Social Networking Zynga

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This report has been downloaded from SharesPost, Inc., but was prepared by Global Silicon Valley Partners under the Next Up
Research brand ("Next Up Research"), and any opinions contained herein are solely the opinions of Next Up Research.
Information contained herein, including but not limited to research, valuations, calculations, estimates and any other material or
sources, is believed to be reliable, however its accuracy and completeness is not warranted or guaranteed, and past performance
is not indicative of future results. These materials are provided for informational purposes only and should not be used or
construed as an offer to sell or a solicitation of an offer to buy any security. SharesPost, Inc. is not acting as nor is it registered as
an investment adviser.
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Investment Highlights
One of the largest developers of social games: With
Social over 230 million in monthly active users on Facebook

alone, Zynga is one of the largest developers of social
entertainment widgets and games. The company, a pure
Networking: play on the social gaming segment, is poised to grow at a

CAGR of 35% from 2009 to 2014 in our estimate. The
widget segment, mostly aided by new entrants should grow
Zynga
at 44%.
Ability to Cross Promote: Zynga games ! FarmVille,

Café World, Texas HoldEm Poker, FishVille and Mafia
Wars rank in the top 10 applications on Facebook. The
company is able to quickly ramp its games in popularity by
Leader in Social cross promoting to its existing user base of over 200
million.
Games
Diversified Distribution: In addition to Facebook, Zynga
also has a significant presence on other platforms such as
MySpace, Bebo, Friendster, Tagged, Yahoo and iPhone.
Many of "#$%&'() %&*+( such as Mafia Wars, and Texas
NeXt Up! HoldEm Poker are also popular on MySpace.
www.nextupresearch.com
February 11, 2010

Valuation: We have used two methods: a) steady-state
target EV/Revenue multiple, and b) comparative
EV/Revenue multiple based on a peer group to arrive at a
market cap of $2.806 - $3.315 billion for Zynga, and an estimated price per share of $14.97 - $17.68 for
common shares.
Investment Concerns
Crowded Marketplace: Facebook alone has over 1 million registered developers, with most applications
rarely exceeding a few thousand in user base. Many popular widget providers such as Slide, LabPixies,
iLike, RockYou and Flixster continue to offer applications that compete for the same user time and ad
dollars. Zynga also faces competition for eye balls from other game providers such as Playdom, Playfish
and CrowdStar. With low switching costs for users to other game platforms, the number of users can
change significantly in a short period.
Any radical change by Facebook to its notification policy could affect Zynga and other application
providers adversely.
This report has been downloaded from SharesPost, Inc., but was prepared by NeXt Up Research, and any opinions contained herein are solely
the opinions of NeXt Up Research. Information contained herein, including but not limited to research, valuations, calculations, estimates and
any other material or sources, is believed to be reliable, however its accuracy and completeness is not warranted or guaranteed, and past
performance is not indicative of future results. These materials are provided for informational purposes only and should not be used or
construed as an offer to sell or a solicitation of an offer to buy any security. SharesPost, Inc. is not acting as nor is it registered as an
investment adviser.
This report issued subject to important legal disclaimers contained on last page of report.
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INVESTMENT THESIS
Leader in Social-Networking Games
With over 230 million in monthly active users on Facebook alone, Zynga is one of the largest developers
of social entertainment widgets and games. The company, a pure play on the social gaming segment is
poised to grow at a CAGR of 35% from 2009 to 2014 in our estimate. The growth in the future is likely to
be at a slower pace, primarily because the company is already one of the largest in the widget space. The
widget segment, mostly aided by new entrants should grow at 44%.
Exhibit 1: Monthly Active Users of Application Developers on Facebook
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Source: AppData
Ability to Cross Promote Games is a Competitive Advantage:
The company continues to promote new games to its existing user base. The company launched its
PetVille only in December 2009. Thanks to strong cross promotion to its existing users, PetVille quickly
th
became the 12 most popular application on Facebook with over 18M monthly active users. We believe
its large user base could be a competitive advantage in bringing out new games even as some of the
older games may lose their luster.
In many instances, Zynga has created its products well after a competitor had established itself. However,
thanks to its formidable size and the ability to add new features, Zynga is able to achieve a high level of
penetration. For instance, Farm Town was started by Slashkey in early 2009. But the product peaked at
19M users (now down to 15M users). Within six weeks of launch, Farmville overtook Farm Town. Café
World, a clone of Restaurant City, achieved a user base of 8M within a week of its launch. It now has
twice the number of users that Restaurant City has.
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Exhibit 2: Monthly Active Users of Zynga Games on Facebook
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Oct-08
Apr-09
Oct-09
Feb-09
Jul-08
Jul-09
May-09
Jan-09
Jun-09
Aug-08
Sep-08
Nov-08
Dec-08
Aug-09
Sep-09
Nov-09
Dec-09
Mar-09
Source: AppData
Valuation: We use the following methods namely a) Multiple of EV/Revenue, b) Target EV based on
steady state revenues, normalized net margins, and a growth multiple to arrive at an enterprise valuation
of $2806 - $3315 million for Zynga.
(a) Multiple of EV/Revenue: With no publicly traded companies in the widget or SNS segment, we
believe a close proxy would be the publicly traded internet software and services companies.We
have used a median EV/Revenue multiple of 6.1x (Appendix A3) assuming long term EBITDA
margin of 35% and growth rate of 40% over the next few years. Using a multiple of 6.1x and
CY10 revenue estimate of $ 460 million, we arrive at a target enterprise value of $2806 million.
(b) Target EV based on Steady State Revenues: Appendix A details our valuation approach and
the choice of our multiple. Assuming steady state revenues of $1100 million in 2014, normalized
net margins of 25%, a growth multiple of 25, we arrive at a target enterprise value of $ 3315
million.
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Investment Concerns
Growth in Users May Not Correlate to Revenues: Only a small fraction (about 2 - 3%, in our estimate)
of users actually makes any form of payment to Zynga. As with most social networking sites, future
growth in user base could come from emerging economies, where revenue opportunity per user is often a
fraction of what it is for the US.
,-.+/+01) (233-045$%) (267) &) 2(+0) 8&(+) 6-$45$2+() 4-) 9+*&$9) 6-$(4&$4) 23%0&9+) 4-) 47+) 6-*3&$#'()
infrastructure. Accordingly, we are concerned that at some point the increased capital expenditure may
not result in commensurate revenue opportunity.
Crowded Widget Space: We expect the revenue growth of the widget space to have a CAGR of over
40% for the next several years. But the industry growth is likely to come primarily from the entry of more
developers. We note that Facebook now has over a million registered developers, up from 650k only six
months ago. We expect the vast majority of these developers to have low growth rates and compete for
the same user base.
Zynga Vulnerable to Platform Policies Enforced by Facebook:
In March 2010, Facebook is likely to make adjustments to its notification policy for games. Although
Zynga is one of the largest sources of revenues for Facebook, the policy tweak could affect Zynga in
unintended ways. For instance, Facebook 420$+9) -::) 47+) /50&;) 6-*3-$+$4() -:) <-6=>-2'() ?23+0) @&;;)
application in July 2008. Average daily users of Super Wall nosedived from 2.4 million to 0.6 million within
&) *-$47'() 45*+A) ?23+0) @&;;) 959) $-4) 0+6-/+0) from the slump and currently has 0.3 million average daily
users.
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MARKET OVERVIEW
Over 75% of the US internet users have used a web widget, sometimes unknowingly. Such applications,
which appear on many social networking sites, allow users to integrate their social experiences with their
community of friends and acquaintances. Some of the most popular widgets include music lists, videos,
photo slide shows, post-it notes and virtual pets that can be fed or dressed.
In some cases, widgets are created and customized on another site, such as Slide or Photobucket
(owned by MySpace). The site that creates the content generates a string of software codes to be copied
&$9) 3&(4+9) -$4-) &) 2(+0(') .+8) 3&%+A) B7+) .59%+4) 6-9+) 6&$) 8+) 5$(4&;;+9) &$9) +C+624+9) .547-24) 0+D2505$%)
additional compilation. The widgets usually use DHTML, JavaScript or Adobe Flash for execution.
Social network companies such as Facebook and MySpace host these applications and provide the
underlying platform services through special-purpose application programming interfaces. The social
networks (such as MySpace or Facebook) offer hardware and software infrastructure, as well as access
to the social network's end user base. This frees up the resources of the application provider for R&D.
Such application providers can range from a single programmer to large established firms such as Slide
or RockYou.
Exhibit 3: Widgets Ecosystem
Platform
Widgets
Data
Money
Advertiser Users
Source: NeXt Up Research
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Widgets and applications account for only 5% of the total online social network advertising spending
budget. However, increasingly widgets are a key driver of traffic and time spent on a social networking
site. Widget providers can gather a variety of information about the user based on the type and frequency
of the widget usage. This should allow a potential advertiser to tailor its message to the user. Accordingly,
we expect revenue growth for widget creators to significantly outpace that of social networking sites
(Exhibit 4). We estimate that advertisers will spend an estimated $2.35 billion on social networks
worldwide in 2009, a 17% increase from 2008 levels. This growth pales in comparison to the 75% year
over year growth we expect for widgets in 2009.
Exhibit 4: Worldwide Advertisement Revenues Earned by Social Network Sites
$4 1400
($, billions, SNS) SNS Widgets ($, millions, Widgets)
1200
$3 CAGR: 12%
1000
CAGR:
53%
800
$2
600
400
$1
200
$0 0
2006 2007 2008 2009 2010E 2011E 2012E 2013E
Source: eMarketer and NeXt Up Research estimates
We attribute the rapid revenue growth to the explosion in the number of developers as well as increasing
revenue per application. With low barriers to entry, even part time programmers can become developers
of applications. We note that Facebook alone has over 1 million registered developers, up from 660k
registered developers only a few months ago.
For game developers such as Zynga, the correct metric is monthly active users, which has a high
correlation to revenue potential. RockYou leads among widget developers space in terms of unique
visitors (Exhibit 5). However, In terms of monthly active users, Zynga is currently the largest application
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developer on Facebook with nearly 227.5M monthly active users. "#$%&E( user base has increased from
30 M in April 2009 to 228 M in January 2010. We believe that the widget market for SNS is still in early
stages of adoption and that changes over a few months may not necessarily portend a trend. Most users
often use multiple networking sites and several widgets on each of them.
Exhibit 5: Unique Users in Widget Segment

160
!" Slide, Inc RockYou Flixster
Zynga LabPixies Playf ish
140
120
100
80
60
40
20
0
Dec-2008 Feb-2009 Apr-2009 June-2009 Aug-2009 Oct-09 Dec-09
Source: comScore and NeXt Up Research
Various versions of widgets have been in existence since the launch of GUI (graphical user interface) in
1981. The earliest form of such an application can be traced to that by Bud Tribble and Andy Hertzfeld,
who showcased a concept called "desk ornaments" for the original Macintosh operating system. These
ornaments, later renamed accessories, wrapped small computing functions such as a calculator, notepad,
or simple games within a single application.
In 1996, Netscape offered the PowerStart widget as part of its Navigator browser. Netscape PowerStart
was a personal start page application built-in to the Netscape Navigator web browser in 1996. PowerStart
gathered various pieces of information such as e-mail, stock quotes and weather reports and displayed
them in a single page. Fotki, founded in 1998, started as a site for sharing photos. It has subsequently
added other features such as video sharing, photo printing and blogging. In October 2000, Stardock
released a new GUI engine for Windows named DesktopX, a widget that displays system information
such as CPU, memory utilization, news tickers and live updates from the web. Arlo Rose and Perry
Clarke released Konfabulator for Mac OS X as a shareware project in 2003. Konfabulator was
subsequently incorporated as Pixoria, which was acquired by Yahoo! in July 2005.
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Exhibit 6: Timeline of prominent Social Application developers
Year Company Description
Started for close circle of friends. Allows photo-sharing, photo-printing,

1998 Fotki
photo-selling and blogging site.
Yahoo! Widgets
(Previously Free application platform for Mac OS X and Microsoft Windows.
known as Includes a weather widget, a digital clock, and RSS feed readers
Konfabulator)
2003
NewsGator Provides RSS feed readers
Image hosting, video hosting, slideshow creation and photo sharing

Photobucket
website.
Slide Leading provider of applications and widgets on the web.

2005
Allows user to create greeting cards, scrapbooks, slideshows, and
Smilebox
birthday cards using photos, videos, and music.
Web application that produces videos from user-selected photos and

Animoto
music.
Allows user to create, remix, and share photos, videos, with others via
Flektor
email, on mySpace, or in blog.
Allows user to share movie ratings, discover new movies and meet
Flixster
others with similar movie taste.
iLike Online service that allows users to download and share music.
2006
Imageloop Allows the users to create animated slideshows
LabPixies Ltd. Search tools and calculators.
RockYou Leading provider of applications and widgets on the web.
Web widgets for blogging, social networking services, and personal

Widgetbox
websites.
Playfish Free to play casual social games
Developer of casino games, word games, board games, role playing

2007 Zynga
games and party games
Allows user to upload, organize, and share music, photos, and video
oosah
files.
Allows users to create animation with uploaded pictures, music and

2008 SAMP2
personalized message.
Source: Company Reports and NeXt Up Research
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COMPETITIVE LANDSCAPE
Most users often use widgets from a variety of suppliers. Accordingly, the demographic distribution of
most of the application providers looks similar (Exhibit 7). It is not unusual for a Facebook user to be
playing games from Zynga, while (5*2;4&$+-2(;#) (+$95$%) &) 850479&#) 6&09) 4-) 75() :05+$9) 2(5$%) <-6=>-2'()
applications.
Many of the widgets target various needs of a particular user and often do not offer the exact same
alternative. With the market in an early adopter stage, over a million developers are competing for the
(&*+):5$54+)3--;)-:)&9)9-;;&0()&().+;;)&()&)2(+0'()320(+A
Exhibit 7: Demographic Distribution of Widget Providers
106.8M 79.1M 15.1M 12.3M 1.4M
30.5% 30.7% 27.5%

34.0%
42.7%
21.0%
28.3% 28.6%
26.9%
22.8%
20.3%
19.5% 21.8% 22.5%

17.0%
31.2%
19.6% 17.5% 19.5% 18.3%
Slide, Inc RockYou Flixster Zynga LabPixies

Age:15-24 Age:25-34 Age:35-44 Age:45+
Source: comScore, NeXt Up Research
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RockYou (Private)
Redwood City, California
http://www.rockyou.com
RockYou (originally NetPickle) was founded by Lance Tokuda and Jia Shen in 2006. The company
creates self-expression widgets which can be used to enhance the look and feel of blogs, personal
websites on social networks. Users can express themselves by designing their profile page to reflect their
personality. They can also connect and discover friends through various RockYou applications.
RockYou has over 213 million users worldwide (of which 64 million are active monthly users) and 15
billion global impressions from over 200 countries. RockYou applications seamlessly integrate across all
social networks such as Facebook, MySpace, Orkut, Bebo, Friendster, Tag and Hi5. Headquartered in
Redwood City, California, RockYou currently has 105 employees.
<-6=>-2'():50(4)30-9264).&()&)(;59+(7-.)(+0/56+).7567).&()9+(5%$+9)4-).-0=)&()&$)&33;56&45-$).idget. In
2006, co-Founders Lance Tokuda and Jia Shen were sued by their former employer Iconix on the charge
that Tokuda and Shen were working on a slideshow application for Iconix while the pair was engaged in
creating RockYou. A preliminary injunction was passed in favor of Iconix before the intellectual property
case was finally settled out of court.
<-6=>-2'() %0-.47) (.2$%) 5$4-) 75%7+0) %+&0 once Facebook opened up its platform for application
developers in May 2007. The number of registered users of RockYou applications grew nearly 4x in a
matter of six months.
RockYou launched RockYou Live or Super Wall application and Likeness on Facebook in September
2007 and for a brief period was the largest application developer on Facebook with over 3 million daily
active users in December 2007. Super Wall was the top RockYou application on Facebook in December
2007.
B7+) 6-*3&$#'() 305*&0#) (-206+) -:) 0+/+$2+() 6&*+) :0-*) &9() 47&4) .+0+) (+0/+9) 950+6tly or as product
placement along with its various widgets. We believe that RockYou Ads has become the largest
independent ad network in social media with more than 213 million monthly total unique visitors
worldwide and more than 15 billion monthly impressions.
In 2009, we expect RockYou to achieve revenues of $36M, nearly 3x that of its 2008 run rate. RockYou
has received four rounds of funding totaling $118 million from Softbank, SK Telecom Ventures,
Lightspeed Venture Partners, Partech International and Sequoia Capital.
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Slide (Private)
SanFrancisco, CA
http://www.slide.com/
PayPal co-founder, Max Levchin, founded Slide in 2005 with an investment of $1M. The company started
as a project in 2004 to develop and run a service that enables users to organize photos on their
computers and post them to personal blogs. Slide is one of the largest developers of social entertainment
applications with more than 106 million monthly active users in more than 200 6-2$405+(A)?;59+'()3-04:-;5-)
of products includes fun applications and virtual communities such as Slideshow, SuperPoke! SuperPoke!
Pets, Top Friends, FunSpace, Rock Riot, SuperPocus: Academy of Magic and Top Fish.
The company initially started making software widgets for MySpace and other social networks. The
6-*3&$#'s big break came in May 2007, when Facebook opened its platform to third-party applications,
and with fewer restrictions than MySpace. Several of Slide's plug-in applications such as "Slide
F2$?3&6+G) H:-0*+0;#) =$-.$) &() EF2$@&;;'I1) GF-042$+) J--=5+G1) GK#) L2+(45-$(G1) GB-3) F05+$9(G1) &$9)
"SuperPoke!" soon became one the most popular applications on Facebook.
?;59+'() 30-9264) -::+05$%() 5$545&;;#) 4&0%+4+9) 47+) 47+$) ;&0%+) 3;&4:-0*) -:) K#?3&6+1) 824) $-.) 47+) 6-*3&$#'()
widgets are available on a number of sites including Facebook, Bebo, Hi5, Tagged and Blogger.
The company also provides image hosting, personalization tools, and social networking opportunities
through Slide.com. Users can choose skin, and add music and animation of their own choice. The users
can also give and receive awards, exhibit moods, and keeps tabs on other users.
In addition to blogs and forums, members can express themselves by designing their profile page to
reflect their personality. Members can also share photos and create customized slide shows. The music
and video sections of Slide.com remain among the most popular applications. In these sections,
members can listen to their favorite songs and watch music videos. The video section can include
everything from member!generated videos from hundreds of subjects to TV clips and movie trailers.
The company employs 114 people. Senior management includes Max Levchin (CEO and Chairman),
Kevin Freedman (Chief Financial Officer), Keith Rabois (Vice President, Strategy and Business
Development), Mike Young (Vice President, Engineering), Mike Huang (Vice President, Product) and
John Duncan (General Counsel).
Slide has received four rounds of funding amounting to a total of $ 82.84 million. It received Series A
funding of $1.2 million from angel investors in June 2005. Its Series B funding of $8 million came from
BlueRun Ventures and Founders in July 2005. Blue Run Founders also participated in Series C funding of
$20.52 million in October 2006A)B7+)6-*3&$#'()*-(4)0+6+$4):2$95$%):-0)?+05+()M of $50 million came from
Fidelity Investments and T Rowe Price Threshold Partnerships in January 2008.
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Playfish (Private)
London, England
http://www.playfish.com
Playfish was founded in 2007 by Kristian Segerstrale, Sebastien de Halleux, Sami Lababidi, and Shukri
Shammas. Playfish is headquartered in London but has offices in Beijing and Tromso (Norway).
The company is a developer of free social games that can be played on platforms such as Facebook,
MySpace, Google, Bebo, iPhone and Android. Over 150 million Playfish games have been installed and
played by millions of users. B7+) 6-*3&$#'() Pet Society is its flagship game and one of the fastest
growing third party applications on Facebook with a user base of more than a million.
Exhibit 8: Top Playfish games
Game Name Details
The user can play different games

Pet Sociey and carry out activities such as
playing ball, jumping rope or going on
a treasure hunt
Restaurant city Lets the user create his/her own

restaurant and run it
Country Story Allows the user to enjoy the tranquil

pleaures of his/her own country home
Series of Mini games which tests a
person's abilities in four areas -
Who has the
concentration, memory, logic and
Biggest Brain
visual and then result in an overall
brain rating
Most of Playfish'()0+/+$2+()6-*+):0-*)54()%&*+()&$9)(&;+)-:)/5042&;)%--9(A)B7+)3&#*+$4)5()*&9+)470-2%7)
micro-payment services such as PayPal. It also gets some revenues from in-game advertisements.
In October 2008, Playfish secured $17M in venture capital funding from Accel Partners and Index
Ventures. Playfish was acquired by Electronic Arts Inc (EA) on November 9, 2009 and now operates as a
division of EA focused on the web and wireless. We estimate that N;&#:5(7'() OPPQ) 0+/+$2+) was about
$40M million and that EA apparently paid $400 million for the acquisition. We expect EA to realize
synergies between console and social gaming.
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iLike (Private) !!!!!!!!!!!!!!!!!!!!!!!!!!

Seattle,WA
http://www.ilike.com
In 2002 Ali Partovi led the effort to save GarageBand.com from being shut down. In 2006, Ali with the
help of his twin brother Hadi, started iLike. With more than 60 million users, iLike helps users share music
recommendations, playlists and personalized concert alerts.
iLike is a social music discovery service and the leading music application on many platforms such as
Facebook, Orkut, hi5, Bebo and Google.
B7+) 6-*3&$#'() EK2(56') 5() one of the most popular applications on Facebook. iLike also builds iPhone
applications for artists that integrate with Twitter, YouTube, MySpace and more. iLike aims to promote
music democracy by giving exposure to artists that users may have never heard of but would like to hear
as part of their listening habits.
iLike received $2.5 million in Series A funding and $700k in angel funding. In December 2006, iLike
secured $13.3M from Ticketmaster, in exchange for a 25% stake. However, the company ran into the red.
In September 2009, iLike was acquired by MySpace. It now operates as a fully owned subsidiary of
MySpace.
Exhibit 9: Products
Category Products Details
Enables fans to discover and share playlists, find new music

iLike.com that matches their personal tastes and concerts of their
favorite artists
Fans
iLike Slidebar Scans one's music library, recommends new music, and
helps in connecting musically with friends
iLike music application on
leading SNS Dominant music application on many SNSs
Universal Artist Dashboard

Manage their presence on many SNS, syndicate their music
and content across the web
Artists Multimedia blogging tools
Short video montage which features major acts of artists who

Artist Video "Greatest Hits" have posted exclusive video content on iLike for syndication
across the web
Helps in creating multimedia ads that target users by location
Promoters Music Promotion Platform
and music taste
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Playdom
Mountain View, CA
http://www.playdom.com
Founded in 2008 by Rick Thompson and Dan Yue, the company was formerly known as YouPlus. The
6-*3&$#'()+&0;#);&2$67+().547)F&6+8--=):;-33+9A)R24)54).&()/+0#)(266+((:2;).547)K#?3&6+A)By mid-2009,
Playdom became one of the largest game developers on MySpace, with nine games among Top 25 on
that platform. Its game Mobster is among the top games on MySpace.
In May 2009, Playdom re-entered the Facebook platform with more success. It now gets 40% of its traffic
from Facebook. The company offerings for Facebook include Mob Wars, a game similar to Mobsters. The
6-*3&$#'() F&0*) S5:+) 6-*3+4+() .547) "#$%&'() F&0*/5;;+. Playdom has 14 applications on Facebook
including popular games such as Tiki Farm, Sorority Life and Wild Ones.
@+) +(45*&4+) 47&4) 47+) 6-*3&$#) 7&() &$) &$$2&;) 0+/+$2+) 02$) 0&4+) -:) -/+0) TUPKA) B7+) 6-*3&$#'() revenue
stream consists of direct payments (70%), advertising (20%) and offers (10%). Playdom games have a
spend rate of about 5%, higher than those achieved by others such as Zynga.
The company has had only one round of funding. In November 2009, it secured $43 M (a post money
valuation of $260M) from Rick Thompson, New Enterprise Associates, Lightspeed Venture Partners and
Norwest Venture Partners.
In Q4 2009, Playdom acquired Green Patch, a Facebook widget developer best known for its garden
simulation game and iPhone application developer Trippert Labs. Trippert Labs is a developer of several
iPhone applications such as MobAir and Blowfish.
B7+) 6-*3&$#'() (+$5-0) *&$&%+*+$4) 5$6;29+(V) M&$) >2+) HJ75+:) N0-9264) W::56+0I1) <56=) B7-*3(-$)
(Chairman), Chris Wang (CTO) and Ling Xiao (VP, Engineering), John Pleasants (CEO) and Steve
Meretzky (VP Game Design). Headquartered at Mountain View, California, the company has 110
employees.
CrowdStar
Dublin, Ireland
http://www.crowdstar.com/
CrowdStar was founded in 2008 by web entrepreneur Suren Markosian and Jeffery Tseng (a former
creative director at Sega). Headquartered in Burlingame, CA, CrowdStar aims to make games that have
$-)X(6&**#Y)-::+0()-0)&9/+045(+*+$4(A)B7+)6-*3&$# started by offering games such as Know-It-All-Trivia
(a trivia game), Save The Reef and WWII for Facebook platform. However, most of these games
achieved only limited success.
In September 2009, the company launched Happy Aquarium, a game similar to FishVille. Within two
months, the game shot past other established popular games such as Pet Society. We estimate that the
6-*3&$#'()%&*+()&440&64)-/+0)ZPK)monthly active users. In November 2009, CrowdStar launched Happy
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Pets, which now has over 11M monthly active users. Unlike the games developed by its competitors, the
games developed by CrowdStar focus on caring and loving pets/fish rather than growing them for sale at
a later stage. Other popular CrowdStar applications on Facebook are Happy Island and Restaurant Life.
The company derives revenues only from virtual goods sales based on direct payments. Unlike Zynga
and Playfish, the company does not have revenues from in-game ads or offers (which can sometimes
reduce user experience).
CrowdStar received angel funding from Peter Relan who is now Executive Chairman of CrowdStar. The
company has 20 employees.
6 Waves
Causeway Bay, Hong Kong
http://www.6waves.com/
Founded in early 2008 by Rex Ng and other former Yahoo employees, 6 Waves is a leading Honk Kong
based developer of gaming applications for Chinese and other non-English users. The company also
supports games in Spanish, German, French, Turkish and Italian. The company also offers its games on
other social network platforms such as Mixi, Cyworld, Netlog and Vkontakte. 6 Waves is now one of the
largest Facebook developers on Facebook, operating nearly 141 applications with 44M monthly active
users and 9M daily active users.
Some of the popular games of 6 Waves include World Poker, Animal Paradise, Happy Harvest, My
Fishbowl, Crazy Office and Medical Mayhem.
Initially 6 Waves depended heavily on in-game advertising. Now the company offers other services such
as a translation service, cross promotion of third party applications, sale of virtual goods and consulting
provided to developers on making their games profitable. In addition to cross promotion, 6 Waves also
helps developers by providing distribution, localization, monetization and infrastructure solution to
increase the user base of their games on social networks.
6 Waves has received a $17.5 M round of funding from Insight Venture Partners. Headquartered at Hong
Kong, the company has 18 employees. The company has plans to build function specific teams in
Singapore, Taiwan and US.
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Exhibit 10: Popularity Parameters on Facebook
Monthly Active Daily Active

Users (M) Users (M)
Zynga 227.5 64.4
RockYou 71.1 6.7
CrowdStar 51.9 11.5
Playfish 50.4 9.6
Playdom 23.6 3.6
Slide 20.6 1.1
iLike 14.3 0.8

?
Source: Inside Facebook
Exhibit 11: Total Popularity Parameters (U.S)
Visits (M) Unique Visitors (M)
Zynga 347.9 20.5
RockYou 147.5 27.8
CrowdStar 55.2 5.1
Playfish 29.5 3.8
Playdom 33.5 4.8
Slide 10.6 4.7
iLike 4.9 3.6

!
Source: Compete
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M&A and Partnership Activities

Zynga acquired YoVille in July 2008, shortly after raising $29 M Series B funding. YoVille offered
simulation games such as YoVille. At the time of acquisition, YoVille had 150k daily active users. We
believe the technology from YoVille was instrumental in helping Zynga move from interactive games to
simulation games such as Farmville and Mafia Wars.
Zynga entered into a partnership with San Francisco SPCA in May 2009 to raise awareness in helping
homeless animals. The agency has collected $20k through the partnership. Users of YoVille can adopt
special SF/SPCA shelter cats and dogs from the in-game shelter through virtual money transactions
which are in fact paid by users using real money.
Zynga acquired MyMiniLife in August 2009. MyMiniLife is a social networking site that enables users to
build and decorate environments. [(5$%)47+)6-*3&$#'()3roducts, users can create their own spaces and
homes. The economic activity on this game includes building properties, selling and buying objects using
MyMiniLife virtual currency. We expect Zynga to enhance its Farmville products with the competence
from MyMiniLife team.
Zynga acquired GoPets in October, 2009. GoPets was an online gaming site that allowed users to create
&$9) 0&5(+) &) 62(4-*5\+9) ]M) 3+4) .7567) 6-2;9) 8+) 9-.$;-&9+9) 4-) 47+) 2(+0'() 9+(=4-3A) GoPets included a
evolved set of virtual goods monetization features such as mini-game section, multi currency virtual
economy and a premium subscription service. Zynga used competences from this acquisition in the
launch of PetVille in December 2009. Zynga shut down the GoPets site on November 8, 2009. GoPets
employed around 55 people.
In Feb 2010, Zynga announced the acquisition of Serious Business, a small private company founded by
Alex Le and Siqi Chen (both engineers from Powerset) in early 2008. The firm raised $4M in funding
backed by Lightspeed Ventures. Popular games from Serious Business include Friends For Sale and
Rock Legends. We estimate that the San Francisco based firm had about 20 employees.
The company has also extended its co-operation with its main host ! Facebook. Zynga was an early
adopter of F&6+8--=) 6200+$6#) :-0) 54() %&*+) XN50&4+(V) <2;+) 47+) J&0588+&$^YA) F0-* February 2010,
F&0*/5;;+'( 75 million monthly active users will have the option of buying virtual tractors and seeds by
paying with Facebook currency. We estimate that Facebook would charge Zynga a flat rate of 30% per
transaction.
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COMPANY BACKGROUND
Zynga was founded in June 2007 by Mark Pincus, a former management consultant and venture
capitalist. Mark Pincus was one of the early investors in Facebook. In early 2007, Pincus learnt that
Facebook would soon open its site to third party software developers. He and his small team comprising
Michael Luxton, Eric Schiermeyer, Justin Waldron, Andrew Trader and Steve Schoettler launched their
first game on Facebook which later became popular as Texas HoldEm Poker.
"#$%&) .&() $&*+9) &:4+0) "5$%&1) N5$62('() _]) #+&0) -;9) `*+056&$) 82;;) 9-%) .7567) 95+9) 5$) ;&4+) OPPaAThe
company, based in San Francisco, has 350 employees. Zynga currently has 228 M monthly active users
and 66 M daily active users on Facebook.
Launches Several Games that Rank Among the Most Popular:
B7+) 6-*3&$#'() 5$545&;) %&*+() .+0+) 420$) 8&(+9) (-65&;) %&*+(A) b$) 47+(+) %&*+(1) 2(+0() 3;&#) 7+&9-to-head
with each other. Users can even login in to the game at different times in the day for an asynchronous
session and wait for other users to make their moves. Zynga launched several games with these
attributes. Popular games that it launched include Scramble, PathWords, Word Twist and Sudoku. The
company also started offering its popular products on other social networks such as Facebook, MySpace,
Bebo, Friendster and Hi5.
In June 2008, Zynga launched an asynchronous game, Mafia Wars which grew to more than four million
daily active users within three months. In July 2008, Zynga acquired YoVille, a large virtual world social
network game. At the time of acquisition, YoVille had 150k daily active users. We believe the technology
from YoVille was instrumental in helping Zynga move from interactive games to simulation games such as
Farmville, FishVille, Café World and PetVille. Zynga had 18 M monthly active users on Facebook.
Zynga launched a mobile version of Texas HoldEm Poker game known as Live Poker for iPhone users in
November 2008. Live Poker was one of the first applications to make use of Facebook Connect. Within a
week of its launch, Live Poker became the leading free game and eight most downloaded application in
the iTunes Application Store. Zynga had a monthly user base of 32 M on Facebook in November 2008.
In March 2009, Zynga launched the mobile version of its word game Scramble on iPhone. Zynga
released a version of the Mafia Wars game as a downloadable iPhone application in April 2009A)"#$%&'()
monthly active user on Facebook had increased to 45 M by then. "#$%&'() 3-32;&0) %&*+) ;&2$67+() -$)
MySpace are Mafia Wars, Texas HoldEm Poker, Vampires, Street Racing, YoVille, Dragon Wars, Gang
Wars, Fashion Wars, and Special Forces. Mafia Wars is the second most popular Zynga game on
MySpace with 13 M total users.
In June 2009, the company launched its blockbuster Farmville, which became an inflection point in the
6-*3&$#'()%0-.47)40&c+64-0#A)@5475$)&):+.).++=(1)F&0*Ville became one of top applications on Facebook.
The company used the success of FarmVille to cross promote their new simulation games. Within two
*-$47() -:) F&0*d5;;+'() ;&2$671) "#$%&) 5$60+&(+9) 54() 2(+0) 8&(+) :0-*) ZP) K) *-$47;#) &645/+) 2(+0() 5$) e2$+)
2009 to 97.5 M monthly active users in August 2009.
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In August 2009, Zynga acquired MyMiniLife, a social networking site that allows the user to build and
decorate environments. The technology of virtual goods monetization used in MyMiniLife is now used in
FarmVille.
In August 2009, Zynga launched Roller Coaster Kingdom on Facebook, a game that allows users to build
and manage virtual theme parks. Zynga launched Café World on Facebook in October 2009. Café World,
built around the theme of a restaurant business, reached a user base of 8.6 M users within a week of its
launch.
In November 2009, Zynga launched a dedicated web portal for FarmVille. Users connect to this site using
Facebook connect integration. This move allows Zynga to provide its users with a more engaging
experience as this site will be free of the normal Facebook interface running around the borders and
allows them a lot of flexibility in design. Zynga plans to port its other games to a separate portal based on
the success of FarmVille.com. @+)8+;5+/+)47&4)47+);&2$67)-:)"#$%&'()%&*+()-$)(+3&0&4+)3-04&;().5;;)$-4)
be very successful because these games on social networks make use of user notifications to attract new
users.
Zynga launched FishVille on Facebook in November 2009. FishVille is based on the same concept of
Happy Aquarium from Crowdstar. The scam offers, which had been part of the ScamVille scandal, got
back in to the game. Zynga and Facebook took the game down and re-launched it without the scam
offers. In December 2009, Zynga launched PetVille on Facebook. PetVille marks the entry of Zynga in to
the crowded virtual pet genre of social games. The launch of PetVille, FishVille and growing user
(28(605345-$) -:) &;;) "#$%&) %&*+() 6&4&32;4+9) "#$%&E() *-$47;#) &645/+) 2(+0) 8&(+) :0-*) _fO) K) 5$) W64-8+0)
2009 to 230 M in December, 2009.
Zynga has launched FarmVille on Windows Live Messenger and MSN Games on February 4th, 2010.
Users can login using Facebook Connect and play FarmVille with more than 75 million players no matter
which site they log onto. Zynga is also planning to launch its other games on MSN Games and Windows
Line Messenger. If gamers are able to play Facebook games seamlessly from MSN Games, this could be
the start of Facebook applications spreading to other popular game destinations such as Yahoo.
Controversy aka ScamVille Scandal
We estimate that the company receives 10 - 20% of its revenues from in-game offers such as those
OfferPal Media and SuperRewards.
OfferPal Media allows end customers to earn virtual currency if they answer surveys, get a subscription or
partake in advertising offers. Many of these offers were little more than lead generation for OfferPal and
similar lead generators. There are instances when a user may not be aware of the full extent of the
monetary commitment or cancellation procedure at the time of signing up for an offer. For instance, users
can get tricked into a mobile phone subscription merely because they entered their phone number as part
of getting results for a quiz. It is not just the users who were affected. Firms that pay for lead generation
also found that the quality of leads was worsening (as some users subscribed to the same offer multiple
times).
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When the controversial aspects of the in-game promotions were brought to light by TechCrunch in
October 2009, Zynga took actions to remove some of the more egregious offers. But when Zynga
launched FishVille in November 2009, many of these scam offers resurfaced. Facebook made Zynga
take FishVille offline until the scam offers were removed. Zynga re-launched FishVille in December.
FishVille is now one of the most popular games on Facebook.
Financing Rounds
Zynga has obtained three rounds of funding amounting to a total of $219M. In July 2008, Zynga secured
$29M of Series B funding from KPCB, IVP, Union Square Ventures, Foundry Group, Avalon Ventures. In
December 2009, Zynga obtained Series C funding of $180M from Digital Sky Technologies (a large
investor in Facebook), Andreessen Horowitz, Institutional Venture Partners and Tiger Global.
Exhibit 13: List of Zynga games on Company Website
Game Launch Remarks
Texas holdEm Poker Jun-07 First Game launched by Zynga

Scramble Jun-07 Adaptation of Scrabble
Word Twist Jul-07 Word Combinations
Dragon Wars Jul-07 Popular on MySpace
Street Racing Jul-07 Popular on MySpace
Vampires Jul-07 Time based pyramid game
Special Forces Jul-07 Commando game
Mafia Wars Jun-08 Popular on Facebook and MySpace
YoVille Jul-08 Acquisition which led to creation of Sim Games
PathWords Sep-08 Adaptation of Scramble puzzle
Pirates Mar-09 Pirates plunder the seas
FarmVille Jun-09 First blockbuster game on Facebook
Roller Coaster Kingdom Jul-09 Theme park simulation game
Fashion Wars Aug-09 Popular on MySpace
Café World Oct-09 Restaurant building game
FishVille Nov-09 Virtual Aquarium
PetVille Dec-09 Raising of Pets
Source: Company Reports and Next Up Research
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Exhibit 13: List of Zynga games on Company Website
Source: Company Reports
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PRODUCT
Zynga offers a variety of games that can be played on multiple social network websites such as
Facebook, MySpace, Bebo, Friendster, Tagged, My Yahoo and smart phones such as the iPhone.
Once a user logs onto a game application, he can start inviting friends to play with him. Users can also
chat with their friends while playing Zynga games. "#$%&'() %&*+() &0+) =$-.$) :-0) 47+50) 75%7) (456=5ness
quotient i.e. users get entrenched in the games they play. With the progression of time, users move on to
higher levels of the game but need to keep playing the game at periodic intervals in order to maintain their
position. Users help advertise for Zynga games by placing advertisements in their real estate and by
notifying friends about their advances in the game.
Exhibit 14: Zynga games on different networks
Games Facebook MySpace Bebo Friendster Tagged MyYahoo iPhone
MafiaWars X X - - X X X
Cafeworld X - - - - - -
FishVille X - - - - - -
PetVille X - - - - - -
Roller Coaster X - - - - - -
Zynga Poker X X X - X X X
YoVille! X X - - X - -
Vampires X X - - - - -
Street Racing X X - - - - X
Pirates X X - - - - -
Dragon Wars X X - - - - -
FarmVille X - - - - - -
Special Forces X X - - - - -
Fashion Wars X X - - - - -
Blackjack X - X X - - -
Scramble X - - - - - X
Word Twist X - - - - - -
PathWords X - - - - - -
Sudoku X - - - - - -
Scramble 2 - - - - - - X
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FarmVille
FarmVille is the most popular application on Facebook with nearly 73.6 M monthly active users. The
game,
launched in June 2009, allows users to build farms and create customized avatars to work on the farms.
The various activities which can be performed by the users include plowing land, planting crops and
harvesting them. Users can purchase various items such as trees, seeds, animals, buildings, vehicles
and land using FarmVille coins. Plants on the farm can have various harvest times. The plants need to be
harvested before that time so that they do not die. Users earn coins when they perform various activities
such as harvesting crops. Using these points the players can graduate to the next level in the game.
FarmVille coins can either be earned by performing various activities on the game or exchanged for real
world currency. F&0*d5;;+'() :eatures are similar to that of ?;&(7=+#'() F&0*) B-.$1) .7567) saw its user
growth reduced from 19 M monthly active users to 15 M within six weeks of the launch of FarmVille.
FarmVille users contributed $487500 towards the welfare of children in Haiti in October 2009.
Exhibit 15: FarmVille Standalone Portal
Cafe World
Cafe World, launched on Facebook in October 2009, is a restaurant empire building game. Users can
actively participate in cooking dishes for the restaurant in a social way. Users can select a dish, buy the
ingredients required for making it and then cook it over a period of time. Users can return to the game
when the cooking is done and serve it to customers.
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Cafe World was launched six months after the launch of Restaurant City by Playfish. There are many
similarities between the two virtual restaurant games such as the layout of the restaurants, view of the
street on the side, design and animation of characters. In the first seven days, Café World got more than
th
eight million users. Restaurant City is the 18 most popular application on Facebook with nearly 14.5 M
monthly active users and 3.6 M daily active users. Cafe World on the other hand is the second largest
application on Facebook with 30.2 M monthly active users.
Exhibit 16: Café World on Facebook
FishVille
FishVille launched in November 2009, belongs to the genre of Facebook applications which are built
around the idea of virtual aquarium. Users are given a virtual aquarium with a few fish to start with. Users
can harvest the fish, sell them and use the earnings to buy fish eggs and then feed the fish. As with other
Zy$%&'()%&*+(, users need to wait for a certain amount of time for the fish to grow and need to feed the
fish to prevent them from dying. Users are rewarded with coins for performing activities such as inviting
their Facebook friends to play FishVille, helping other players, selling fish, cleaning tanks etc. Users
graduate to higher levels as they earn experience points.
FishVille is similar to Fish World a game with 8M active users (launched by Tall Tree Games) and Happy
Aquarium (launched by CrowdStar, with 28M monthly active users). Within two months of its launch,
th
FishVille has become the 6 most popular application on Facebook with 24.6 M monthly active users.
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Exhibit 17: FishVille
Mafia Wars
Mafia Wars is available on Facebook, MySpace, Tagged, Yahoo and iPhone. A group of friends or
connections can start a Mafia family. The family can manage a criminal empire and fight to establish their
family as a more powerful group. The game play revolves around creating a mafia by recruiting players,
9-5$%)&$9)*&(4+05$%)c-8()4-)+&0$)6&(7)&$9)+C3+05+$6+)0+D250+9):-0)&9/&$65$%)-$+'()605*5$&;)+*350+A)
Mafia Wars is set in New York City and Little Italy with the option for players to travel to Cuba, Moscow
and Bangkok based on completion of certain levels in the game. We estimate that there are 24 M monthly
active users of Mafia Wars on Facebook. Mafia Wars has 13 M monthly active users on MySpace.
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Exhibit 18: Mafia Wars
Texas HoldEm Poker
Texas HoldEm Poker now known as Zynga Poker was the first gaming application that was launched by
Zynga. It transformed the once fledging social game company Zynga to an online gaming powerhouse.
Texas HoldEm Poker has always been one of the most popular Zynga games on Facebook and MySpace
and is also available on Bebo, hi5, Tagged, Yahoo! and iPhone.
Texas HoldEm Poker is a variation of the card game of Poker in which individuals compete for money
contributed by the players themselves. Each player attempts to control the amount of money in the pot
based on the card he holds as the cards are dealt randomly, outside the control of players. Players need
to buy Zynga poker chips to play the Texas HoldEm Poker.
Playfish has rolled out Poker Rivals to compete with Zynga Poker. We estimate that there are 24 M
monthly active users of Texas HoldEm Poker on Facebook. Texas HoldEm Poker has 6.5 M monthly
active users on MySpace.
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Exhibit 19: Texas HoldEm Poker
PetVille
PetVille launched in December 16, 2009 is a game built on the same idea as N;&#:5(7'() N+4 Society.
Users can create a customized pet, raise it and care for a pet that they have created. Players get coins in
return for doing activities such as washing the pet, cleaning the pet and visiting :05+$9(')7-2(+()as well as
carrying out activities such as dancing with pets.
@7+$) 47+) 3;&#+0) 02$() -24) -:) XenergyY, he can replenish himself only by taking rest, not by purchasing
virtual food or beverage as with other games. Users graduate to the next level by earning points for the
activities they perform. Higher levels provide more profitable food for the pets and exclusive items that
6&$)8+)8-2%74):-0)47+)2(+0(')7-*+(A
th
PetVille is the 12 most popular application on Facebook with 18.2 M monthly active users.
YoVille
In YoVille (similar to the other popular game Habbo Hotel), users can create a character for themselves
and customize the hairstyle and clothing. Once the character has been set up, players can start taking
3&04) 5$) /&05-2() &645/545+() 5$) >-d5;;+) (267) &() 9+6-0&45$%) -$+'() /5042&;) &3&04*+$41) %&*8;5$%) 5$) 47+) /5042&;)
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casino, playing games with other users, going to work at YoVille Widget Factory or shop. YoVille was
acquired by Zynga in July 2008 when it had around 150k daily active users on Facebook.
We estimate that there are 15.2 M monthly active users of YoVille on Facebook. YoVille has 5.6 M
monthly active users on MySpace.
Exhibit 20: YoVille
Roller Coaster
Roller Coaster Kingdom, launched in July 2009, is a theme park simulation game that gives users a
chance to create and own a theme park. Users can build exciting rides, open food stands and design the
theme park in such a way that it has repeat audience. New players of the game will get 10 Coaster cash.
Unlike other Zynga games which run in the background, Roller Coaster only runs when it is kept open in a
browser window. Roller Coaster Kingdom has seen a drop in user activity. We attribute the decline to
slow loading times. We estimate that there are 8 M monthly active users of Roller Coaster on Facebook.
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FINANCIALS AND VALUATION

"#$%&'()%&*+()&0+):0++)4-)3;&#)&$9)"#$%&)9+05/+()54()0+/+$2+)470-2%7)virtual goods, in-game advertising,
lead generation and application installs.
Virtual Goods
Although the company has over 250M users, only a tiny fraction, less than 1% in our estimate,
consistently make purchases of virtual goods. Zynga derives nearly 40% of its revenue from the sale of
virtual goods. These g--9()&0+)&66+((-05+():-0)47+)%&*+()47&4)6&$)+$7&$6+)&)3;&#+0'()6&3&85;545+(A)F-0)
instance, a tractor or high yield seeds could be a useful accessory for a farmer in FarmVille. In Mafia
wars, the accessory could be higher performance guns. All these accessories can be purchased through
"#$%&'( virtual currency. Each game has its own virtual currency that can be used only for that game. For
instance, Coaster Cash that is used in Roller Coaster cannot be used for purchasing a gun in Mafia Wars.
Users purchase virtual currency or in-game cash using real world currency or through virtual currency.
Users can get virtual currency by paying real dollars, inviting their friends or by performing services in
some games. For instance, a FishVille player can earn virtual currency by performing maintenance work
on fish tanks of some other users. @+)+C3+64)/5042&;)%--9()(&;+()4-)9-*5$&4+)47+)6-*3&$#'()0+/+$2+)*5C)
for the foreseeable future.
Lead Generation (or Offers Marketing)
Players can also earn virtual currency by signing up for offers (that are made by lead generation firms).
We estimate that Zynga gets $30 - $40M a year from through lead generation. We expect Zynga to
benefit from business generated from more reputable businesses even as it grapples with keeping scams
off.
In Game Ads
Over 95% of the users of Zynga never make a purchase. The company monetizes them through in game
advertisements that appear during a game session. Such ad dollars contribute, in our estimate, to 20 -
]Pg)-:)47+)6-*3&$#'()OPPQ)0+/+$2+(A We estimate Zynga currently gets CPM rates of 15 - 20 cents. We
expect this segment to grow at a CAGR of 15% from 2009 ! 2014.
Application Installs
We believe Zynga offers a customized demographic profile for third party game developers. Zynga
advertises third party games to its users. For these advertisements, Zynga charges 50 cents to $1 per
application installation. We note that here the company charges on an installation basis rather than on a
CPM basis, as it does with others in game ads.
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Zynga Adds Customers Through Cross Promotion and Heavy Advertisement on Facebook:
Zynga is one of the largest advertisers on Facebook, with a budget of $5- $8M a month, in our estimate.
The company spent $2M to advertise Farmville, which quickly grew to be one of the most popular
applications on Facebook, overtaking Farm Town.
In addition, Zynga also cross promotes its new games to its existing users. Zynga rewards users who
refer their friends with virtual currency.
Exhibit 21!"#$%&'()"*+,+%-+s ($, million)
1,200
Virtual Goods In Game Ads Of f ers Marketing Application Installs
1,000
800
600
400
200
0
2008 2009 2010 2011 2012 2013 2014
Source: Company Reports and NeXt Up Research Estimates
Exhibit 22: Revenue Moderates after 2014
2008 2009 2010E 2011E 2012E 2013E 2014E
Revenue (million)
$101 $243 $460 $620 $780 $940 $1,100
%yoy 141% 89% 35% 26% 21% 17%
!
Source: Company Reports and NeXt Up Research Estimates
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We use the following methods a) Multiple of EV/Revenue, and b) Target EV based on steady state
revenues, normalized net margins, and a growth multiple to arrive at an approximate valuation for Zynga.
A. Steady State Revenue Method:
As explained in Appendix A, valuing private companies while they are in a rapid growth trajectory is a
difficult exercise. Minor shifts in time periods can cause significant shifts in valuation. We believe
investors have to look at a year when growth moderates to around 15% and discount the valuation back
to present.
We calculate target EV based on the following formula (please see Appendix A for a detailed description
of this method) !
Target EV = Steady State Revenues * Normalized Margins* Growth Multiple
Target Market Cap = Target EV + Net Cash
Target Price = Target Market Cap/Diluted Shares Outstanding
Assuming steady state revenues of $1100 million in 2014, normalized net margins of 25%, a growth
multiple of 25, we arrive at a target 2010 enterprise value of $ 3.315 billion
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Exhibit 23: Valuations off Various Calendar Years Discounted to 2010 ($, million)
4,000
3,000
2,000
1,000
0
2008 2009 2010 2011 2012 2013 2014
!
Source: NeXt Up Research Estimates
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Exhibit 24: Estimated Stock Price Per Common Share as a Function of Exit Valuation for an IPO
$20
IPO Bear Case IPO Bull Case
Series C
converts @
$14.97*
$15
Share Price
Series C
converts @
$16
$10
$5
Bear Case Bull Case
Valuation @ Valuation
$2806 M @ $3315 M
$0
$0 $500 $1,000 $1,500 $2,000 $2,500 $3,000 $3,500 $4,000
Valuation ($, M)
Source: NeXt Up Research Estimates
Note: * We have assumed that Series C shareholders will be forced to convert at the estimated
IPO issue price as the actual conversion price for Series C preferred shares is higher than IPO
issue price. ; ** Conversion price and shares issued for Series C are estimates
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EV/Revenue Multiple:
We believe that there are no publicly-listed companies involved in application building in the social
networking space. To arrive at approximate estimates, we have used the following publicly-traded groups
as a proxy for Zynga: a) home entertainment software, b) internet software and services. The 2010
median EBITDA margin values for the home entertainment software is 31%, and that for internet software
and services is 37% (Exhibit 24 a and b).
Between the two groups, we believe that internet software and services is similar to Zynga in terms of key
financial ratios. Based on the table in Appendix A3, we are attributing a multiple of 6.1x to Zynga'()
EV/Revenues (assuming long term EBITDA margin of 35% and revenue growth rate of 40%). We believe
that the EBITDA margin for home entertainment software should be considered as floor level valuation
multiples for Zynga.
EV = (EV/Revenue using Appendix A3)*(estimated revenue of Zynga in 2010)
EV = 6.1*460= $2.806 billion
The list in Exhibit 24 has many companies which we believe have a slower growth rate than Zynga. But
this universe should provide a conservative estimate for Zynga'()/&;2&45-$A)
Exhibit 25 a: Comparable Company Analysis - Home Entertainment Software Space
Secular
Revenue ($, B) EV/Revenue
Total EV
Company Name Ticker EBITDA
($, B) Growth
CY09E CY10E CY09E CY10E Margin
Giant Interactive GA 0.82 0.20 0.21 4.2 3.8 10% 50%
Konami Corp. TSE:9766 2.23 3.50 3.19 0.6 0.7 NA 13%
Changyou.com CYOU 1.54 0.27 0.33 5.8 4.7 23% 45%
Shanda Interactive SNDA 2.94 0.77 0.97 3.8 3.0 27% 45%
Electronic Arts ERTS 3.86 4.09 4.27 0.9 0.9 4% -1%
Activision Blizzard ATVI 9.88 4.54 5.01 2.2 2.0 10% 31%
Nintendo OSE:7974 26.24 20.79 16.55 1.3 1.6 NA 31%
Mean 2.7 2.4 15% 31%
Median 2.2 2.0 10% 31%
Source: Thomson One and Next Up Research Estimates
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Exhibit 25 b: Comparable Company Analysis - Internet Software and Services Space
Secular
Revenue ($, B) EV/Revenue
Total EV
Company Name Ticker EBITDA
($, B) Growth
Margin
CY09E CY10E CY09E CY10E
Google GOOG 162.67 17.39 20.32 9.36 8.00 17% 54%
Yahoo YHOO 19.95 4.66 4.84 4.28 4.12 15% 35%
Tencent SEHK:700 34.62 1.79 2.52 19.39 13.74 41% 37%
Baidu BIDU 14.06 0.64 0.90 22.08 15.64 41% 32%
Alibaba SEHK:1688 11.02 0.56 0.78 19.80 14.09 40% 23%
NHN Corp KOSE:A035420 7.64 1.10 1.27 6.95 6.02 15% 39%
Netease.com NTES 4.27 0.55 0.83 7.79 5.13 52% 38%

Mean 12.8 9.5 32% 37%
Median 9.4 8.0 40% 37%
Source: Thomson One and NeXt Up Research Estimates
B. M & A Transaction Analysis:
In this section we look at the valuation metrics of acquisitions, mergers and IPOs for comparable
companies, to provide a sense of what the market is willing to pay for these securities.
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Exhibit 26: M & A Activities in SNS and Social Application Development Space
Deal
Acquirer Target Date Target's business
Size
Xfire is a tracking tool for gamers, allowing friends

Viacom Xfire Apr 06 to find friends.The application is compatible with $102 M
most game types, browsers and services.
Favorite F&/-054+)N++3()5()&);-4);5=+)?;59+'()-.$)B-3)
Slide Jun 07 $60 K
Peeps Friends application.
Flektor allows users to create widgets from
MySpace Flektor Jul 07 $20 M
photos, video and text.
Photobucket allows uploading, sharing, linking

MySpace Photobucket Jul 07 $250 M
and finding photos, videos and graphics
Speed Racing is a popular game on Facebook.
Pieces of
Pieces of Flair is a content forwarding application
RockYou Flair and Jul 08 NA
similar to Fun Wall, Super Wall, and Bumper
Speed Racing
Stickers.
Summize is a search engine commonly used to
Twitter Sumize Jul 08 NA
track Twitter conversations
Zynga YoVille Jul 08 It is a large virtual world social network game NA
Allows blog owners to add a univerisal add button

Clearspring AddThis Oct 08 to their blog so visitor can add your post to various NA
social bookmarks.
MyMiniLife lets the user to built and decorate

Zynga MyMiniLife Aug 09 NA
virtual homes and other virtual environment
iLike helps people to share music
MySpace iLike Aug 09 recommendations, playlists, and personalized $20 M
concert alerts
PlayFish creates social gaming applications and

Electronic Arts PlayFish Nov 09 is one of the leading application developers on $400 M
Facebook
A global Social Networking site for reaching out to

MOL Global Pte Friendster Dec 09 NA
friends and discovering new ones
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Exhibit 27: Valuation Summary!!
Methodology Enterprise Value ($,M)
Steady State Revenues $3,315

EV/Revenue $2,806 !!
Source: Company Reports and NeXt Up Research estimates
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Zynga()".'/01'203'104%"516-71-6+
Exhibit 28: Post Money Valuation for Zynga
Event Series A Series A1 Series B Series B1 Series C IPO Merger
Date Apr-08 Jun-08 Jul-08 Mar-09 Dec-09

Diluted Shares
88.6 138.1 #"@A$ 174.7 176.3 187.5 176.3-187.5
Estimate (M)
Preferred Shares
49.5 20.1 16.4 1.6 11.25
Issued (M)
Conventional Conventional Conventional Conventional Conventional
Type of Preferred
Convertible Convertible Convertible Convertible Convertible
Liquidation Multiple 1x 1x 1x 1x 1x
Anti-Dilution Weighted Weighted Weighted Weighted

Weighted Average
Provisions Average Average Average Average
Pay to Play
None None None None None
Provisions
Conversion Rate
(Preferred to 1 to 1 1 to 1 1 to 1 1 to 1 1 to 1
Common)
Issue Price/Share in
$0.11 $0.25 $0.84 $9.49 $16.00 14.97-17.68 15.92-17.68
$
Dividend Rate (Non

8.0% 8.0% 8.0% 8.0% 8.0%
Cumulative)
Amount of Funding
5.6 5.0 13.8 15.2 180.00
(M)
Pre- Money (M) 10.0 34.5 133.2 1657.8 2820.0
Debt
Post Money (M) 15.6 39.6 147.0 1673.0 3000.0 $2806-$3315 $2806-$3315
Digital Sky
Avalon Ventures, Clarium
Technologies,
Capital, Foundry Group, Pilot Kleiner Perkins Caufield and
Andreessen
Group, union Square Byers, Union Square
Investors Horowitz,
Ventures, Reid Hoffman, Peter Ventures, Foundry group,
Institutional
Thiel, Brad Pittman, Andy Avalon Ventures
Venture Partners,
Russell, Brad Feld
Tiger Global
!
Source: Company Reports and NeXt Up Research; ** Conversion price and shares issued for Series C
are estimates
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Liquidation Scenarios: Zynga has raised funding through four rounds. There is preference or seniority
among preferred share holders and in the case of liquidation, each preferred shareholder gets an amount
in proportion to his contribution to the total funding.
Exhibit 29: Liquidation preference
Issue Total Liquidation

Shares Dividend Liquidation
Funding Type Price/Share Investment Preference
(M) Rate Rate ($,M)
($) ($,M) (X)
Series A Preferred 49.5 0.1129 5.59 1.00 0.08 5.59
Series A1 Preferred 20.1 0.2500 5.03 1.00 0.08 5.03
Series B Preferred 16.4 0.8419 13.81 1.00 0.08 13.81
Series B1 Preferred 1.6 9.4922 15.19 1.00 0.08 15.19
Series C Preferred 11.3 16.0000 180.00 1.00 0.08 180.00
Source: Company Reports and NeXt Up Research; ** Conversion price and shares issued for Series C
are estimates
Scenario 1: Exit Valuation less than or equal to $229.4 M
In this case, Series A, Series A1, Series B, Series B1, Series C preferred shareholders receive their
proceeds of $5.59 M, $5.03 M, $13.81 M, $15.19 M and $180 M because of their seniority over common
shareholders and the remaining proceeds are shared among common shareholders.
Scenario 2: Exit Valuation between $229.4 M and $248.6 M
At an exit valuation of $229.4 M, Series A preferred shareholders convert all 49.5 M shares in to common
stock as the stock price is greater than the conversion price of $ 0.1129. Series A1, Series B, Series B1,
and Series C preferred shareholders receive their proceeds of $5.03 M, $13.81 M, $15.19 M and $180 M
and the remaining proceeds are shared among common shareholders.
At an exit valuation of 248.6 million, Series A1 preferred shareholders convert all 20.1 million shares in to
common stock as the issue price is more than the conversion price of $ 0.2500. Series B, Series B1, and
Series C preferred shareholders receive their proceeds of $13.81 M, $15.19 M and $180 M and the
remaining proceeds are shared among common shareholders.
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At an exit valuation of 343.6 million, Series B preferred shareholders convert all 16.4 million shares in to
common stock as the issue price is more than the conversion price of $ 0.8419. Series B1, and Series C
preferred shareholders receive their proceeds of $15.19 M and $180 M and the remaining proceeds are
shared among common shareholders.
Scenario 5: Exit Valuation between $1854.40 M and $3000 M
At an exit valuation of 1854.4 million, Series B1 preferred shareholders convert all 1.6 million shares in to
common stock as the issue price is more than the conversion price of $ 9.49. Series C preferred
shareholders receive their proceeds of $180 M and the remaining proceeds are shared among common
shareholders.
Scenario 6: Exit Valuation greater than $3000 M
At an exit valuation of 3000 million, Series C preferred shareholders convert all 11.3 million shares into
common stock as the issue price is greater than the conversion price of 16. Beyond this point, the entire
proceeds are shared among common shareholders as all Series A, Series A1, Series B, Series B1 and
Series C preferred shareholders have converted all shares to common stock.
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Exhibit 30: Payoff Graph for an M & A case !
$20
Common Shareholders
Series A Series C
Series A1 converts
$18 Series B @ $16
Series B1
Series C
$16
$14
Share Price
$12 Series B1
converts @
$9.5
$10
$8
Series B
converts @
$.85
$6
Series A
converts
@ $0.11 Bull Case
$4 Bear Case Valuation
Valuation @ $3315 M
@ $2806 M
Series A1
$2
converts
@ $0.25
$0
$0 $210 $540 $940 $1,340 $1,740 $2,140 $2,540 $2,940 $3,340
Valuation ($,M)
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Exhibit 31: Summary of Funding Rounds for Zynga
Amended and Restated Certificate of Incorporation

Initial 1st 2nd 3rd 4th 5th 6th 7th
Oct-07 Nov-07 Jan-08 Feb-08 Jul-08 Jun-09 Nov-09 Dec-09
Shares Autorized (M)
Common 20 25.00 25.00 29.28 36.28 42.28 168.33 336.66

Series A Preferred 6.00 6.22 6.21 6.21 6.21 24.85 49.70
Series A1 Preferred 3.10 2.51 2.51 10.05 20.10
Series B Preferred 3.71 3.71 14.85 29.70
Series B1 Preferred 0.80 1.60
Series C Preferred
Preferred Stock
Pricing ($)
Common 0.0001 0.0001 0.0001 0.0001 0.0001 0.0001 0.000025 0.000025
Series C Preferred
Dividends ($)
Series C Preferred !
!Source: Company Reports and NeXt Up Research
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INVESTORS
1. Reid Hoffman (Angel funding)
2. Avalon Ventures
3. Clarium Capital
4. Foundry Group
5. Pilot Group
6. Union Square Ventures
7. Kleiner Perkins Caufield & Byers
8. Digital Sky Technologies
9. Andreesen Horowitz
10. Institutional Venture Partners
11. Tiger Global
12. Peter Thiel
13. Bob Pittman
14. Andy Russell
15. Brad Feld
Exhibit 32: Summary of Funding Rounds for Zynga
Investment Rounds Period Funds Raised

Series A Apr-08 $5.589 million
Series A1 Jun-08 $5.025 million
Series B Jul-08 $13.812 million
Series B1 Mar-09 $15.187 million
Series C Dec-09 $180 million
Total $219.6 million
Source: Company Filings and NeXt Up Research
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MANAGEMENT
Mark Pincus, Founder & CEO
Mark Pincus is the founder of Zynga. Prior to Zynga Mark founded firms such as Tribe Networks,
SupportSoft and FreeLoader.
After selling FreeLoader, Mark founded Support.com in August 1997 with Cadir Lee and Scott Dale to
address the problems in Windows computing. Support.com later became SupportSoft. Mark also started
Tribe.Net, one of the first social networks in 2003. Mark has also worked with several corporations such
as TCI and Liberty Media (out of Denver).
Mark holds a BS in Economics from Wharton and MBA from Harvard Business School.
Mark Vranesh, CFO
Mark Vranesh joined Zynga as CFO in May 2008. Prior to that Mark served as VP Finance at Fortinet for
about a year. Prior to Fortinet, Mark was a GM/VP Finance at SupportSoft for eight years. Mark also
(3+$4) a) #+&0() .547) h0$(4) i) >-2$%) SSN'() 75%7) 4+67) practice, most recently as an Audit Senior Manager
and earned a degree in Business from Cal Poly San Luis Obispo in 1990.
Scott Dale, VP of Engineering
Scott Dale is the Vice President of Engineering at Zynga. Prior to joining Zynga, Scott co-founded
Houseglue (a media content storing and sharing service for families and friends) in 2006. Earlier, Scott
co-founded SupportSoft with Mark Pincus and Cadir Lee. Scott spent eight years at SupportSoft serving
as both Vice President of Engineering and Chief Technology Officer.
Scott has also worked for Hewlett Packard and Apple. He holds a BS in Computer Science from Stanford
University.
Robert Goldberg, SVP of Business Operations
<-8+04)j-;98+0%)5()"#$%&'()Senior VP of Business Operations. His role includes revenue management,

marketing and corporate development. Robert has over 25 years of senior management experience at
leading media, e-commerce, enterprise software companies as well as at venture capital firms such as
Idealab and NBCi.
Michael Luxton, Co-Founder and CTO
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Michael Luxton is the co founder and CTO of Zynga. Michael is responsible for overall technology and
platform strategy for the company. Prior to Zynga, he worked at NetApp for over six years in engineering
roles. Before NetApp, Michael worked at eUniverse, where he was a developer. Michael studied math
and physics at UC Santa Cruz.
Vish Makhijani, SVP of Casual & Mobility Divisions
d5(7)K&=75c&$5)5()?+$5-0)d56+)N0+(59+$4)-:)"#$%&'()J&(2&;)&$9)K-85;54#)Divisions. Prior to joining Zynga,

Makhijani was CEO of Yandex, a Russian search company, where Vish is still a board member. Prior to
Yandex, Vish had a long career with Yahoo!, most recently as VP of Yahoo! Search. Vish holds a BS in
Accounting.
Eric Schiermeyer, Co-Founder and SVP of Product
Eric is a co-founder and Senior Vice President of Product at Zynga. Prior to Zynga, he co-founded three
successful start-ups including eUniverse (Intermix Media) and DVDwave. Intermix Media was the founder
of MySpace.com.
Eric studied philosophy and economics at University of California, Santa Cruz. He has interests in world
religions, philosophy, martial arts and yoga.
Steve Schoettler, Member of Founding team and VP of Platform
Steve is a member of the founding team of Zynga and is VP of Platform. Steve is responsible for security,
payments, risk management and platform services. Prior to Zynga, Steve spent nearly five years at
Kontiki as Manager of Solutions Architecture. Steve has occupied senior engineering and management
positions at several start-ups including GO and General Magic.
He holds a BS in Electrical Engineering and Computer Sciences from University of California, Berkeley.
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BOARD OF DIRECTORS
Mark Pincus (Founder and CEO)
Please refer to the Management section
Bing Gordon (Kleiner Perkins Caufield and Byers)
Bing Gordon has been a partner at Kleiner Perkins since June 2008. Prior to KPCB, Bing was the Chief
Creative Officer of Electronic Arts from 1998 to 2008. Bing joined EA in 1982 and was instrumental in the
60+&45-$) -:) 47+) :-2$95$%) 82(5$+(() 3;&$) 47&4) &440&64+9) kNJR) &() 5$545&;) 5$/+(4-0A) R5$%) 7&() 905/+$) h`'()
80&$95$%) (40&4+%#) &4) @`) (3-04(1) h`'() 30565$%) (40&4+%#) :-0) 3&6=&%+) %--9() &$9) -$;5$+) %&*+() &$9)
contributed to design and marketing at many EA franchises.
Bing has been a director at Amazon since 2003 and was a founding director at Audible. Bing is also a
402(4++)-:)47+)[08&$)?67--;)-:)?&$)F0&$65(6-)&$9)(+0/+()-$)47+)>&;+)N0+(59+$4'()`9/5(-0#)J-2$65;A Bing
Holds a BA in Drama and Literature from Yale and a MBA from Stanford University
Brad Feld (Foundry Group)
Brad Feld has been an early stage investor and entrepreneur for more than 20 years. He co-founded
Foundry Group, Mobius Venture Capital and prior to that Intensity Ventures. Previously, Brad was the
CTO of AmeriData Technologies, which was acquired by GE Capital in 1995. Prior to that, he founded
Field Technologies in 1987, which was later acquired by AmeriData Technologies.
Brad currently serves on the board of directors of a number of private firms such as Rally Software, Gist,
j$531)l+.(j&4-01)j-;9)?#(4+*(1)?45;;?+620+)&$9)e29#'()R--=A)R0&9)7-;9()&)R?)&$9)K?)5$)K&$&%+*+$4)
Science from Massachusetts Institute of Technology. He is avid art collector and marathon runner. He
has completed eight marathons as a part of his mission to run marathon in each of the 50 states
Reid Hoffman (LinkedIn)
Reid Hoffman is the founder and Chairman of LinkedIn, a professional networking site with 17 M
members. Reid also serves as director on the boards of SixApart and Mozilla Corporation. Reid was the
CEO of LinkedIn from 2003 to 2007 and from December 2008 to June 2009. Prior to LinkedIn, Reid was
Executive Vice President of PayPal wherein he was in charge of all business relationships.
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During his tenure at PayPal, Reid played a key role in the acquisition of PayPal by eBay in 2002 and was
responsible for partnerships with Intuit, Visa, MasterCard and Wells Fargo. Reid holds a BS in Symbolic
Systems from Stanford University and MS in philosophy from Oxford University
Rich Levandov (Avalon Ventures)
Rich Levandov is a general partner at Masthead Venture Partners and has been a managing member at
Avalon Ventures since 2007. Rich has over 25 years of experience as an entrepreneur, operating
executive and venture capitalist with a variety of early stage technology companies. In the past 11 years,
Rich has been involved in over 75 investment decisions, led over 20 investment decisions and has been
a director of over 15 companies.
Rich joined Masthead Ventures in 2003 to co-found their $160 M early stage fund. Prior to joining
Masthead Venture Partners, he was VP of Business Development at America Online. Prior to America
Online, he co-founded Phoenix Technologies, which played an important role in the standardisation of the
personal computer industry around the IBM PC standard. Rich holds a BS degree from Binghamton
University and is also a member of the MIT Enterprise Forum.
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Appendix A: What Multiple?

It becomes very difficult to value companies while they are on a high growth trajectory. Not only do the
revenues grow rapidly but the profitability starts to expand as well. Under such a rapid growth scenario,
any valuation attempt could lead to significant errors due to timing of estimates.
A better approach is to focus on a year when growth rate is slow enough, that small shifts in time period
do not sufficiently alter the valuation and then discount the value to the present assuming a cost of capital
and risk premium that is in line with a slower growth steady state mode.
Due to law of large numbers, any growth company will moderate to a slower growth rate of 15% a year (or
less) in a finite number of years. For the purposes of our report, we are assuming that subject companies
.5;;)0+&67)47&4)X(4+&9#)(4&4+Y);+/+;)5$)O)! 5 years.
Exhibit A1: Hypothetical Revenue Growth Pattern of a Firm Since Inception
C"!
C!!
B"!
B!!
$"!
#$%&'()#$&$%)*+,-$.
$!!
#"!
#!!
"!
!
! $ C D @ #! #$ #C #D
At 15% or lower growth rate, the market multiple (Exhibit A2) is then determined primarily by the yield on
ten year notes. Although yield at the time of writing could be higher due to loose monetary policy, we
believe eventually ten year notes will tend to trade closer to their historical averages of about 5%.
Accordingly, we are assigning a growth multiple of 25 for most of our subject companies based off steady
state revenue numbers and normalized net margins.
Most companies tend to focus on growth at the expense of profitability during early stages of growth.
Normalized net margins are the maximum profitability that a company could potentially achieve at any
revenue level. This could vary dramatically from actual net margins.
NeXt Up! 48
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Target EV = Steady State Revenues * Normalized Margins* Growth Multiple
Target Market Cap = Target EV + Net Cash
Target Price = Target Market Cap/Diluted Shares Outstanding
Exhibit A2: Valuation as a Function of T-bill Rate and Revenue Growth
T Bill Rate
Revenue
2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0% 6.5%
Growth
5% 34x 27x 22x 19x 17x 15x 13x 12x 11x 10x
10% 41x 32x 19x 23x 19x 17x 16x 174x 13x 12x
15% 50x 39x 32x 27x 23x 20x 18x 16x 15x 13x
20% 60x 47x 38x 32x 27x 24x 21x 19x 17x 15x
25% 72x 56x 45x 38x 32x 28x 24x 22x 19x 17x
30% 86x 66x 54x 44x 38x 32x 28x 25x 22x 19x
35% 102x 78x 63x 52x 44x 38x 33x 29x 25x 21x
40% 120x 92x 74x 61x 51x 43x 37x 33x 29x 24x
45% 141x 108x 86x 70x 59x 50x 43x 37x 32x 28x
50% 165x 125x 99x 81x 67x 57x 49x 42x 36x 31x
Formula:
P/E=(1-(g/ROEhg) x (1+g) x (1-((1+g)^n)/(1+khg)^n)/(khg-g)) + ((1-(gn/ROEst) x (1+ g)^n x (1+g)^n x (1+gn))/(kst-gn)x(1+khg)^n)
Assumptions:
Beta - 1
ROEhg ! return on equity in the high growth period, made assumption that it's 30%
ROEst ! X X in the stable period, made assumption that it's 10%
gn ! growth in the stable period, made assumption that it's 4%
Cost of equity khg=risk free rate (T-Bill)+ B (changed to 1.5 and 1) x (equity risk premium) (assumed4%)
Source: Benjamin Graham, Security Analysis (1951), McGraw Hill
We are providing our methodology as a framework. Investors can change any of our variables to arrive at
their own metrics.
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In our valuation methodology, we also have tried to look at comparable group of companies and estimate
their EV/Revenue multiple. We believe that adjusting for risk, the EV/Revenue multiple is a function of
growth rate (over the subsequent 2 ! 3 years from our reference year) and EBITDA margins. We may
attribute a higher or lower multiple than peer group based on these two variables as outlined in Exhibit
A3.
Exhibit A3: Valuation as a Function of EBITDA Margins and Revenue Growth
Revenue Growth
EBITDA
0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%
Margin
50% 2.5x 3.3x 4.0x 4.8x 5.6x 6.3x 7.1x 7.9x 8.7x 9.4x 10.2x
45% 2.3x 2.9x 3.6x 4.3x 5.0x 5.7x 6.4x 7.1x 7.8x 8.5x 9.0x
40% 2.0x 2.6x 3.2x 3.8x 4.5x 5.1x 5.7x 6.3x 6.9x 7.5x 8.2x
35% 1.8x 2.3x 2.8x 3.4x 3.9x 4.4x 5.0x 5.5x 6.1x 6.6x 7.1x
30% 1.5x 2.0x 2.4x 2.9x 3.3x 3.8x 4.3x 4.7x 5.2x 5.7x 6.1x
25% 1.3x 1.6x 2.0x 2.4x 2.8x 3.2x 3.6x 3.9x 4.3x 4.7x 5.1x
20% 1.0x 1.3x 1.6x 1.9x 2.2x 2.5x 2.8x 3.2x 3.5x 3.8x 3.1x
15% 0.8x 1.0x 1.2x 1.4x 1.7x 1.9x 2.1x 2.4x 2.6x 2.8x 3.1x
10% 0.5x 0.7x 0.8x 1.0x 1.1x 1.3x 1.4x 1.6x 1.7x 1.9x 2.0x
5% 0.3x 0.3x 0.4x 0.5x 0.6x 0.6x 0.7x 0.8x 0.9x 0.9x 1.0x
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Appendix B: Top Applications of Facebook
Average Users
S.No Name Developer
Monthly (million)
1 Farmville 74.8 Zynga
2 Birthday Cards 39.1 RockYou
3 Café World 30.3 Zynga
4 iHeart 28.8 Mmkay
5 Happy Aquarium 27.9 CrowdStar
6 Causes 25.3 Causes
7 Texas HoldEm Poker 24.9 Zynga
8 FishVille 24.9 Zynga
9 Facebook for iPhone 24.6 Facebook
10 Mafia Wars 24.2 Zynga
11 Pet Society 19.4 Playfish
12 FamilyLink.com 18.5 FamilyLink.com
13 Mobile 18.1 Facebook
14 PetVille 18.0 Zynga
15 MindJolt Games 16.0 MindJolt
16 Zoo World 14.9 RockYou
17 YoVille 14.8 Zynga
18 Restaurant City 14.5 Playfish
19 Pillow Fight 14.5 Shikha
20 Friends Exposed 14.5 Topzy
Source: AppData
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Appendix C: Other Zynga Games
Vampire Wars
Vampire Wars is a time based pyramid game where the goal of players is to become the most powerful
vampire rather than achieving the highest level in the game. Users can become the most powerful
vampire by recruiting the maximum number of players in to their clan and by acquiring a mix of abilities.
We estimate that Vampire Wars has 3.1 M monthly active users on Facebook and 4.8M monthly active
users on MySpace.
Street Racing
Street Racing is one of the popular Zynga games on MySpace. Users can challenge other players in a
one-on-one or a crew race. The main goal is to win races and earn money to acquire cars and property.
Players can also use virtual currency to get car upgrades and reach higher levels in the game. The
factors that affect the chances of victory in one- on-one challenges are attack statistics and possession of
a car with superior specifications. We estimate that there are 1.2 M monthly active users of Street Racing
on Facebook. Street Racing has 4.6 M monthly active users on MySpace.
Pirates
In Pirates launched by Zynga in March 2009 on Facebook and MySpace, Users can build a fleet of pirate
ships with their friends, engage the enemies in battle and dominate the seas. Pirates can loot and plunder
the seas in search of gold, power and wenches.
All players begin with a common set of resources such as health, energy and gold. These resources get
used based on the actions or quests performed by the players. Pirates $++9)4-) EN;2$9+0')4-) &9/&$6+)4-)
higher levels of the game. The players can either purchase virtual goods or earn a reward in exchange for
carrying out quests. We estimate that there are 900k monthly active users on Facebook alone.
Scramble
Scramble is an adaptation of the Scrabble game, in which players have to generate words from a jumbled
grid of letters. Players can match their wits against others in a live game or host a private game to which
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they can invite a maximum of 20 friends. We estimate that there are 680k monthly active of Scramble on
Facebook.
PathWords
PathWords was launched by Zynga in September 2008. It belongs to the genre of games related to
scramble puzzle. Users are presented with a grid of letters that they can encircle to create words. Once a
word is formed, the letters used to form the word, disappear from the grid and are replaced by new ones.
Users can host a game with their :05+$9()&$9)40#)4-)8+&4):05+$9(')(6-0+()5$ the Ladder mode. We estimate
that there are 580k monthly active users of Path Words on Facebook.
Fashion Wars
Fashion Wars, launched in August 2009, allows users to select a diva and participate in fashion
competitions. Style and attitude are the characteristics that determine the ranking as well as the ability of
a diva to earn money or win a competition. These characteristics depend on the items which the diva has
i.e. essentials, perks and vehicles.
Players can increase the popularity of their diva by attending events or battling with other users. Users
can earn money by recruiting friends to join their team. We estimate that Fashion wars has 680k monthly
active users on Facebook and 1.8 M active users on MySpace.
Word Twist
In Word Twist, the players have to come up with several different combinations of words using the set of
letters given to them. The computer generates boxes and lets the user know the number of combinations
of letters that are possible. Users can invite friends to play the game or play alone. We estimate that there
are 440k monthly active users of Word Twist on Facebook.
Special Forces
[(+0() ;-%%5$%) 5$) 4-) ?3+65&;) F-06+() %&*+) 8+%5$) &() &) 0+60254) 5$) &) 3;&6+) 6&;;+9) XB7+) J-**&$9YA) Players
begin with standard amounts of energy, stamina, health and cash. They can purchase upgrades and
recruit others to join their squad for carrying out mission and proceed to higher levels of the game. Each
NeXt Up! 53
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mission would involve an expenditure of energy. So users need to wait for their energy levels to be
recharged. Players can also invest in contracts which provide hourly payoffs. We estimate that there are
400k monthly active users of Special Forces on Facebook.
Dragon Wars
Players can raise a dragon army and fight against others. The players start by doing several tasks (i.e.
quests) before evolving in to actual tasks within the game. Users need to complete quests with their
allotted energy for obtaining gold. The gold can be used to purchase land for sustained income.
Players can use cash to buy stronger weapons which would give them an upper hand while attacking
other players. We estimate that there are 350k active monthly users of Dragon Wars on Facebook.
Dragon Wars has 1.9 M monthly active users on MySpace.
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Appendix D: Social Networking Sites
Business Networking Family Friends Students

AdvisorGarage Amiglia 43 Things AlumWire
ArtBreak CafeMom Amitize.com B4Class
Blogtronix Cingo aSmallWorld Campusbug
Commutal CommonGate Badoo.Com CampusRank
CompanyLoop Family 2.0 Bebo College.com
ConnectBeam Famiva Eons CollegeMedium
Decorati Famster Facebook.com College Tonight

DoMyStuff Geni.com Faceparty DormItem.com
Doostang Genoom Flingr Graduates.com
Fast Pitch Kincafe Friendster Half.com
HooversConnect Kinzin hi5 iHipo
iKarma Inc. MayasMoM Lovento LocalSchools
ImageKind Minti Multiply.com Pazap.com
Jambo MomJunction Mycool Quizilla
Jigsaw MothersClick MySpace.com RateMyProfessor
Konnects myfamily.com NetFriendships Student.com
Lawyrs OneGreatFamily Netlog Studentbid.com
Linkedin OurStory.com Orkut StudentSN.com
mediabistro.com Parentography Passado Uloop.com
Pairup.com The Family Post Piczo
Ryze.com Plazes
Spoke.com Pownce.com
Viadeo ProfileHeaven
WebCrossing reunion.com
XING Vox.com
Xanga
XuQa
! !
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DISCLAIMER
The research is prepared by NeXt Up Research. Next Up Research is not registered as an investment
advisor in the United States. Nor is it a member of FINRA.
The views expressed in this report correspond to our subjective views on the subject securities and
issuers. This report does not purport to be a complete statement of all material facts related to any
company, industry, or security mentioned. The information provided, while not guaranteed as to accuracy
or completeness, has been obtained from sources believed to be reliable.
This notice shall not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any
sale of these securities in any state in which said offer, solicitation, or sale would be unlawful prior to
registration or qualification under the securities laws of any such state.
Neither Next Up Research nor any of its employees own a direct or indirect long or short position in any of
the companies mentioned in this report.
The opinions expressed reflect our judgment at this time and are subject to change without notice and
may or may not be updated. Past performance should not be taken as an indication or guarantee of future
performance, and no representation or warranty, express or implied, is made regarding future
performance.
This research report was intended to provide background information for accredited or institutional
investors. Recipients who are not market professionals or institutional investors should seek the advice of
their personal financial advisor before making any investment decisions based on this report.
Email: research@nextupresearch.com for further information.
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One of the largest developers of social games: With

Social over 230 million in monthly active users on Facebook

Networking: play on the social gaming segment, is poised to grow at a

Ability to Cross Promote: Zynga games ! FarmVille,

February 11, 2010

Exhibit 1: Monthly Active Users of Application Developers on Facebook

Ability to Cross Promote Games is a Competitive Advantage:

Exhibit 2: Monthly Active Users of Zynga Games on Facebook

Zynga Vulnerable to Platform Policies Enforced by Facebook:

Exhibit 3: Widgets Ecosystem

Source: NeXt Up Research

Exhibit 4: Worldwide Advertisement Revenues Earned by Social Network Sites

Source: eMarketer and NeXt Up Research estimates

Exhibit 5: Unique Users in Widget Segment

Source: comScore and NeXt Up Research

Exhibit 6: Timeline of prominent Social Application developers

Year Company Description

Started for close circle of friends. Allows photo-sharing, photo-printing,

Image hosting, video hosting, slideshow creation and photo sharing

Slide Leading provider of applications and widgets on the web.

Web application that produces videos from user-selected photos and

LabPixies Ltd. Search tools and calculators.

RockYou Leading provider of applications and widgets on the web.

Web widgets for blogging, social networking services, and personal

Playfish Free to play casual social games

Developer of casino games, word games, board games, role playing

Allows users to create animation with uploaded pictures, music and

Exhibit 7: Demographic Distribution of Widget Providers

106.8M 79.1M 15.1M 12.3M 1.4M

30.5% 30.7% 27.5%

19.5% 21.8% 22.5%

Slide, Inc RockYou Flixster Zynga LabPixies

Source: comScore, NeXt Up Research

Exhibit 8: Top Playfish games

Game Name Details

The user can play different games

Restaurant city Lets the user create his/her own

Country Story Allows the user to enjoy the tranquil

iLike (Private) !!!!!!!!!!!!!!!!!!!!!!!!!!

Category Products Details

Enables fans to discover and share playlists, find new music

Universal Artist Dashboard

Short video montage which features major acts of artists who

Exhibit 10: Popularity Parameters on Facebook

Monthly Active Daily Active

Zynga 227.5 64.4

RockYou 71.1 6.7

CrowdStar 51.9 11.5

Playfish 50.4 9.6

Playdom 23.6 3.6

Slide 20.6 1.1

iLike 14.3 0.8

Exhibit 11: Total Popularity Parameters (U.S)

Visits (M) Unique Visitors (M)

Zynga 347.9 20.5

RockYou 147.5 27.8

CrowdStar 55.2 5.1

Playfish 29.5 3.8

Playdom 33.5 4.8

Slide 10.6 4.7

iLike 4.9 3.6

M&A and Partnership Activities