Zynga (NASDAQ:ZNGA) is the world’s largest social gaming company with more than 240 million monthly active users. Its most popular offerings include FarmVille, CityVille and Texas HoldEm Poker. The company has been actively reducing its dependence on Facebook (NASDAQ:FB) for quite some time.
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The relationship between the two companies can be described as complicated at best. In a recent move, Zynga removed the requirement of Facebook login in order to access games on its own website.  The move comes a year after the company launched its own platform for third party game developers.
Approximately 45% of Zynga’s value comes from its cash pool with another 30% coming from new and smaller games (other than FarmVille, CityVille, CastleVille, Empires & Allies and Texas HoldEm Poker) according to our estimates. In other words, a significant portion of our price estimate relies on the expectation that Zynga will continue to launch successful games. One way to ensure this is marketing third-party games, which is what the company has been doing for a while.
Zynga launched its own gaming platform last year in a bid to reduce its dependence on Facebook and to generate additional revenue by hosting and marketing games by other developers. It could potentially become the default cloud gaming platform thanks to the scalability and immense marketing reach it offers, and this could become a potential goldmine for Zynga. In a recent conference, Zynga stated that one of its third-party games, Village Life, has reached 1 million daily active users.  A lot of times smaller game developers may have a compelling product, but not near enough marketing muscle. This is where Zynga can add value.
In addition to this, mobile gaming is going to be another growth driver. The company has laid the groundwork for its mobile presence by partnering with Nokia to provide popular titles in both, its feature phone and smartphone range. While Nokia’s smartphones haven’t done too well compared to Samsung and Apple phones, it is still a top player in the feature phone range in emerging markets and hopes to extend this lead with touch-based feature phones
Our price estimate for Zynga stands at around $3, implying a discount of 10% against the market price.
- Zynga.com gets a huge update, starting next week, Games.com, March 23 2013 [↩]
- Zynga flexes its marketing muscle to support third-party partner games, venturebeat.com, March 25 2013 [↩]