Raja Jasti’s Blog - Renaissance Thinking

Social gaming is the future of gaming. Evidence? Zynga surpasses EA in market value.

Oct. 26 (Bloomberg) — Zynga Game Network Inc.’s estimated worth surpassed Electronic Arts Inc.’s stock-market value, a sign of the ascendance of social-networking entertainment at the expense of traditional video games.

Zynga, the maker of such games as “FarmVille” and “FrontierVille,” is valued at $5.51 billion, according to SharesPost Inc., an exchange for shares of privately held companies. Electronic Arts, the second-largest game publisher by sales, is worth $5.16 billion on the Nasdaq Stock Market.

“The valuation is not that crazy, given what’s going on in the market,” said Atul Bagga, an analyst at ThinkEquity LLC in San Francisco, who estimates the virtual goods market may reach $3.6 billion in three years. “It’s not that terribly expensive seeing the growth prospects.”

Electronic Arts, meanwhile, faces declining retail sales of gaming hardware and software. More consumers would rather play games within their social networks, rather than heading to a store to buy a shrink-wrapped program. That’s forced Electronic Arts to cut jobs and seek acquisitions for growth. Before today, its shares had dropped 7.4 percent since March 1. Zynga’s estimated value has more than doubled in that timeframe.

This is a bit of apples and oranges comparison. As Zynga is not yet a public company, so its value is derived from its share price in private markets.

This is bit reminiscent of dot com days, so we need to be cautious but the trend is pretty clear. Unlike dot com companies social gaming is making real of money. Lots of it and growing very fast.

Social gaming is going mobile, so we are still in  early days. There will be other huge players in this market.