It’s good to be friends with Facebook. Zynga, the online video game company, saw its stock soar nearly 20% Thursday after Facebook disclosed that it made 12% of its revenue off the company last year. The social networking giant, which plans to go public later this year, also listed its dependance on Zynga as a “risk factor” in its IPO filing.
Zynga, which makes games such as Farmville, CityVille, and MafiaWars, was founded in 2007 by Mark Pincus. The company boasts 54 million users who play every day and 227 million users who play at least once a month. Many of them play on Facebook. In the first nine months of 2011 Zynga users spent nearly $800 million on virtual goods that enhance the gaming experience, such as extra “energy,” increased “power,” and various in-game objects like buildings and animals
Zynga pays Facebook for the privilege of hosting its games on the social network — the social network receives a 30% cut of the Zynga’s vitual goods sales. Last year, those fees amounted a whopping $480 million. “Given how important Zynga is to Facebook — representing double digit revenue — this is a far more symbiotic relationship than anyone assumed,” BTIG analyst Richard Greenfield told Reuters. Facebook’s deal with Zynga expires in 2015.
In its IPO filing, Facebook listed its relationship with Zynga as a potential “risk factor” for the company. “If the use of Zynga games on our Platform declines, if Zynga launches games on or migrates games to competing platforms, or if we fail to maintain good relations with Zynga, we may lose Zynga as a significant Platform developer and our financial results may be adversely affected,” Facebook said.
In its own IPO filing last year, Zynga also discussed its connection with Facebook. “Facebook is the primary distribution, marketing, promotion and payment platform for our games,” Zynga wrote. “We generate substantially all of our revenue and players through the Facebook platform and expect to continue to do so for the foreseeable future. Any deterioration in our relationship with Facebook would harm our business and adversely affect the value of our Class A common stock.”
In mid-day trading Thursday, Zynga shares were trading up 18.4% to $12.57.