[go: up one dir, main page]
IDEAS home Printed from https://ideas.repec.org/p/arx/papers/1112.6024.html
   My bibliography  Save this paper

Valuation of Zynga

Author

Listed:
  • Zal'an Forr'o
  • Peter Cauwels
  • Didier Sornette
Abstract
On December 16, Zynga, the well-known social game developing company went public. This event is following other recent IPOs in the world of social networking companies, such as Groupon, Linkedin or Pandora to cite a few. With a valuation close to 7 billion USD at the time when it went public, Zynga has become the biggest web IPO since Google. This recent enthusiasm for social networking companies, and in particular Zynga, brings up the question whether or not they are overvalued. The common denominator of all these IPOs is that a lot of estimates about their valuation have been circulating, without any specifics given about the methodology or assumptions used to obtain those numbers. To bring more substance to the debate, we propose a two-tiered approach. First, we introduce a new model to forecast the global user base of Zynga, based on the analysis of the individual dynamics of its major games. Next, we model the revenues per user using a logistic growth function, a standard model for growth in competition. This leads to bracket the valuation of Zynga using three different scenarios (base one, optimistic and very optimistic): 4.17 billion USD in the base case, 5.16 billion in the high growth and 7.02 billion in the extreme growth scenario respectively. Thus, only the unlikely extreme growth scenario could potentially justify today's 6.6 billion USD valuation of Zynga. This suggests that Zynga at its IPO has been overpriced.

Suggested Citation

  • Zal'an Forr'o & Peter Cauwels & Didier Sornette, 2011. "Valuation of Zynga," Papers 1112.6024, arXiv.org.
    • Handle: RePEc:arx:papers:1112.6024
    as

    Download full text from publisher

    File URL: http://arxiv.org/pdf/1112.6024
    File Function: Latest version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Peter CAUWELS & Didier SORNETTE, 2011. "Quis pendit ipsa pretia: facebook valuation and diagnostic of a bubble based on nonlinear demographic dynamics," Swiss Finance Institute Research Paper Series 11-59, Swiss Finance Institute.
    2. Peter CAUWELS & Didier SORNETTE, 2011. "Quis pendit ipsa pretia: facebook valuation and diagnostic of a bubble based on nonlinear demographic dynamics," Swiss Finance Institute Research Paper Series 11-58, Swiss Finance Institute.
    3. Peter Cauwels, Didier Sornette, "undated". "Quis pendit ipsa pretia: facebook valuation and diagnostic of a bubble based on nonlinear demographic dynamics," Working Papers ETH-RC-11-007, ETH Zurich, Chair of Systems Design.
    4. Peter Cauwels & Didier Sornette, 2011. "Quis pendit ipsa pretia: facebook valuation and diagnostic of a bubble based on nonlinear demographic dynamics," Papers 1110.1319, arXiv.org, revised Nov 2011.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Newman, Russell & Chang, Victor & Walters, Robert John & Wills, Gary Brian, 2016. "Web 2.0—The past and the future," International Journal of Information Management, Elsevier, vol. 36(4), pages 591-598.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Steven Lim, 2012. "Estimating the Final Size of an Online User Base," Working Papers in Economics 12/15, University of Waikato.
    2. Spencer Wheatley & Didier Sornette & Tobias Huber & Max Reppen & Robert N. Gantner, 2018. "Are Bitcoin Bubbles Predictable? Combining a Generalized Metcalfe's Law and the LPPLS Model," Papers 1803.05663, arXiv.org.
    3. Paolo Pellizzari, 2012. "Facebook as an academic learning platform: A case study in Mathematics," Working Papers 2012_01, Department of Economics, University of Venice "Ca' Foscari".
    4. Graef, Inge, 2015. "Mandating portability and interoperability in online social networks: Regulatory and competition law issues in the European Union," Telecommunications Policy, Elsevier, vol. 39(6), pages 502-514.
    5. Schneider, Lorenz, 2014. "Firm value in emerging network industries," Information Economics and Policy, Elsevier, vol. 26(C), pages 75-87.
    6. Feijóo, Claudio & Gómez-Barroso, José Luis & Voigt, Peter, 2014. "Exploring the economic value of personal information from firms’ financial statements," International Journal of Information Management, Elsevier, vol. 34(2), pages 248-256.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:arx:papers:1112.6024. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: arXiv administrators (email available below). General contact details of provider: http://arxiv.org/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.