Maker Of Social Game 'FarmVille' Files To Become A Public Company

By Eyder Peralta

Published July 1, 2011 at 6:18 PM EDT

Zynga, the maker of online games like Farmville and CityVille, filed for an initial public offering today with the Securities and Exchange Commission. The company is looking to raise as much as $1 billion from investors.

The Wall Street Journal'sMarketWatch reports:

If completed, Zynga's IPO would be the latest debut of a high-profile online social-networking company this year. LinkedIn completed its IPO in late May, and Groupon Inc. has since filed its own papers for a deal expected to be executed later this year.

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Zynga, which makes popular Facebook games such as "FarmVille" and "CityVille," saw revenues surge nearly 400% to $597.5 million in 2010 and reported a net profit of $90.6 million for the year. Earnings for the first quarter of this year were $11.8 million on revenue of $235.4 million — putting the company on track to surpass the $1 billion mark in revenue this year.

If you're asking yourself how Zynga makes money: users buy virtual goods using real money. And this goes beyond the scope of our blog — and above my head, really — but Dow Jones has a fascinating piece on the unique circumstances that Zynga will face with its accounting. In short, Dow Jones reports, that the company will divide the virtual goods into "consumables and durables" as if they really existed. They point out these examples:

For example, a player of Zynga's CityVille might purchase energy, which Zynga classifies as a consumable because its full use comes at the election of the player. When the player buys the energy, Zynga records the purchase as deferred revenue on the balance sheet, and when that player uses the energy in gameplay, the revenue is recognized on the income statement.

Conversely, a player might buy a tractor on FarmVille to help manage a virtual farm. Similarly, the revenue is immediately classified as deferred, but it is recognized on the income statement ratably over its estimated useful life, just like a durable good in real life.