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IPO Playbook Interview: CrowdStar’s CEO Discusses Zynga, Gaming

Zynga raises $1B in Friday's initial public offering


On Thursday night, Zynga (NASDAQ:ZNGA) raised a cool $1 billion, pricing its stock at $10. It was at the top of its $8.50-$10 range. However, the investor response has been a bit muted in Friday’s trading — at midday, the stock price is down 1% from the offering price and about 8% off its high of the day.

Regardless, the IPO is a huge accomplishment. Zynga now sports a valuation of more than $9 billion, which is higher than entrenched gamemaker Electronic Arts’ (NASDAQ:ERTS) market cap of $7 billion. Keep in mind that Zynga only got its start in 2007.

So what other next-generation game companies should you keep on the radar? One is CrowdStar. Like Zynga, it was one of the first companies to see the potential of the Facebook platform. However, by 2010, CrowdStar realized that competing against Zynga was a losing battle, and it needed to find other avenues for growth. To this end, CrowdStar has been targeting mobile as well as global markets.

To get some perspective on Zynga and the trends in the gaming market, I talked to CrowdStar’s CEO, Peter Relan. Here’s what he said:

Q: How important is the Zynga IPO?

A: It’s an important step in the U.S. in terms of validation of the virtual goods business model, which is thriving in Asia with many public companies like GREE, DeNA, Tencent, Nexon and so on. Keep in mind that this business has thrived for the past two decades.

But with the success of Zynga, the Western audience can take comfort that the model can work here, too. And with the company selling at 10 times revenues, it shows that investors are willing to pay a premium.

Q: How is your company different from Zynga?

A: We are not a Facebook-only games company. We define our mission as social gaming anywhere and everywhere using mobile and global platforms in addition to Facebook. Our revenues are diversified across Facebook, mobile and global using social games. This compares to Zynga, which gets more than 95% of its revenues from Facebook. Also, we target a different demographic. Ours is young females while Zynga’s is middle-aged females, at 35 to 50.

Q: What about mobile? Is this the next big category? Or is there still much more room on the Facebook platform?

A: Mobile is even bigger than Facebook. Facebook still is a PC play from a platform perspective, and that’s limited to 1 billion users. There are only 1.3 billion connected PCs. There are over 2 billion mobile devices, and they are all going to Apple‘s (NASDAQ:AAPL) iOS or Google‘s (NASDAQ:GOOG) Android, and games is the biggest category in their app stores. We think mobile is very big, and it’s already a $500 million-a-year industry for free-to-play virtual goods games that use in-app purchases.

Tom Taulli runs the InvestorPlace blog “IPOPlaybook,” a site dedicated to the hottest news and rumors about initial public offerings. He is also the author of “All About Short Selling” and “All About Commodities.” Follow him on Twitter at @ttaulli. As of this writing, he did not own a position in any of the aforementioned stocks.

Article printed from InvestorPlace Media,

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