Bubble Watch – Part 2: Social Gaming
In my first bubble watch installment, I took a look at the cleantech industry. To continue our search for the latest bubble, we direct our attention towards the area of social gaming:
A search for “social gaming bubble” on Google returns a whopping 266,000 results. Move over, cleantech! The search in the news section shows an increase from 22 hits in 2009 to 87 in 2010. Getting closer.
The social gaming industry has seen some inspiring transactions: Disney bought Playdom for more than $750 million, Electronic Arts bought Playfish for $400 million, and Google bought Slide for $182 million. Zynga gobbles up one game company after the other, making use of its war chest of more than half a billion dollars that it raised from online media stalwarts like Google, Softbank, and Digital Sky Technology.
Usage numbers are certainly impressive. According to market research company The NPD Group, 20 percent of the US population ages 6 and older reports having played a game on a social network in the past three months. That equates to 56.8 million US consumers. And anything that 20 percent of the US population does, must have some value. About 35% of social network gamers are new to gaming, and at last the interactive entertainment industry seems to have reached the elusive female audience: the majority of social gamers are indeed female.
Is Zynga, at an estimated market value of over $5 billion, a tad frothy? Maybe; but for a three year old company with 320 million registered users and estimated revenues above $500 million, such a growth rate has to account for something.
Gunther Hofmann is a Vice President of The Brenner Group and has done extensive work in valuations, M&A, venture capital, and corporate finance with significant international experience in small firms as well as global corporations. Gunther earned a Masters Degree in Electrical Engineering and Business Administration from Darmstadt University of Technology in Germany, and was a Visiting Scholar at UC Berkeley. He is a holder of the Chartered Financial Analyst designation, and a member of the National Association of Certified Valuation Analysts. Gunther is Chairman of the Software/IT Industry Group of the German American Business Association (GABA).
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