Accounting Questions, Market Timing Delay Zynga IPO

by Todd Shriber

A sign of the times? Mere overreaction? Either way, news that Zynga, the company behind popular online games such as FarmVille and CityVille, might delay its initial public offering had Silicon Valley and the press abuzz on Monday.

The New York Post reported that the company said in a Securities and Exchange Commission filing that the offering, originally scheduled for as soon as possible or early September, could be delayed.

One reason Wall Street might be in a tizzy over the delayed Zynga IPO is because this is one of the more widely anticipated tech public offerings. No, Zynga won’t be par with Facebook, but it is probably in the realm of Groupon in terms of offering size and demand. A $2 billion IPO from Zynga could value the company at $15 billion to $20 billion, plus Zynga said it is already profitable, as Trader Daily noted last month.

But is the delay of Zynga’s IPO really any big deal? The late August/early September time frame isn’t traditionally active in terms of IPOs. After all, bankers need to get in one last weekend at the Hamptons. Plus, an October offering makes a lot of sense, as CNN Money points out.

On the other hand, it’s important to note why Zynga’s Morgan Stanley-led IPO might be shelved for a little while. Citing unidentified sources, CNBC reported that the fine folks at the SEC are asking Zynga for more clarity on the company’s accounting metrics. At issue are “bookings,” which Zynga describes in a recent document as the total revenue from the sale of virtual goods in games or advertising that Zynga would have reaped if it could have recorded all the proceeds immediately, according to CNBC. Problem is, bookings aren’t part of generally accepted accounting principles.

Groupon previously garnered headlines for irking the SEC with its own use of a questionable accounting metric. The coupon company said earlier this month that it would ditch that methodology, which didn’t include marketing costs.

There might be a lesson here: Don’t run afoul of the SEC before or during a launch as a public company.

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