on the industry. Still, there can be a significant difference between bookings and sales, as Zynga's amended S-1 shows:Also, the SEC was concerned with Zynga's statement in its initial filing that it relied on a small percentage of paying customers for almost all its revenue.
We have launched the most successful social games in the industry in each of the last three years and have generated over $980 million in cumulative revenue and over $1.5 billion in cumulative bookings since our inception in 2007.That's a $520 million difference.
A bigger deal may be that the company says "less than 5 percent of our players have been paying players." The SEC does tend to respond to market conditions, so its concern on this front is likely related to the way any number of tech companies -- such as Demand Media (DMD), LinkedIn (LNKD), Pandora (P), and, last but not least, Groupon -- have strained to put their results in the best possible light using whatever metric they happen to have at hand.
Given how small the customer base is, eventually an investor might wonder about the stability of Zynga's future revenue. For that reason alone, Zynga will likely have to cough up something more specific. Is under 5 percent really 4.6 percent, or 1.8? And, as importantly, is there a trend up or down in the percentage?
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