RESEARCH REPORT

Created: 07-09-11 Authored by: neXtup This report has been downloaded from SharesPost, Inc., but was prepared by Global Silicon Valley Partners under the neXtup Research brand ("neXtup 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.

Investment Highlights Leader in Social-Networking Games: With July 9, 2011 roughly 280M monthly active users on Facebook alone currently, Zynga is the largest developer of : social entertainment apps and games. We estimate Zynga to grow at a CAGR of 23% from 2011 to 2014. The app segment, mostly aided by new entrants, should grow at 18%. Company Information

Social Gaming Zynga

Founded: 2007 Ability to Cross-promote Zynga Games: The four San Francisco, CA most popular applications on Facebook are Zynga Headquarters: applications. The company is able to quickly ramp Total Funding: $845M its games by cross-promoting to its large existing user base. Investors: Avalon Ventures, Foundry Venture Capital , KPCB, Union Square Ventures, Valuation: For the purpose of this report, we Institutional Venture Partners, Morgan Stanley have used the current outstanding share count of 582.98M (from Zynga‟s S-1) which excludes any Mark Pincus dilution effect from stock options, restricted stock CEO: CFO: David Wehner units and stock warrants (for their impact on dilution, please refer to „Dilution Impact‟ on page 17 neXtup estimates revision of this report). Current Previous (07/09/11) (06/09/11) We have revised our revenue estimates based on published GAAP revenue numbers. Further, as $19.27 $11.29 Zynga is expected to IPO, we have also reduced Estimated Share Price: $19.61 $11.73 our estimated WACC for the purpose of calculation $11.23B$9.50Bin this report. Hence our valuation estimates of Estimated Market Cap: $11.43B $9.88B Zynga have been revised upwards. Shares Count Used: We have used two methods: a) a steady-state target EV/Revenue multiple, and b) a comparative EV/Revenue multiple based on a peer group to arrive at an estimated market cap of $11.23B$11.43B for Zynga. Using the current outstanding share count of 582.98M, we arrive at an estimated price per share of $19.27 - $19.61 for common shares. 2011E Revenue: 2012E Revenue: 582.98M* $1.20B $1.97B 841.76M** $1.42B $1.80B

*Current shares outstanding (from Zynga‟s S-1), excluding any impact of dilution **Estimated fully diluted share count www.nextupresearch.com

Investment Concerns User Growth may not Translate to Revenue Growth: Only a small fraction (approximately 3-5%, in our estimate) of users actually makes any form of payment to Zynga. As with most social networking sites,

future user growth could come from emerging economies, where revenue opportunity per user is often a fraction of what it is for the US. Crowded App Space: We expect industry growth to come primarily from the entry of more developers. We note that Facebook now has over a million registered developers, up from 650k only a year ago. We expect the vast majority of these developers to have low growth rates and compete for the same potential users.

Important disclosures on page 23

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RECENT EVENTS
Zynga Files for IPO Zynga filed an S-1 with the SEC on July 1st, 2011. Morgan Stanley and Goldman Sachs will be the joint underwriters of the IPO and Barclays Capital, Bank of America, Merrill Lynch and J.P. Morgan will be joint bookrunners. Allen & Co. will be senior co-manager for the offering. Highlights from the S-1 are given below. Analysis of Financial Results of Operations Zynga‟s bookings (total sales activity by the company in a given period) grew 61% YoY to $286.6M in March 2011 from $178.3M in March 2010. During the same period, the company‟s GAAP revenue increased 133% to $235.4M from $100.9M (Exhibit 1). The growth in bookings and revenues were due to increased monetization of existing games and the launch of successful games such as CityVille, FrontierVille and Treasure Isle in 2010. During the period, revenue growth outpaced bookings growth primarily because of a decrease in the average life of durable and consumable virtual goods, which led to higher revenue recognition. Exhibit 1: Zynga’s Quarterly Revenues and Bookings
350 300 250 200 Revenues Bookings

$,M
150 100 50 0

Mar-09

Jun-09

Sep-09

Dec-09

Mar-10

Jun-10

Sep-10

Dec-10

Mar-11

Source: Company Filings

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Exhibit 2: Zynga’s Revenue Distribution
Advertising 3% Advertising 6%

Mar-10

Mar-11

$100.9M

$235.4M

Virtual Goods 97%

Virtual Goods 94%

Source: Company filings Revenue from sales of virtual goods in online games continues to be the main source of revenues for Zynga. Revenues from online games constituted 97% and 94% of total revenues in Q1‟10 and Q1‟11 respectively (Exhibit 2). The remaining revenues were generated from advertising. Zynga generated profits of $11.8M in Q1‟11 compared to $6.3M in Q1‟10, an increase of 86%. The company generated adjusted EBITDA of $112.3M in Q1‟11 compared to $93.6M in Q1‟10, a YoY increase of 20%.

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Exhibit 3: Summary of 2011 Q1 Earnings
Summary of Earnings Report Income Statement Mar-10
$, millions

Year-over-Year Mar-11 Actual 286.6 235.4 167.8 71.8 67.3 28.7 11.8 % Diff 61% 133% 147% 158% 99% 355% 86%

Actual 178.3 100.9 68.0 27.9 33.9 6.3 6.3

Bookings Revenue Gross Margin R&D Expenses SG&A Expenses Operating Income Net Income

Mar-10 Margin Analysis Actual Gross Margin R&D Expenses R&D SG&A Expenses SG&A Operating Margin Net Margin 67.4 % 27.6 % 33.5 % 6.3 % 6.3 %

Mar-11 Actual 71.3 % 30.5 % 28.6 % 12.2 % 5.0 % Bpt Diff 387 289 (497) 595 (127)

Source: Company filings

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Exhibit 4: Balance Sheet Synopsis

( in $, millions) Cash & Cash Equivalents and Marketable Securities Accounts Recievable Income Tax Receivable & Deferred Tax Assets Other Current Assets Goodwill and Other Intangibles Property, Plant and Equipment Other Long-Term Assets Total Assets Accounts Payable Other Current Liabilities Deferred revenue Non-Current Liabilities Total Liabilities Total Shareholders Equity

Dec-09

Dec-10

Mar-11

200.0

738.1

995.6

7.2 11.3 3.7 1.0 34.8 0.8 258.8 21.5 35.0 178.1 45.7 280.3 (21.5)

80.0 61.0 27.2 104.2 75.0 27.2 1,112.6 33.4 78.7 408.5 109.7 630.4 482.2

101.8 48.9 33.4 109.9 113.7 25.0 1,428.3 38.5 77.4 460.4 118.2 694.5 733.8

Source: Company filings Zynga had cash & cash equivalents and marketable securities of $995.6M as of March 31, 2011 (Exhibit 4). The company intends to invest in network infrastructure in the second half of 2011, and expects to incur capital expenditures of $100M-$150M. Zynga also expects that the cash on hand and the cash raised via their IPO will be sufficient to meet the company‟s working capital and capital expenditure requirements for at least the next 12 months.

Important disclosures on page 23

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Exhibit 5: Cash Flow Synopsis
Three Months Ended Q1'11

(in $, millions)

CY 2008

CY 2009

CY 2010

Cash Flow Operations

11.5

191.0

326.4

103.7

Cash Flow Investing

(21.2)

(103.4)

(617.4)

(55.5)

Cash Flow Financing

29.5

14.2

351.4

225.2

Change in Cash

19.8

101.8

60.4

273.4

Source: Company filings Cash flow from operations for the three months ended March 31, 2011 was $103.7M. Cash used in investing activities was $55.5M. This includes $10.5 Zynga spent on four acquisitions made in Q1‟11. Financing cash flow was $225.2M, which included the issuance of $485.3M in Series C preferred stock and the repurchase of $261.3M of common stock.

Important disclosures on page 23

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INVESTMENT THESIS
Investment Highlights Leader in Social-Networking Games With roughly 280M monthly active users on Facebook alone (currently), Zynga is one of the largest developers of social entertainment apps and games. We estimate Zynga to grow at a CAGR of 23% from 2011 to 2014. Future growth is likely to be at a slower pace, primarily because the company is already one of the largest in the app space. The app segment, mostly aided by new entrants, should grow at 18%. Exhibit 6: Monthly Active Users of Application Developers on Facebook: July 2011

300 250 200 150 100 50 0

Source: AppData Ability to Cross-Promote Games is a Competitive Advantage: The company continues to promote new games to its existing user base. Zynga launched Empires & Allies in June 2011. Thanks to strong cross-promotion to its existing users, Empires & Allies has grown to 52M monthly active users and is the second most popular app on Facebook. In December 2010, Zynga launched CityVille which reached 100M users within two months of its launch on Facebook. CityVille is currently the most popular application on Facebook with nearly 85M monthly active users. We believe Zynga‟s large user base could be a competitive advantage in releasing new games even as some older games may lose appeal. Important disclosures on page 23 8

Users, M

In many instances, Zynga has created its products well after a competitor had established itself. However, thanks to Zynga‟s formidable size and the ability to add new features, the company is able to achieve a high level of penetration. For instance, Slashkey started Farm Town in early 2009, but the product peaked at 19M users (2M users as of July 2011). Within six weeks of its 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. Exhibit 7: Monthly Active Users of Zynga Games on Facebook

350

300

250

Users, M

200

150

100

50

0

Source: AppData Revenue Visibility Zynga does not recognize revenue from its sales immediately. The revenues from virtual goods sold are recognized over the estimated average time span of their usage. A durable virtual good (a tractor in FarmVille) has a higher estimated lifespan compared to consumable goods (fuel in FarmVille). Zynga‟s revenue recognition practice gives the company some revenue visibility for 2-3 quarters and also provides positive cash flows to the company.

Important disclosures on page 23

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Investment Concerns User Growth May Not Translate to Revenue Growth Only a small fraction (approximately 3 - 5%, in our estimate) of users actually makes any form of payment to Zynga. As with most social networking sites, future user growth could come from emerging economies, where the revenue opportunity per user is often a fraction of what it is in the US. However, supporting such a user base continues to demand constant upgrades to the company‟s infrastructure. Accordingly, we are concerned that at some point increased capital expenditures may not result in commensurate revenue opportunities.

Crowded App Space We expect the revenue growth of the app space to have a CAGR of over 18% for the next three to four 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 a year ago. We expect the vast majority of these developers to have low growth rates and compete for the same user base. The increasing popularity of smart phones and tablets like the iPad also offers game developers a more interactive platform than a PC-based Facebook.

Important disclosures on page 23

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FINANCIALS AND VALUATION
Zynga‟s games are free and Zynga derives its revenue through virtual goods sold and in-game advertising. Revenues from branded virtual goods are recognized as inflows through advertising. Exhibit 8: Zynga Revenue Distribution
700

Online Game
600 500 400
$, M

Advertising

300 200 100 0 2008 2009 2010

Source: Company filings Online Games Although the company has roughly 280M users (currently), only a tiny fraction, less than 5% in our estimate, consistently make purchases of virtual goods. These goods are accessories in games that can enhance a player‟s capabilities. For instance, a tractor or high-yield seeds could be useful accessories for a farmer in FarmVille. In Mafia wars, the accessories could be higher performance guns. All of these accessories can be purchased with Zynga‟s virtual currency, which can be bought by Facebook‟s credits or by other payment methods such as credit cards and PayPal on platforms other than Facebook. Each game has its own virtual currency that can be used only for that game. For instance, Coaster Cash used in Roller Coaster cannot be used for purchasing a gun in Mafia Wars. Zynga derived 96% of its revenues from the sale of virtual goods in online games in 2010 (Exhibit 8). Users can also acquire virtual currency by paying with 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 other users‟ fish tanks. We expect virtual goods sales to dominate the company‟s revenue mix for the foreseeable future.

Important disclosures on page 23

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Advertising Over 95% of Zynga‟s users never make a purchase. The company monetizes them through in-game advertisements that appear during a game session. Such ad dollars contributed less than 4% of the company‟s 2010 revenues. Revenues from advertising declined as a percentage of total revenues in 2010 as compared to 2009 (Exhibit 8), as the company reduced its in-game offers. We attribute this reduction to Zynga‟s effort to weed out in-game offers of dubious quality. Zynga Adds Customers Through Cross-Promotion and Heavy Advertisement on Facebook We estimate Zynga to be one of the largest advertisers on Facebook, with a budget of $8-$9M a month. In addition, Zynga also cross-promotes its new games to its existing users. Zynga rewards users who refer their friends with virtual currency. Exhibit 9: Zynga’s Revenues

3,500

$ in Millions

3,000

2,500

2,000

1,500

1,000

500

0 2008A 2009A 2010A 2011E 2012E 2013E 2014E 2015E

Source: Company filings and neXtup Research Estimates

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Exhibit 10: Revenue Projections

2008A Revenue (million) %yoy $19

2009A $121 526%

2010A $597 392%

2011E $1,204 102%

2012E $1,969 63%

2013E $2,526 28%

2014E $2,775 10%

Source: Company filings and neXtup Research Estimates We use the following methods: a) A Target EV based on steady state revenues, normalized net margins, and a growth multiple and b) A Multiple of EV/Revenue, 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 20% and discount the valuation back to the 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/ Shares Outstanding Assuming steady state revenues of $2,526M in 2013, normalized net margins of 20%, a growth multiple of 25, we arrive at a target 2011 enterprise value of $10.44B (discounting it at a WACC of 10%). With $996M of net cash, Zynga‟s estimated market cap would be $11.43B. With availaibility of more precise Zynga‟s financial information and an expected IPO, we have reduced WACC to 10% (from 20%) for the purpose of calculation in this report.

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Exhibit 11: Valuations off Various Calendar Years Discounted to 2011
12

10

$,B
8 6

2011E

2012E

2013E

2014E

Source: neXtup Research Estimates

B. 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, and b) internet software and services. The median EBITDA margin values for the home entertainment software is 26%, and for Internet software and services it is 40% (Exhibit 4 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 5.2x to Zynga‟s EV/Revenues (assuming a normalized EBITDA margin of 42% and revenue growth rate of 23% for the next three years). We believe that the EV/Revenue multiples for home entertainment software should be considered to be floor level valuation multiples for Zynga.

Important disclosures on page 23

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EV = (EV/Revenue using Appendix A3)*(estimated revenue of Zynga in 2012) EV = 5.2 * 1.97B = $10.24B Market Cap = $10.24B + $0.996B = $11.23B ($996M in net cash) The list in Exhibit 12 has many companies that we believe have a slower growth rate than Zynga. But this universe should provide a conservative estimate for Zynga‟s valuation. Exhibit 12a: Comparable Company Analysis - Home Entertainment Software

Revenue ($, B) Company Name Total EV ($, B) CY11E Giant Interactive Konami Corp. Changyou.com Shanda Interactive Electronic Arts Activision Blizzard Nintendo 0.81 3.43 1.96 1.55 5.99 10.42 11.59 0.26 3.40 0.41 1.08 3.92 4.04 16.69 CY12E 0.30 3.46 0.48 1.22 3.98 4.54 16.08 Mean Median

EV/Revenue

CY11E 3.1x 1.0x 4.8x 1.4x 1.5x 2.6x 0.7x 2.2x 1.5x

CY12E 2.7x 1.0x 4.1x 1.3x 1.5x 2.3x 0.7x 1.9x 1.5x

Secular Secular EBITDA Growth (Est) Margin (Est) 14% NA 17% 13% NM 12% NA 14% 13% 50% 12% 45% 26% NM 25% 20% 30% 26%

Source: CapIQ and neXtup Research Estimates

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Exhibit 12b: Comparable Company Analysis - Internet Software and Services

Revenue ($, B) Company Name Total EV ($, B) CY11E 36.43 4.55 1.52 1.05 4.14 1.93 1.08 CY12E 43.51 4.83 1.68 1.22 5.36 2.83 1.31 Mean Median

EV/Revenue CY11E 4.0x 3.9x 4.9x 4.4x 11.5x 25.9x 6.2x 8.7x 4.9x CY12E 3.3x 3.7x 4.5x 3.8x 8.9x 17.6x 5.1x 6.7x 4.5x

Secular Secular EBITDA Growth (Est) Margin (Est) 19% 15% 11% 16% 15% 30% 15% 17% 15% 30% 35% 50% 40% 45% 50% 30% 40% 40%

Google Yahoo NHN Corp Netease.com Tencent Baidu Alibaba

144.56 17.89 7.51 4.61 47.50 50.01 6.72

Source: CapIQ and neXtup Research Estimates In the above table, we note that China-based companies such as Tencent and Baidu tend to have higher EV/Revenue multiples (2x-4x of comparable US companies) despite comparable growth rates and EBITDA margins. Based on our table in Appendix A3, Tencent and Baidu should have an EV/Revenue mutiple of 4.3x and 7.1x respectively. However, the table in A3 assumes US corporate taxes. If China‟s corporate taxes of below 10% are applied to our formulas, the EV/Revenue will be higher for a given growth rate and EBITDA margin. By excluding the impact of taxation, the companies in these two regions would be somewhat closer. But Chinese companies still get a premium. We attribute the difference to perceived long term potential from the China market and more limited supply of higher quality, high growth large market cap companies for indexes that track those regions. For valuation purposes, we believe that only EV/Revenue multiples of US companies such as Google and Yahoo should be used as a guidance for deciding on a multiple for Zynga.

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Capitalization Structure Zynga plans to offer a new class of Class A common stock through the proposed offering. All currently outstanding Class A common stock and Class B common stock have been re-designated as “Class B common stock” and “Class C common stock” respectively. Immediately prior to the close of Zynga‟s proposed offering, all all outstanding shares of the company‟s preferred stock will automatically convert into an aggregate of 302.98M shares of Class B common stock.

Exhibit 13: Zynga’s Current Outstanding Common Stock

Stock Class Current Outstanding (M)

Class B

Class C

562.467

20.517

Source: Company filings; Includes Conversion of All Outstanding 302.98M Preferred Shares Into Class B Common Stock

For the purpose of the report, we are using the current outstanding share count of 582.984M in our calculations. Exhibit 14: Valuation Summary

Methodology

Est. Enterprise Value ($,M)

Est. Market Cap ($,M)

Current Outstanding Shares (Class B & C; in M)

Est. Price Per Share

Steady State Revenues

$10,437

$11,433

582.984

$19.61

EV/Revenue

$10,237

$11,233

582.984

$19.27

Source: Company filings and neXtup Research Estimates

Dilution Impact As mentioned in the S-1 filed by Zynga (an excerpt reproduced in Appendix B of this report), a substantial number of stock options, restricted stock units and warrants are outstanding and not included in the calculations of the 582.98M common shares outstanding. We believe these are likely to have a dilution impact on Zynga stockholders. Using the treasury stock method, and mid point of our estimated price per share, we believe they could have a dilution impact of 217.35M shares (Exhibit 15) Important disclosures on page 23 17

Exhibit 15: Dilution Impact on Zynga’s Shares At Different Shares Price

Zynga's Stock Price

Potential Effective Dilution (M shares)

$18.00

216.924

$19.00

217.226

$19.44

217.348

$20.00

217.497

$21.00

217.743

Source: Company filings and neXtup Research Estimates Though we have used 582.98M common shares outstanding for calculations in our report, we believe it is important to account for the dilution effects of stock options, restricted stock units and warrants on Zynga‟s common stock.

Important disclosures on page 23

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Appendix A: Which 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 will reach that “steady state” level in 2 – 5 years. Exhibit A1: Hypothetical Revenue Growth Pattern of a Firm Since Inception
450 400 350 300 250 200 150 100 50 0 0 2 4 6 8 10 12 14 16

Steady State Growth

Source: neXtup Research

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. Important disclosures on page 23 19

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: Growth Multiple as a Function of T-bill Rate and Revenue Growth
T Bill Rate Revenue Growth 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% 2.0% 34x 41x 50x 60x 72x 86x 102x 120x 141x 165x 2.5% 27x 32x 39x 47x 56x 66x 78x 92x 108x 125x 3.0% 22x 19x 32x 38x 45x 54x 63x 74x 86x 99x 3.5% 19x 23x 27x 32x 38x 44x 52x 61x 70x 81x 4.0% 17x 19x 23x 27x 32x 38x 44x 51x 59x 67x 4.5% 15x 17x 20x 24x 28x 32x 38x 43x 50x 57x 5.0% 13x 16x 18x 21x 24x 28x 33x 37x 43x 49x 5.5% 12x 14x 16x 19x 22x 25x 29x 33x 37x 42x 6.0% 11x 13x 15x 17x 19x 22x 25x 29x 32x 36x 6.5% 10x 12x 13x 15x 17x 19x 21x 24x 28x 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 – “ “ 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) (assumed 4%)

Source: Benjamin Graham, Security Analysis (1951), McGraw Hill

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We are providing our methodology as a framework. Investors can change any of our variables to arrive at their own metrics. 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: EV/Revenue Multiple as a Function of EBITDA Margins and Revenue Growth
Revenue Growth EBITDA Margin 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% 2.5x 2.3x 2.0x 1.8x 1.5x 1.3x 1.0x 0.8x 0.5x 0.3x 5% 3.3x 2.9x 2.6x 2.3x 2.0x 1.6x 1.3x 1.0x 0.7x 0.3x 10% 4.0x 3.6x 3.2x 2.8x 2.4x 2.0x 1.6x 1.2x 0.8x 0.4x 15% 4.8x 4.3x 3.8x 3.4x 2.9x 2.4x 1.9x 1.4x 1.0x 0.5x 20% 5.6x 5.0x 4.5x 3.9x 3.3x 2.8x 2.2x 1.7x 1.1x 0.6x 25% 6.3x 5.7x 5.1x 4.4x 3.8x 3.2x 2.5x 1.9x 1.3x 0.6x 30% 7.1x 6.4x 5.7x 5.0x 4.3x 3.6x 2.8x 2.1x 1.4x 0.7x 35% 7.9x 7.1x 6.3x 5.5x 4.7x 3.9x 3.2x 2.4x 1.6x 0.8x 40% 8.7x 7.8x 6.9x 6.1x 5.2x 4.3x 3.5x 2.6x 1.7x 0.9x 45% 9.4x 8.5x 7.5x 6.6x 5.7x 4.7x 3.8x 2.8x 1.9x 0.9x 50% 10.2x 9.0x 8.2x 7.1x 6.1x 5.1x 3.1x 3.1x 2.0x 1.0x

Source: neXtup Research

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Appendix B
The following is an excerpt from Zynga‟s S-1 filed with SEC on July 7, 2011: “The number of shares of Class A common stock, Class B common stock and Class C common stock to be outstanding after this offering is based on no shares of our Class A common stock, 562,466,698 shares of our Class B common stock (including preferred stock on an as-converted basis) and 20,517,472 shares of our Class C common stock outstanding as of March 31, 2011, and excludes:  119,288,002 shares of Class B common stock issuable upon the exercise of stock options outstanding as of March 31, 2011 under our 2007 Equity Incentive Plan at a weighted-average exercise price of $0.86165 per share;

84,516,944 shares of Class B common stock issuable upon the vesting of restricted stock units, or ZSUs, outstanding as of March 31, 2011 under our 2007 Equity Incentive Plan;

18,854,848 shares of Class B common stock issuable upon the exercise of warrants outstanding as of March 31, 2011 at a weighted-average exercise price of $0.0246 per share, which warrants are expected to remain outstanding after this offering;

10,992,984 shares of Class B common stock reserved for future issuance under our 2007 Equity Incentive Plan; provided, however, that immediately upon the signing of the underwriting agreement for this offering, our 2007 Equity Incentive Plan will terminate so that no further awards may be granted under our 2007 Equity Incentive Plan; and

shares of Class A common stock reserved for future issuance under our 2011 Equity Incentive Plan, which we plan to adopt in connection with this offering.”

Important disclosures on page 23

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DISCLAIMER

This report was prepared by Global Silicon Valley Partners under the neXtup Research brand ("neXtup Research"). 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 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. The reader of this report must make its own independent decisions regarding any securities or financial instruments mentioned in the report. This document does not contain all the information needed to make an investment decision, including but not limited to, the risks and costs. 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 neXtup 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 as of the date of the report 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. We assume no responsibility for economic or physical factors occurring subsequent to the date of this report that may affect the opinions reported.

Email research@nextupresearch.com for further information.

Important disclosures on page 23

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