Zynga shares soar on Facebook connection

Reuters

Zynga shares jumped as much as 22 percent on Thursday in the first trading session after Facebook revealed it made 12 percent of its revenue last year from the video game publisher. On Wednesday, Facebook listed Zynga, the maker of the « FarmVille » and « Words with Friends » games, as a risk factor in its filing for an initial public offering. It said that Facebook’s results could be hurt if Zynga moved its games to other platforms or if the relationship deteriorated.

This surprised investors who thought Facebook held all the power in its dealings with Zynga and could demand more of its games revenue in the future.

« 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 said.

Zynga still depends on Facebook for roughly 95 percent of its revenue, which makes it more reliant on the social network. Still, Greenfield said: « It is in Facebook’s interest for Zynga to be successful. »

Facebook makes money by processing fees from Zynga’s sales of virtual goods in games such as tractors or poker chips. It receives a 30 percent cut from these sales. The agreement between the two companies expires in May 2015.

Zynga’s fourth-quarter results are due on February 14. Macquarie analyst Ben Schachter wrote in a research note on Thursday that Zynga may have generated $268 million in adjusted revenue in the fourth quarter based on numbers in Zynga’s filing.

Zynga shares were up $1.60, or 15 percent, at $12.20 in midday trading on Nasdaq.

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