Maybe Zynga's decision to price its IPO at $10 a share wasn't so bad, after all.
The social-gaming company's stock has risen by more than 14 percent at times this morning, as investors responded positively to the company's strong ties with Facebook.
The world's largest social network yesterday filed its S-1 papers with the U.S. Securities and Exchange Commission, kicking off plans to go public on a valuation that could possibly hit $100 billion. For starters in the IPO, Facebook hopes to raise $5 billion. A deeper dive into its financials yesterday revealed that Zynga currently accounts for 12 percent of Facebook's revenue, making the social-gaming company a key component in the social network's success.
Ironically, it was Zynga's reliance upon Facebook that many analysts complained about before it went public. Prior to its IPO, Zynga reported that 94 percent of its revenue comes from Facebook. During the third quarter of 2011, Zynga revealed that Facebook accounted for 81 percent of its its accounts receivable.
"Zynga is overly dependent on the Facebook platform," Sterne Agee analyst Arvind Bhatia told investors last year. "A slowdown or disruption in the growth of Facebook, or Facebook policy changes, will negatively impact Zynga."
Zynga echoed that sentiment in an SEC filing last year, saying that "any deterioration in our relationship with Facebook would harm our business and adversely affect the value of our Class A common stock."
But as Zynga investors turn bullish on its relationship with Facebook, some analysts think the pairing could be a liability for the social network instead.
"We view Facebook's IPO S-1 filing earlier today as a meaningful positive for Zynga," BTIG Research wrote to investors yesterday. "Zynga is so important to Facebook that it is cited as a risk factor [for Facebook], with Zynga accounting for 12 percent of Facebook's 2011 revenues. Twelve percent equates to about $445 million of Facebook's 2011 revenues, including Facebook's share of Zynga gamers' virtual currency purchases and Zynga's advertising purchases on the Facebook platform."