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his report has been downloaded from SharesPost, Inc., but was prepared by Global Silicon Valley Partners under the Nexesearch brand ("Next Up Research"), and any opinions contained herein are solely the opinions of Next Up Rese

nformation contained herein, including but not limited to research, valuations, calculations, estimates and any other materiources, is believed to be reliable, however its accuracy and completeness is not warranted or guaranteed, and past perform not indicative of future results. These materials are provided for informational purposes only and should not be useonstrued as an offer to sell or a solicitation of an offer to buy any security. SharesPost, Inc. is not acting as nor is it registeren investment adviser.



!!!!Investment Highlights

One of the largest developers of social games: With

over 230 million in monthly active users on Facebook

alone, Zynga is one of the largest developers of social

entertainment widgets and games. The company, a pure

play on the social gaming segment, is poised to grow at aCAGR of 35% from 2009 to 2014 in our estimate. The

widget segment, mostly aided by new entrants should grow

at 44%.

Ability to Cross Promote: Zynga games ! FarmVille,

Café World, Texas HoldEm Poker, FishVille and Mafia

Wars rank in the top 10 applications on Facebook. The

company is able to quickly ramp its games in popularity by

cross promoting to its existing user base of over 200

million.

Diversified Distribution: In addition to Facebook, Zynga

also has a significant presence on other platforms such as

MySpace, Bebo, Friendster, Tagged, Yahoo and iPhone.

Many of "#$%&'() %&*+( such as Mafia Wars, and Texas

HoldEm Poker are also popular on MySpace.

Valuation: We have used two methods: a) steady-state

target EV/Revenue multiple, and b) comparative

EV/Revenue multiple based on a peer group to arrive at a

market cap of $2.806 - $3.315 billion for Zynga, and an estimated price per share of $14.97 - $17.68 for

common shares.

Investment Concerns

Crowded Marketplace: Facebook alone has over 1 million registered developers, with most applications

rarely exceeding a few thousand in user base. Many popular widget providers such as Slide, LabPixies,

iLike, RockYou and Flixster continue to offer applications that compete for the same user time and ad

dollars. Zynga also faces competition for eye balls from other game providers such as Playdom, Playfish

and CrowdStar. With low switching costs for users to other game platforms, the number of users can

change significantly in a short period.

Any radical change by Facebook to its notification policy could affect Zynga and other applicationproviders adversely.

Social

Networking:Zynga

Leader in Social

Games

NeXt Up!www.nextupresearch.com

February 11, 2010

This report has been downloaded from SharesPost, Inc., but was prepared by NeXt Up Research, and any opinions contained herein are solelythe opinions of NeXt Up Research. Information contained herein, including but not limited to research, valuations, calculations, estimates andany other material or sources, is believed to be reliable, however its accuracy and completeness is not warranted or guaranteed, and pastperformance 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 aninvestment adviser.

This report issued subject to important legal disclaimers contained on last page of report.!



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NeXt Up! 2

INVESTMENT THESIS

Leader in Social-Networking Games

With over 230 million in monthly active users on Facebook alone, Zynga is one of the largest developers

of social entertainment widgets and games. The company, a pure play on the social gaming segment ispoised to grow at a CAGR of 35% from 2009 to 2014 in our estimate. The growth in the future is likely to

be at a slower pace, primarily because the company is already one of the largest in the widget space. The

widget segment, mostly aided by new entrants should grow at 44%.

Exhibit 1: Monthly Active Users of Application Developers on Facebook

Source: AppData

Ability to Cross Promote Games is a Competitive Advantage:

The company continues to promote new games to its existing user base. The company launched its

PetVille only in December 2009. Thanks to strong cross promotion to its existing users, PetVille quickly

became the 12th most popular application on Facebook with over 18M monthly active users. We believe

its large user base could be a competitive advantage in bringing out new games even as some of the

older games may lose their luster.

In many instances, Zynga has created its products well after a competitor had established itself. However,thanks to its formidable size and the ability to add new features, Zynga is able to achieve a high level of

penetration. For instance, Farm Town was started by Slashkey in early 2009. But the product peaked at

19M users (now down to 15M users). Within six weeks of 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.

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NeXt Up! 3

Exhibit 2: Monthly Active Users of Zynga Games on Facebook

Source: AppData

Valuation: We use the following methods namely a) Multiple of EV/Revenue, b) Target EV based on

steady state revenues, normalized net margins, and a growth multiple to arrive at an enterprise valuation

of $2806 - $3315 million for Zynga.

(a) Multiple of EV/Revenue: With no publicly traded companies in the widget or SNS segment, we

believe a close proxy would be the publicly traded internet software and services companies.We

have used a median EV/Revenue multiple of 6.1x (Appendix A3) assuming long term EBITDA

margin of 35% and growth rate of 40% over the next few years. Using a multiple of 6.1x and

CY10 revenue estimate of $ 460 million, we arrive at a target enterprise value of $2806 million.

(b) Target EV based on Steady State Revenues: Appendix A details our valuation approach and

the choice of our multiple. Assuming steady state revenues of $1100 million in 2014, normalized

net margins of 25%, a growth multiple of 25, we arrive at a target enterprise value of $ 3315

million.

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NeXt Up! 4

Investment Concerns

Growth in Users May Not Correlate to Revenues: Only a small fraction (about 2 - 3%, in our estimate)

of users actually makes any form of payment to Zynga. As with most social networking sites, future

growth in user base could come from emerging economies, where revenue opportunity per user is often a

fraction of what it is for the US.

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infrastructure. Accordingly, we are concerned that at some point the increased capital expenditure may

not result in commensurate revenue opportunity.

Crowded Widget Space: We expect the revenue growth of the widget space to have a CAGR of over

40% for the next several 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 six

months ago. We expect the vast majority of these developers to have low growth rates and compete for

the same user base.

Zynga Vulnerable to Platform Policies Enforced by Facebook:

In March 2010, Facebook is likely to make adjustments to its notification policy for games. Although

Zynga is one of the largest sources of revenues for Facebook, the policy tweak could affect Zynga in

unintended ways. For instance, Facebook 420$+9) -::) 47+) /50&;) 6-*3-$+$4() -:) <-6=>-2'() ?23+0)@&;;)

application in July 2008. Average daily users of Super Wall nosedived from 2.4 million to 0.6 million within

&)*-$47'()45*+A)?23+0)@&;;)959)$-4)0+6-/+0)from the slump and currently has 0.3 million average daily

users.



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NeXt Up! 5

MARKET OVERVIEW

Over 75% of the US internet users have used a web widget, sometimes unknowingly. Such applications,

which appear on many social networking sites, allow users to integrate their social experiences with their

community of friends and acquaintances. Some of the most popular widgets include music lists, videos,

photo slide shows, post-it notes and virtual pets that can be fed or dressed.

In some cases, widgets are created and customized on another site, such as Slide or Photobucket

(owned by MySpace). The site that creates the content generates a string of software codes to be copied

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additional compilation. The widgets usually use DHTML, JavaScript or Adobe Flash for execution.

Social network companies such as Facebook and MySpace host these applications and provide the

underlying platform services through special-purpose application programming interfaces. The social

networks (such as MySpace or Facebook) offer hardware and software infrastructure, as well as access

to the social network's end user base. This frees up the resources of the application provider for R&D.

Such application providers can range from a single programmer to large established firms such as Slide

or RockYou.

Exhibit 3: Widgets Ecosystem

Source: NeXt Up Research

Advertiser Users

Widgets

Platform

Money

Data



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NeXt Up! 6

Widgets and applications account for only 5% of the total online social network advertising spending

budget. However, increasingly widgets are a key driver of traffic and time spent on a social networking

site. Widget providers can gather a variety of information about the user based on the type and frequency

of the widget usage. This should allow a potential advertiser to tailor its message to the user. Accordingly,

we expect revenue growth for widget creators to significantly outpace that of social networking sites

(Exhibit 4). We estimate that advertisers will spend an estimated $2.35 billion on social networks

worldwide in 2009, a 17% increase from 2008 levels. This growth pales in comparison to the 75% year

over year growth we expect for widgets in 2009.

Exhibit 4: Worldwide Advertisement Revenues Earned by Social Network Sites

Source: eMarketer and NeXt Up Research estimates

We attribute the rapid revenue growth to the explosion in the number of developers as well as increasingrevenue per application. With low barriers to entry, even part time programmers can become developers

of applications. We note that Facebook alone has over 1 million registered developers, up from 660k

registered developers only a few months ago.

For game developers such as Zynga, the correct metric is monthly active users, which has a high

correlation to revenue potential. RockYou leads among widget developers space in terms of unique

visitors (Exhibit 5). However, In terms of monthly active users, Zynga is currently the largest application

0

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2006 2007 2008 2009 2010E 2011E 2012E 2013E

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CAGR: 12%

CAGR:53%



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NeXt Up! 7

developer on Facebook with nearly 227.5M monthly active users. "#$%&E( user base has increased from

30 M in April 2009 to 228 M in January 2010. We believe that the widget market for SNS is still in early

stages of adoption and that changes over a few months may not necessarily portend a trend. Most users

often use multiple networking sites and several widgets on each of them.

Exhibit 5: Unique Users in Widget Segment

Source: comScore and NeXt Up Research

Various versions of widgets have been in existence since the launch of GUI (graphical user interface) in

1981. The earliest form of such an application can be traced to that by Bud Tribble and Andy Hertzfeld,

who showcased a concept called "desk ornaments" for the original Macintosh operating system. These

ornaments, later renamed accessories, wrapped small computing functions such as a calculator, notepad,

or simple games within a single application.

In 1996, Netscape offered the PowerStart widget as part of its Navigator browser. Netscape PowerStart

was a personal start page application built-in to the Netscape Navigator web browser in 1996. PowerStart

gathered various pieces of information such as e-mail, stock quotes and weather reports and displayedthem in a single page. Fotki, founded in 1998, started as a site for sharing photos. It has subsequently

added other features such as video sharing, photo printing and blogging. In October 2000, Stardock

released a new GUI engine for Windows named DesktopX, a widget that displays system information

such as CPU, memory utilization, news tickers and live updates from the web. Arlo Rose and Perry

Clarke released Konfabulator for Mac OS X as a shareware project in 2003. Konfabulator was

subsequently incorporated as Pixoria, which was acquired by Yahoo! in July 2005.

0

20

40

60

80

100

120

140

160

Dec-2008 Feb-2009 Apr-2009 June-2009 Aug-2009 Oct-09 Dec-09

Slide, Inc RockYou Flixster

Zynga LabPixies Playf ish

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NeXt Up! 8

Exhibit 6: Timeline of prominent Social Application developers

Source: Company Reports and NeXt Up Research

Year Company Description

1998 Fotki

Started for close circle of friends. Allows photo-sharing, photo-printing,

photo-selling and blogging site.

Yahoo! Widgets

(Previously

known as

Konfabulator)

Free application platform for Mac OS X and Microsoft Windows.

Includes a weather widget, a digital c lock, and RSS feed readers

NewsGator Provides RSS feed readers

PhotobucketImage hosting, video hosting, slideshow creation and photo sharing

website.

Slide Leading provider of applications and widgets on the web.

SmileboxAllows user to create greeting cards, scrapbooks, slideshows, and

birthday cards using photos, videos, and music.

AnimotoWeb application that produces videos from user-selected photos and

music.

Flektor Allows user to create, remix, and share photos, videos, with others via

email, on mySpace, or in blog.

Flixster Allows user to share movie ratings, discover new movies and meet

others with similar movie taste.

iLike Online service that allows users to download and share music.

Imageloop Allows the users to create animated slideshows

LabPixies Ltd. Search tools and calculators.

RockYou Leading provider of applications and widgets on the web.

WidgetboxWeb widgets for blogging, social networking services, and personal

websites.

Playfish Free to play casual social games

ZyngaDeveloper of casino games, word games, board games, role playing

games and party games

oosahAllows user to upload, organize, and share music, photos, and video

files.

2008 SAMP2Allows users to create animation with uploaded pictures, music and

personalized message.

2003

2005

2006

2007



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NeXt Up! 9

COMPETITIVE LANDSCAPE

Most users often use widgets from a variety of suppliers. Accordingly, the demographic distribution of

most of the application providers looks similar (Exhibit 7). It is not unusual for a Facebook user to be

playing games from Zynga, while (5*2;4&$+-2(;#)(+$95$%)&)850479&#)6&09)4-)75():05+$9)2(5$%)<-6=>-2'()

applications.

Many of the widgets target various needs of a particular user and often do not offer the exact same

alternative. With the market in an early adopter stage, over a million developers are competing for the

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Exhibit 7: Demographic Distribution of Widget Providers

Source: comScore, NeXt Up Research

19.6% 17.5% 19.5% 18.3%

31.2%

19.5%17.0%

21.8% 22.5%

20.3%

26.9%

22.8%

28.3% 28.6%

21.0%

34.0%42.7%

30.5% 30.7% 27.5%

Slide, Inc RockYou Flixster Zynga LabPixies

Age:15-24 Age:25-34 Age:35-44 Age:45+

106.8M 79.1M 15.1M 12.3M 1.4M



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NeXt Up! 10

RockYou (Private)Redwood City, Californiahttp://www.rockyou.com

RockYou (originally NetPickle) was founded by Lance Tokuda and Jia Shen in 2006. The companycreates self-expression widgets which can be used to enhance the look and feel of blogs, personal

websites on social networks. Users can express themselves by designing their profile page to reflect their

personality. They can also connect and discover friends through various RockYou applications.

RockYou has over 213 million users worldwide (of which 64 million are active monthly users) and 15

billion global impressions from over 200 countries. RockYou applications seamlessly integrate across all

social networks such as Facebook, MySpace, Orkut, Bebo, Friendster, Tag and Hi5. Headquartered in

Redwood City, California, RockYou currently has 105 employees.

<-6=>-2'():50(4)30-9264).&()&)(;59+(7-.)(+0/56+).7567).&()9+(5%$+9)4-).-0=)&()&$)&33;56&45-$). idget. In

2006, co-Founders Lance Tokuda and Jia Shen were sued by their former employer Iconix on the chargethat Tokuda and Shen were working on a slideshow application for Iconix while the pair was engaged in

creating RockYou. A preliminary injunction was passed in favor of Iconix before the intellectual property

case was finally settled out of court.

<-6=>-2'() %0-.47) (.2$%) 5$4-) 75%7+0) %+&0 once Facebook opened up its platform for application

developers in May 2007. The number of registered users of RockYou applications grew nearly 4x in a

matter of six months.

RockYou launched RockYou Live or Super Wall application and Likeness on Facebook in September

2007 and for a brief period was the largest application developer on Facebook with over 3 million daily

active users in December 2007. Super Wall was the top RockYou application on Facebook in December

2007.

B7+) 6-*3&$#'() 305*&0#) (-206+) -:) 0+/+$2+() 6&*+) :0-*) &9() 47&4) .+0+) (+0/+9) 950+6tly or as product

placement along with its various widgets. We believe that RockYou Ads has become the largest

independent ad network in social media with more than 213 million monthly total unique visitors

worldwide and more than 15 billion monthly impressions.

In 2009, we expect RockYou to achieve revenues of $36M, nearly 3x that of its 2008 run rate. RockYou

has received four rounds of funding totaling $118 million from Softbank, SK Telecom Ventures,

Lightspeed Venture Partners, Partech International and Sequoia Capital.

http://www.rockyou.com/





!

NeXt Up! 11

Slide (Private) SanFrancisco, CAhttp://www.slide.com/

PayPal co-founder, Max Levchin, founded Slide in 2005 with an investment of $1M. The company started

as a project in 2004 to develop and run a service that enables users to organize photos on their

computers and post them to personal blogs. Slide is one of the largest developers of social entertainment

applications with more than 106 million monthly active users in more than 200 6-2$405+(A)?;59+'()3-04:-;5-)

of products includes fun applications and virtual communities such as Slideshow, SuperPoke! SuperPoke!

Pets, Top Friends, FunSpace, Rock Riot, SuperPocus: Academy of Magic and Top Fish.

The company initially started making software widgets for MySpace and other social networks. The

6-*3&$#'s big break came in May 2007, when Facebook opened its platform to third-party applications,

and with fewer restrictions than MySpace. Several of Slide's plug-in applications such as "Slide

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"SuperPoke!" soon became one the most popular applications on Facebook.

?;59+'() 30-9264) -::+05$%() 5$545&;;#) 4&0%+4+9) 47+) 47+$) ;&0%+) 3;&4:-0*) -:)K#?3&6+1)824) $-.) 47+) 6-*3&$#'()

widgets are available on a number of sites including Facebook, Bebo, Hi5, Tagged and Blogger.

The company also provides image hosting, personalization tools, and social networking opportunities

through Slide.com. Users can choose skin, and add music and animation of their own choice. The users

can also give and receive awards, exhibit moods, and keeps tabs on other users.

In addition to blogs and forums, members can express themselves by designing their profile page to

reflect their personality. Members can also share photos and create customized slide shows. The music

and video sections of Slide.com remain among the most popular applications. In these sections,members can listen to their favorite songs and watch music videos. The video section can include

everything from member !generated videos from hundreds of subjects to TV clips and movie trailers.

The company employs 114 people. Senior management includes Max Levchin (CEO and Chairman),

Kevin Freedman (Chief Financial Officer), Keith Rabois (Vice President, Strategy and Business

Development), Mike Young (Vice President, Engineering), Mike Huang (Vice President, Product) and

John Duncan (General Counsel).

Slide has received four rounds of funding amounting to a total of $ 82.84 million. It received Series A

funding of $1.2 million from angel investors in June 2005. Its Series B funding of $8 million came from

BlueRun Ventures and Founders in July 2005. Blue Run Founders also participated in Series C funding of

$20.52 million in October 2006A)B7+)6-*3&$#'()*-(4)0+6+$4):2$95$%):-0)?+05+()M of $50 million came from

Fidelity Investments and T Rowe Price Threshold Partnerships in January 2008.

http://www.slide.com/


http://investing.businessweek.com/research/stocks/snapshot/snapshot.asp?capId=20765463


http://investing.businessweek.com/research/stocks/snapshot/snapshot.asp?capId=20765463



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NeXt Up! 12

Playfish (Private)London, Englandhttp://www.playfish.com

Playfish was founded in 2007 by Kristian Segerstrale, Sebastien de Halleux, Sami Lababidi, and Shukri

Shammas. Playfish is headquartered in London but has offices in Beijing and Tromso (Norway).

The company is a developer of free social games that can be played on platforms such as Facebook,

MySpace, Google, Bebo, iPhone and Android. Over 150 million Playfish games have been installed and

played by millions of users. B7+) 6-*3&$#'()Pet Society is its flagship game and one of the fastest

growing third party applications on Facebook with a user base of more than a million.

Exhibit 8: Top Playfish games


Most of Playfish'()0+/+$2+()6-*+):0-*)54()%&*+()&$9)(&;+)-:)/5042&;)%--9(A)B7+)3&#*+$4)5()*&9+)470-2%7)

micro-payment services such as PayPal. It also gets some revenues from in-game advertisements.

In October 2008, Playfish secured $17M in venture capital funding from Accel Partners and Index

Ventures. Playfish was acquired by Electronic Arts Inc (EA) on November 9, 2009 and now operates as a

division of EA focused on the web and wireless. We estimate that N;&#:5(7'()OPPQ)0+/+$2+)was about

$40M million and that EA apparently paid $400 million for the acquisition. We expect EA to realize

synergies between console and social gaming.

Game Name Details

Pet Sociey

The user can play different gamesand carry out activities such as

playing ball, jumping rope or going on

a treasure hunt

Restaurant city Lets the user create his/her own

restaurant and run it

Country Story Allows the user to enjoy the tranquil

pleaures of his/her own country home

Who has the

Biggest Brain

Series of Mini games which tests a

person's abilities in four areas -

concentration, memory, logic andvisual and then result in an overall

brain rating

http://www.playfish.com/





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NeXt Up! 13

iLike (Private) !!!!!!!!!!!!!Seattle,WAhttp://www.ilike.com

In 2002 Ali Partovi led the effort to save GarageBand.com from being shut down. In 2006, Ali with thehelp of his twin brother Hadi, started iLike. With more than 60 million users, iLike helps users share music

recommendations, playlists and personalized concert alerts.

iLike is a social music discovery service and the leading music application on many platforms such as

Facebook, Orkut, hi5, Bebo and Google.

B7+)6-*3&$#'() EK2(56') 5()one of the most popular applications on Facebook. iLike also builds iPhone

applications for artists that integrate with Twitter, YouTube, MySpace and more. iLike aims to promote

music democracy by giving exposure to artists that users may have never heard of but would like to hear

as part of their listening habits.

iLike received $2.5 million in Series A funding and $700k in angel funding. In December 2006, iLike

secured $13.3M from Ticketmaster, in exchange for a 25% stake. However, the company ran into the red.

In September 2009, iLike was acquired by MySpace. It now operates as a fully owned subsidiary of

MySpace.

Exhibit 9: Products


iLike.comEnables fans to discover and share playlists, find new music

that matches their personal tastes and concerts of their

favorite artists

iLike Slidebar Scans one's music library, recommends new music, and

helps in connecting musically with friends

iLike music application on

leading SNS Dominant music application on many SNSs

Universal Artist Dashboard

Multimedia blogging tools

Artist Video "Greatest Hits"

Short video montage which features major acts of artists who

have posted exclusive video content on iLike for syndicationacross the web

Promoters Music Promotion PlatformHelps in creating multimedia ads that target users by location

and music taste

Fans

Artists

Manage their presence on many SNS, syndicate their music

and content across the web

Category Products Details

http://www.ilike.com/



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NeXt Up! 14

PlaydomMountain View, CAhttp://www.playdom.com

Founded in 2008 by Rick Thompson and Dan Yue, the company was formerly known as YouPlus. The

6-*3&$#'()+&0;#);&2$67+().547)F&6+8--=):;-33+9A)R24)54).&()/+0#)(266+((:2;).547)K#?3&6+A) By mid-2009,

Playdom became one of the largest game developers on MySpace, with nine games among Top 25 on

that platform. Its game Mobster is among the top games on MySpace.

In May 2009, Playdom re-entered the Facebook platform with more success. It now gets 40% of its traffic

from Facebook. The company offerings for Facebook include Mob Wars, a game similar to Mobsters. The

6-*3&$#'() F&0*) S5:+) 6-*3+4+() .547) "#$%&'() F&0*/5;;+. Playdom has 14 applications on Facebook

including popular games such as Tiki Farm, Sorority Life and Wild Ones.

@+)+(45*&4+)47&4)47+)6-*3&$#)7&()&$)&$$2&;) 0+/+$2+)02$)0&4+)-:)-/+0)TUPKA)B7+)6-*3&$#'() revenue

stream consists of direct payments (70%), advertising (20%) and offers (10%). Playdom games have a

spend rate of about 5%, higher than those achieved by others such as Zynga.

The company has had only one round of funding. In November 2009, it secured $43 M (a post money

valuation of $260M) from Rick Thompson, New Enterprise Associates, Lightspeed Venture Partners and

Norwest Venture Partners.

In Q4 2009, Playdom acquired Green Patch, a Facebook widget developer best known for its garden

simulation game and iPhone application developer Trippert Labs. Trippert Labs is a developer of several

iPhone applications such as MobAir and Blowfish.

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(Chairman), Chris Wang (CTO) and Ling Xiao (VP, Engineering), John Pleasants (CEO) and Steve

Meretzky (VP Game Design). Headquartered at Mountain View, California, the company has 110

employees.

CrowdStar

Dublin, Ireland

http://www.crowdstar.com/

CrowdStar was founded in 2008 by web entrepreneur Suren Markosian and Jeffery Tseng (a former

creative director at Sega). Headquartered in Burlingame, CA, CrowdStar aims to make games that have$-)X(6&**#Y)-::+0()-0)&9/+045(+*+$4(A)B7+)6-*3&$# started by offering games such as Know-It-All-Trivia

(a trivia game), Save The Reef and WWII for Facebook platform. However, most of these games

achieved only limited success.

In September 2009, the company launched Happy Aquarium, a game similar to FishVille. Within two

months, the game shot past other established popular games such as Pet Society. We estimate that the

6-*3&$#'()%&*+()&440&64)-/+0)ZPK)monthly active users. In November 2009, CrowdStar launched Happy

http://www.playdom.com/








!

NeXt Up! 15

Pets, which now has over 11M monthly active users. Unlike the games developed by its competitors, the

games developed by CrowdStar focus on caring and loving pets/fish rather than growing them for sale at

a later stage. Other popular CrowdStar applications on Facebook are Happy Island and Restaurant Life.

The company derives revenues only from virtual goods sales based on direct payments. Unlike Zynga

and Playfish, the company does not have revenues from in-game ads or offers (which can sometimes

reduce user experience).

CrowdStar received angel funding from Peter Relan who is now Executive Chairman of CrowdStar. The

company has 20 employees.

6 Waves

Causeway Bay, Hong Kong

http://www.6waves.com/

Founded in early 2008 by Rex Ng and other former Yahoo employees, 6 Waves is a leading Honk Kong

based developer of gaming applications for Chinese and other non-English users. The company also

supports games in Spanish, German, French, Turkish and Italian. The company also offers its games on

other social network platforms such as Mixi, Cyworld, Netlog and Vkontakte. 6 Waves is now one of the

largest Facebook developers on Facebook, operating nearly 141 applications with 44M monthly active

users and 9M daily active users.

Some of the popular games of 6 Waves include World Poker, Animal Paradise, Happy Harvest, My

Fishbowl, Crazy Office and Medical Mayhem.

Initially 6 Waves depended heavily on in-game advertising. Now the company offers other services suchas a translation service, cross promotion of third party applications, sale of virtual goods and consulting

provided to developers on making their games profitable. In addition to cross promotion, 6 Waves also

helps developers by providing distribution, localization, monetization and infrastructure solution to

increase the user base of their games on social networks.

6 Waves has received a $17.5 M round of funding from Insight Venture Partners. Headquartered at Hong

Kong, the company has 18 employees. The company has plans to build function specific teams in

Singapore, Taiwan and US.






!

NeXt Up! 16

Exhibit 10: Popularity Parameters on Facebook

?Source: Inside Facebook

Exhibit 11: Total Popularity Parameters (U.S)

!Source: Compete

Monthly Active

Users (M)

Daily Active

Users (M)

Zynga 227.5 64.4

RockYou 71.1 6.7

CrowdStar 51.9 11.5

Playfish 50.4 9.6

Playdom 23.6 3.6

Slide 20.6 1.1

iLike 14.3 0.8

Visits (M) Unique Visitors (M)

Zynga 347.9 20.5

RockYou 147.5 27.8

CrowdStar 55.2 5.1

Playfish 29.5 3.8

Playdom 33.5 4.8

Slide 10.6 4.7

iLike 4.9 3.6



!

NeXt Up! 17

M&A and Partnership Activities

Zynga acquired YoVille in July 2008, shortly after raising $29 M Series B funding. YoVille offered

simulation games such as YoVille. At the time of acquisition, YoVille had 150k daily active users. We

believe the technology from YoVille was instrumental in helping Zynga move from interactive games to

simulation games such as Farmville and Mafia Wars.

Zynga entered into a partnership with San Francisco SPCA in May 2009 to raise awareness in helping

homeless animals. The agency has collected $20k through the partnership. Users of YoVille can adopt

special SF/SPCA shelter cats and dogs from the in-game shelter through virtual money transactions

which are in fact paid by users using real money.

Zynga acquired MyMiniLife in August 2009. MyMiniLife is a social networking site that enables users to

build and decorate environments. [(5$%)47+)6-*3&$#'()3roducts, users can create their own spaces and

homes. The economic activity on this game includes building properties, selling and buying objects using

MyMiniLife virtual currency. We expect Zynga to enhance its Farmville products with the competence

from MyMiniLife team.

Zynga acquired GoPets in October, 2009. GoPets was an online gaming site that allowed users to create

&$9) 0&5(+)&)62(4-*5\+9)]M) 3+4) .7567)6-2;9)8+)9-.$;-&9+9)4-) 47+) 2(+0'()9+(=4-3A)GoPets included a

evolved set of virtual goods monetization features such as mini-game section, multi currency virtual

economy and a premium subscription service. Zynga used competences from this acquisition in the

launch of PetVille in December 2009. Zynga shut down the GoPets site on November 8, 2009. GoPets

employed around 55 people.

In Feb 2010, Zynga announced the acquisition of Serious Business, a small private company founded by

Alex Le and Siqi Chen (both engineers from Powerset) in early 2008. The firm raised $4M in funding

backed by Lightspeed Ventures. Popular games from Serious Business include Friends For Sale and

Rock Legends. We estimate that the San Francisco based firm had about 20 employees.

The company has also extended its co-operation with its main host ! Facebook. Zynga was an early

adopter of F&6+8--=) 6200+$6#) :-0) 54() %&*+) XN50&4+(V) <2;+) 47+) J&0588+&$^YA) F0-* February 2010,

F&0*/5;;+'( 75 million monthly active users will have the option of buying virtual tractors and seeds by

paying with Facebook currency. We estimate that Facebook would charge Zynga a flat rate of 30% per

transaction.



!

NeXt Up! 18

COMPANY BACKGROUND

Zynga was founded in June 2007 by Mark Pincus, a former management consultant and venture

capitalist. Mark Pincus was one of the early investors in Facebook. In early 2007, Pincus learnt that

Facebook would soon open its site to third party software developers. He and his small team comprising

Michael Luxton, Eric Schiermeyer, Justin Waldron, Andrew Trader and Steve Schoettler launched their first game on Facebook which later became popular as Texas HoldEm Poker.

"#$%&) .&() $&*+9) &:4+0) "5$%&1) N5$62('() _]) #+&0) -;9) `*+056&$) 82;;) 9-%) .7567) 95+9) 5$) ;&4+) OPPaAThe

company, based in San Francisco, has 350 employees. Zynga currently has 228 M monthly active users

and 66 M daily active users on Facebook.

Launches Several Games that Rank Among the Most Popular:

B7+)6-*3&$#'() 5$545&;)%&*+().+0+) 420$)8&(+9)(-65&;)%&*+(A)b$) 47+(+)%&*+(1)2(+0()3;&#)7+&9-to-headwith each other. Users can even login in to the game at different times in the day for an asynchronous

session and wait for other users to make their moves. Zynga launched several games with these

attributes. Popular games that it launched include Scramble, PathWords, Word Twist and Sudoku. The

company also started offering its popular products on other social networks such as Facebook, MySpace,

Bebo, Friendster and Hi5.

In June 2008, Zynga launched an asynchronous game, Mafia Wars which grew to more than four million

daily active users within three months. In July 2008, Zynga acquired YoVille, a large virtual world social

network game. At the time of acquisition, YoVille had 150k daily active users. We believe the technology

from YoVille was instrumental in helping Zynga move from interactive games to simulation games such as

Farmville, FishVille, Café World and PetVille. Zynga had 18 M monthly active users on Facebook.

Zynga launched a mobile version of Texas HoldEm Poker game known as Live Poker for iPhone users in

November 2008. Live Poker was one of the first applications to make use of Facebook Connect. Within a

week of its launch, Live Poker became the leading free game and eight most downloaded application in

the iTunes Application Store. Zynga had a monthly user base of 32 M on Facebook in November 2008.

In March 2009, Zynga launched the mobile version of its word game Scramble on iPhone. Zynga

released a version of the Mafia Wars game as a downloadable iPhone application in April 2009 A)"#$%&'()

monthly active user on Facebook had increased to 45 M by then. "#$%&'()3-32;&0)%&*+);&2$67+()-$)

MySpace are Mafia Wars, Texas HoldEm Poker, Vampires, Street Racing, YoVille, Dragon Wars, Gang

Wars, Fashion Wars, and Special Forces. Mafia Wars is the second most popular Zynga game on

MySpace with 13 M total users.

In June 2009, the company launched its blockbuster Farmville, which became an inflection point in the

6-*3&$#'()%0-.47)40&c+64-0#A)@5475$)&):+.).++=(1)F&0*Ville became one of top applications on Facebook.

The company used the success of FarmVille to cross promote their new simulation games. Within two

*-$47()-:) F&0*d5;;+'() ;&2$671)"#$%&) 5$60+&(+9) 54()2(+0)8&(+) :0-*) ZP)K)*-$47;#) &645/+) 2(+0() 5$)e2$+)

2009 to 97.5 M monthly active users in August 2009.



!

NeXt Up! 19

In August 2009, Zynga acquired MyMiniLife, a social networking site that allows the user to build and

decorate environments. The technology of virtual goods monetization used in MyMiniLife is now used in

FarmVille.

In August 2009, Zynga launched Roller Coaster Kingdom on Facebook, a game that allows users to build

and manage virtual theme parks. Zynga launched Café World on Facebook in October 2009. Café World,

built around the theme of a restaurant business, reached a user base of 8.6 M users within a week of its

launch.

In November 2009, Zynga launched a dedicated web portal for FarmVille. Users connect to this site using

Facebook connect integration. This move allows Zynga to provide its users with a more engaging

experience as this site will be free of the normal Facebook interface running around the borders and

allows them a lot of flexibility in design. Zynga plans to port its other games to a separate portal based on

the success of FarmVille.com. @+)8+;5+/+)47&4)47+);&2$67)-:)"#$%&'()%&*+()-$)(+3&0&4+)3-04&;().5;;)$-4)

be very successful because these games on social networks make use of user notifications to attract new

users.

Zynga launched FishVille on Facebook in November 2009. FishVille is based on the same concept of Happy Aquarium from Crowdstar. The scam offers, which had been part of the ScamVille scandal, got

back in to the game. Zynga and Facebook took the game down and re-launched it without the scam

offers. In December 2009, Zynga launched PetVille on Facebook. PetVille marks the entry of Zynga in to

the crowded virtual pet genre of social games. The launch of PetVille, FishVille and growing user

(28(605345-$)-:)&;;)"#$%&)%&*+()6&4&32;4+9) "#$%&E()*-$47;#) &645/+)2(+0) 8&(+) :0-*) _fO)K) 5$)W64-8+0)

2009 to 230 M in December, 2009.

Zynga has launched FarmVille on Windows Live Messenger and MSN Games on February 4th, 2010.

Users can login using Facebook Connect and play FarmVille with more than 75 million players no matter

which site they log onto. Zynga is also planning to launch its other games on MSN Games and Windows

Line Messenger. If gamers are able to play Facebook games seamlessly from MSN Games, this could be

the start of Facebook applications spreading to other popular game destinations such as Yahoo.

Controversy aka ScamVille Scandal

We estimate that the company receives 10 - 20% of its revenues from in-game offers such as those

OfferPal Media and SuperRewards.

OfferPal Media allows end customers to earn virtual currency if they answer surveys, get a subscription or

partake in advertising offers. Many of these offers were little more than lead generation for OfferPal and

similar lead generators. There are instances when a user may not be aware of the full extent of the

monetary commitment or cancellation procedure at the time of signing up for an offer. For instance, users

can get tricked into a mobile phone subscription merely because they entered their phone number as part

of getting results for a quiz. It is not just the users who were affected. Firms that pay for lead generation

also found that the quality of leads was worsening (as some users subscribed to the same offer multiple

times).



!

NeXt Up! 20

When the controversial aspects of the in-game promotions were brought to light by TechCrunch in

October 2009, Zynga took actions to remove some of the more egregious offers. But when Zynga

launched FishVille in November 2009, many of these scam offers resurfaced. Facebook made Zynga

take FishVille offline until the scam offers were removed. Zynga re-launched FishVille in December.

FishVille is now one of the most popular games on Facebook.

Financing Rounds

Zynga has obtained three rounds of funding amounting to a total of $219M. In July 2008, Zynga secured

$29M of Series B funding from KPCB, IVP, Union Square Ventures, Foundry Group, Avalon Ventures. In

December 2009, Zynga obtained Series C funding of $180M from Digital Sky Technologies (a large

investor in Facebook), Andreessen Horowitz, Institutional Venture Partners and Tiger Global.

Exhibit 13: List of Zynga games on Company Website

Source: Company Reports and Next Up Research

Game Launch Remarks

Texas holdEm Poker Jun-07 First Game launched by Zynga

Scramble Jun-07 Adaptation of Scrabble

Word Twist Jul-07 Word Combinations

Dragon Wars Jul-07 Popular on MySpace

Street Racing Jul-07 Popular on MySpace

Vampires Jul-07 Time based pyramid game

Special Forces Jul-07 Commando game

Mafia Wars Jun-08 Popular on Facebook and MySpace

YoVille Jul-08 Acquisition which led to creation of Sim Games

PathWords Sep-08 Adaptation of Scramble puzzle

Pirates Mar-09 Pirates plunder the seas

FarmVille Jun-09 First blockbuster game on Facebook

Roller Coaster Kingdom Jul-09 Theme park simulation game

Fashion Wars Aug-09 Popular on MySpace

Café World Oct-09 Restaurant building game

FishVille Nov-09 Virtual Aquarium

PetVille Dec-09 Raising of Pets



!

NeXt Up! 21

Exhibit 13: List of Zynga games on Company Website

Source: Company Reports



!

NeXt Up! 22

PRODUCT

Zynga offers a variety of games that can be played on multiple social network websites such as

Facebook, MySpace, Bebo, Friendster, Tagged, My Yahoo and smart phones such as the iPhone.

Once a user logs onto a game application, he can start inviting friends to play with him. Users can alsochat with their friends while playing Zynga games. "#$%&'()%&*+()&0+) =$-.$):-0) 47+50) 75%7) (456=5ness

quotient i.e. users get entrenched in the games they play. With the progression of time, users move on to

higher levels of the game but need to keep playing the game at periodic intervals in order to maintain their

position. Users help advertise for Zynga games by placing advertisements in their real estate and by

notifying friends about their advances in the game.

Exhibit 14: Zynga games on different networks


MafiaWars X X - - X X X

Cafeworld X - - - - - -

FishVille X - - - - - -

PetVille X - - - - - -

Roller Coaster X - - - - - -

Zynga Poker X X X - X X X

YoVille! X X - - X - -

Vampires X X - - - - -

Street Racing X X - - - - X

Pirates X X - - - - -

Dragon Wars X X - - - - -

FarmVille X - - - - - -

Special Forces X X - - - - -

Fashion Wars X X - - - - -

Blackjack X - X X - - -

Scramble X - - - - - X

Word Twist X - - - - - -

PathWords X - - - - - -

Sudoku X - - - - - -

Scramble 2 - - - - - - X

MyYahoo iPhoneGames Facebook MySpace Bebo Friendster Tagged



!

NeXt Up! 23

FarmVille

FarmVille is the most popular application on Facebook with nearly 73.6 M monthly active users. The

game,

launched in June 2009, allows users to build farms and create customized avatars to work on the farms.

The various activities which can be performed by the users include plowing land, planting crops and

harvesting them. Users can purchase various items such as trees, seeds, animals, buildings, vehicles

and land using FarmVille coins. Plants on the farm can have various harvest times. The plants need to be

harvested before that time so that they do not die. Users earn coins when they perform various activities

such as harvesting crops. Using these points the players can graduate to the next level in the game.

FarmVille coins can either be earned by performing various activities on the game or exchanged for real

world currency. F&0*d5;;+'() : eatures are similar to that of ?;&(7=+#'() F&0*) B-.$1).7567)saw its user

growth reduced from 19 M monthly active users to 15 M within six weeks of the launch of FarmVille.

FarmVille users contributed $487500 towards the welfare of children in Haiti in October 2009.

Exhibit 15: FarmVille Standalone Portal


Cafe World

Cafe World, launched on Facebook in October 2009, is a restaurant empire building game. Users can

actively participate in cooking dishes for the restaurant in a social way. Users can select a dish, buy the

ingredients required for making it and then cook it over a period of time. Users can return to the game

when the cooking is done and serve it to customers.



!

NeXt Up! 24

Cafe World was launched six months after the launch of Restaurant City by Playfish. There are many

similarities between the two virtual restaurant games such as the layout of the restaurants, view of the

street on the side, design and animation of characters. In the first seven days, Café World got more than

eight million users. Restaurant City is the 18th

most popular application on Facebook with nearly 14.5 M

monthly active users and 3.6 M daily active users. Cafe World on the other hand is the second largest

application on Facebook with 30.2 M monthly active users.

Exhibit 16: Café World on Facebook


FishVille

FishVille launched in November 2009, belongs to the genre of Facebook applications which are built

around the idea of virtual aquarium. Users are given a virtual aquarium with a few fish to start with. Users

can harvest the fish, sell them and use the earnings to buy fish eggs and then feed the fish. As with other

Zy$%&'()%&*+(, users need to wait for a certain amount of time for the fish to grow and need to feed the

fish to prevent them from dying. Users are rewarded with coins for performing activities such as inviting

their Facebook friends to play FishVille, helping other players, selling fish, cleaning tanks etc. Users

graduate to higher levels as they earn experience points.

FishVille is similar to Fish World a game with 8M active users (launched by Tall Tree Games) and Happy

Aquarium (launched by CrowdStar, with 28M monthly active users). Within two months of its launch,

FishVille has become the 6th most popular application on Facebook with 24.6 M monthly active users.



!

NeXt Up! 25

Exhibit 17: FishVille


Mafia Wars

Mafia Wars is available on Facebook, MySpace, Tagged, Yahoo and iPhone. A group of friends or

connections can start a Mafia family. The family can manage a criminal empire and fight to establish their

family as a more powerful group. The game play revolves around creating a mafia by recruiting players,

9-5$%)&$9)*&(4+05$%)c-8()4-)+&0$)6&(7)&$9)+C3+05+$6+)0+D250+9):-0)&9/&$65$%)-$+'()605*5$&;)+*350+A)

Mafia Wars is set in New York City and Little Italy with the option for players to travel to Cuba, Moscow

and Bangkok based on completion of certain levels in the game. We estimate that there are 24 M monthly

active users of Mafia Wars on Facebook. Mafia Wars has 13 M monthly active users on MySpace.



!

NeXt Up! 26

Exhibit 18: Mafia Wars

!Source: Company Reports and NeXt Up Research

Texas HoldEm Poker

Texas HoldEm Poker now known as Zynga Poker was the first gaming application that was launched by

Zynga. It transformed the once fledging social game company Zynga to an online gaming powerhouse.

Texas HoldEm Poker has always been one of the most popular Zynga games on Facebook and MySpace

and is also available on Bebo, hi5, Tagged, Yahoo! and iPhone.

Texas HoldEm Poker is a variation of the card game of Poker in which individuals compete for money

contributed by the players themselves. Each player attempts to control the amount of money in the pot

based on the card he holds as the cards are dealt randomly, outside the control of players. Players need

to buy Zynga poker chips to play the Texas HoldEm Poker.

Playfish has rolled out Poker Rivals to compete with Zynga Poker. We estimate that there are 24 M

monthly active users of Texas HoldEm Poker on Facebook. Texas HoldEm Poker has 6.5 M monthly

active users on MySpace.



!

NeXt Up! 27

Exhibit 19: Texas HoldEm Poker


PetVille

PetVille launched in December 16, 2009 is a game built on the same idea as N;&#:5(7'()N+4 Society.

Users can create a customized pet, raise it and care for a pet that they have created. Players get coins in

return for doing activities such as washing the pet, cleaning the pet and visiting :05+$9(')7-2(+()as well ascarrying out activities such as dancing with pets.

@7+$)47+)3;&#+0)02$()-24)-:)X energyY, he can replenish himself only by taking rest, not by purchasing

virtual food or beverage as with other games. Users graduate to the next level by earning points for the

activities they perform. Higher levels provide more profitable food for the pets and exclusive items that

6&$)8+)8-2%74):-0)47+)2(+0(')7-*+(A

PetVille is the 12th most popular application on Facebook with 18.2 M monthly active users.

YoVille

In YoVille (similar to the other popular game Habbo Hotel), users can create a character for themselves

and customize the hairstyle and clothing. Once the character has been set up, players can start taking

3&04) 5$) /&05-2() &645/545+() 5$)>-d5;;+) (267) &()9+6-0&45$%) -$+'() /5042&;) &3&04*+$41) %&*8;5$%) 5$) 47+) /5042&;)



!

NeXt Up! 28

casino, playing games with other users, going to work at YoVille Widget Factory or shop. YoVille was

acquired by Zynga in July 2008 when it had around 150k daily active users on Facebook.

We estimate that there are 15.2 M monthly active users of YoVille on Facebook. YoVille has 5.6 M

monthly active users on MySpace.

Exhibit 20: YoVille


Roller Coaster

Roller Coaster Kingdom, launched in July 2009, is a theme park simulation game that gives users a

chance to create and own a theme park. Users can build exciting rides, open food stands and design the

theme park in such a way that it has repeat audience. New players of the game will get 10 Coaster cash.

Unlike other Zynga games which run in the background, Roller Coaster only runs when it is kept open in a

browser window. Roller Coaster Kingdom has seen a drop in user activity. We attribute the decline toslow loading times. We estimate that there are 8 M monthly active users of Roller Coaster on Facebook.



!

NeXt Up! 29

FINANCIALS AND VALUATION

"#$%&'()%&*+()&0+):0++)4-)3;&#)&$9)"#$%&)9+05/+()54()0+/+$2+)470-2%7) virtual goods, in-game advertising,

lead generation and application installs.

Virtual Goods

Although the company has over 250M users, only a tiny fraction, less than 1% in our estimate,

consistently make purchases of virtual goods. Zynga derives nearly 40% of its revenue from the sale of

virtual goods. These g--9()&0+)&66+((-05+():-0)47+)%&*+()47&4)6&$)+$7&$6+)&)3;&#+0'()6&3&85;545+(A)F-0)

instance, a tractor or high yield seeds could be a useful accessory for a farmer in FarmVille. In Mafia

wars, the accessory could be higher performance guns. All these accessories can be purchased through

"#$%&'( virtual currency. Each game has its own virtual currency that can be used only for that game. For

instance, Coaster Cash that is used in Roller Coaster cannot be used for purchasing a gun in Mafia Wars.

Users purchase virtual currency or in-game cash using real world currency or through virtual currency.

Users can get virtual currency by paying real dollars, inviting their friends or by performing services insome games. For instance, a FishVille player can earn virtual currency by performing maintenance work

on fish tanks of some other users. @+)+C3+64)/5042&;)%--9()(&;+()4-)9-*5$&4+)47+)6-*3&$#'()0+/+$2+)*5C)

for the foreseeable future.

Lead Generation (or Offers Marketing)

Players can also earn virtual currency by signing up for offers (that are made by lead generation firms).

We estimate that Zynga gets $30 - $40M a year from through lead generation. We expect Zynga to

benefit from business generated from more reputable businesses even as it grapples with keeping scams

off.

In Game Ads

Over 95% of the users of Zynga never make a purchase. The company monetizes them through in game

advertisements that appear during a game session. Such ad dollars contribute, in our estimate, to 20 -

]Pg)-:)47+)6-*3&$#'()OPPQ)0+/+$2+(A We estimate Zynga currently gets CPM rates of 15 - 20 cents. We

expect this segment to grow at a CAGR of 15% from 2009 ! 2014.

Application Installs

We believe Zynga offers a customized demographic profile for third party game developers. Zynga

advertises third party games to its users. For these advertisements, Zynga charges 50 cents to $1 per

application installation. We note that here the company charges on an installation basis rather than on a

CPM basis, as it does with others in game ads.



!

NeXt Up! 30

Zynga Adds Customers Through Cross Promotion and Heavy Advertisement on Facebook:

Zynga is one of the largest advertisers on Facebook, with a budget of $5- $8M a month, in our estimate.

The company spent $2M to advertise Farmville, which quickly grew to be one of the most popular

applications on Facebook, overtaking Farm Town.

In addition, Zynga also cross promotes its new games to its existing users. Zynga rewards users who

refer their friends with virtual currency.

Exhibit 21!"#$%&'()"*+,+%-+s ($, million)

Source: Company Reports and NeXt Up Research Estimates

Exhibit 22: Revenue Moderates after 2014

!Source: Company Reports and NeXt Up Research Estimates

0

200

400

600

800

1,000

1,200

2008 2009 2010 2011 2012 2013 2014

Virtual Goods In Game Ads Of fers Marketing App lication Installs

2008 2009 2010E 2011E 2012E 2013E 2014E

Revenue (million) $101 $243 $460 $620 $780 $940 $1,100

%yoy 141% 89% 35% 26% 21% 17%



!

NeXt Up! 31

We use the following methods a) Multiple of EV/Revenue, and b) Target EV based on steady state

revenues, normalized net margins, and a growth multiple 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 15% and discount the valuation back

to present.

We calculate target EV based on the following formula (please see Appendix A for a detailed descriptionof this method) !

Target EV = Steady State Revenues * Normalized Margins* Growth Multiple

Target Market Cap = Target EV + Net Cash

Target Price = Target Market Cap/Diluted Shares Outstanding

Assuming steady state revenues of $1100 million in 2014, normalized net margins of 25%, a growth

multiple of 25, we arrive at a target 2010 enterprise value of $ 3.315 billion



!

NeXt Up! 32

Exhibit 23: Valuations off Various Calendar Years Discounted to 2010 ($, million)

!Source: NeXt Up Research Estimates

0

1,000

2,000

3,000

4,000

2008 2009 2010 2011 2012 2013 2014



!

NeXt Up! 33

Exhibit 24: Estimated Stock Price Per Common Share as a Function of Exit Valuation for an IPO

Source: NeXt Up Research Estimates

Note: * We have assumed that Series C shareholders will be forced to convert at the estimated

IPO issue price as the actual conversion price for Series C preferred shares is higher than IPO

issue price. ; ** Conversion price and shares issued for Series C are estimates

$0

$5

$10

$15

$20

$0 $500 $1,000 $1,500 $2,000 $2,500 $3,000 $3,500 $4,000

S h a r e

P r i c e

Valuation ($, M)

IPO Bear Case IPO Bull Case

Bull CaseValuation@ $3315 M

Bear CaseValuation @$2806 M

Series Cconverts @$14.97*

Series Cconverts @$16



!

NeXt Up! 34

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, b) internet software and services. The 2010

median EBITDA margin values for the home entertainment software is 31%, and that for internet software

and services is 37% (Exhibit 24 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 6.1x to Zynga '()

EV/Revenues (assuming long term EBITDA margin of 35% and revenue growth rate of 40%). We believe

that the EBITDA margin for home entertainment software should be considered as floor level valuation

multiples for Zynga.

EV = (EV/Revenue using Appendix A3)*(estimated revenue of Zynga in 2010)

EV = 6.1*460= $2.806 billion

The list in Exhibit 24 has many companies which we believe have a slower growth rate than Zynga. But

this universe should provide a conservative estimate for Zynga'()/&;2&45-$A)

Exhibit 25 a: Comparable Company Analysis - Home Entertainment Software Space

Source: Thomson One and Next Up Research Estimates

CY09E CY10E CY09E CY10E

Giant Interactive GA 0.82 0.20 0.21 4.2 3.8 10% 50%

Konami Corp. TSE:9766 2.23 3.50 3.19 0.6 0.7 NA 13%

Changyou.com CYOU 1.54 0.27 0.33 5.8 4.7 23% 45%

Shanda Interactive SNDA 2.94 0.77 0.97 3.8 3.0 27% 45%

Electronic Arts ERTS 3.86 4.09 4.27 0.9 0.9 4% -1%

Activision Blizzard ATVI 9.88 4.54 5.01 2.2 2.0 10% 31%

Nintendo OSE:7974 26.24 20.79 16.55 1.3 1.6 NA 31%

Mean 2.7 2.4 15% 31%

Median 2.2 2.0 10% 31%

Secular

GrowthEBITDA

Margin

Company NameTotal EV

($, B)

Revenue ($, B) EV/Revenue

Ticker



!

NeXt Up! 35

Exhibit 25 b: Comparable Company Analysis - Internet Software and Services Space

Source: Thomson One and NeXt Up Research Estimates

B. M & A Transaction Analysis:

In this section we look at the valuation metrics of acquisitions, mergers and IPOs for comparable

companies, to provide a sense of what the market is willing to pay for these securities.

CY09E CY10E CY09E CY10E

Google GOOG 162.67 17.39 20.32 9.36 8.00 17% 54%

Yahoo YHOO 19.95 4.66 4.84 4.28 4.12 15% 35%

Tencent SEHK:700 34.62 1.79 2.52 19.39 13.74 41% 37%

Baidu BIDU 14.06 0.64 0.90 22.08 15.64 41% 32%

Alibaba SEHK:1688 11.02 0.56 0.78 19.80 14.09 40% 23%

NHN Corp KOSE:A035420 7.64 1.10 1.27 6.95 6.02 15% 39%

Netease.com NTES 4.27 0.55 0.83 7.79 5.13 52% 38%

Mean 12.8 9.5 32% 37%

Median 9.4 8.0 40% 37%

EBITDA

Margin

Secular

GrowthCompany Name

Total EV

($, B)

Revenue ($, B) EV/Revenue

Ticker



!

NeXt Up! 36

Exhibit 26: M & A Activities in SNS and Social Application Development Space


Acquirer Target Date Ta rget's businessDeal

Size

Viacom Xfire Apr 06

Xfire is a tracking tool for gamers, allowing friends

to find friends.The application is compatible with

most game types, browsers and services.

$102 M

SlideFavorite

PeepsJun 07

F&/-054+)N++3()5()&);-4);5=+)?;59+'()-.$)B-3)

Friends application.$60 K

MySpace Flektor Jul 07Flektor allows users to create widgets from

photos, video and text.$20 M

MySpace Photobucket Jul 07Photobucket allows uploading, sharing, linking

and finding photos, videos and graphics$250 M

RockYou

Pieces of

Flair and

Speed Racing

Jul 08

Speed Racing is a popular game on Facebook.

Pieces of Flair is a content forwarding applicationsimilar to Fun Wall, Super Wall, and Bumper

Stickers.

NA

Twitter Sumize Jul 08Summize is a search engine commonly used to

track Twitter conversationsNA

Zynga YoVille Jul 08 It is a large virtual world social network game NA

Clearspring AddThis Oct 08

Allows blog owners to add a univerisal add button

to their blog so visitor can add your post to various

social bookmarks.

NA

Zynga MyMiniLife Aug 09

MyMiniLife lets the user to built and decorate

virtual homes and other virtual environment NA

MySpace iLike Aug 09

iLike helps people to share music

recommendations, playlists, and personalized

concert alerts

$20 M

Electronic Arts PlayFish Nov 09

PlayFish creates social gaming applications and

is one of the leading application developers on

Facebook

$400 M

MOL Global Pte Friendster Dec 09A global Social Networking site for reaching out to

friends and discovering new onesNA



!

NeXt Up! 37

Exhibit 27: Valuation Summary!!

!!Source: Company Reports and NeXt Up Research estimates

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

Methodology Enterprise Value ($,M)

Steady State Revenues $3,315

EV/Revenue $2,806



!

NeXt Up! 38

Zynga()".'/01'203'104%"516-71-6+

Exhibit 28: Post Money Valuation for Zynga

!Source: Company Reports and NeXt Up Research; ** Conversion price and shares issued for Series C

are estimates

Event Series A Series A1 Series B Series B1 Series C IPO Merger

Date Apr-08 Jun-08 Jul-08 Mar-09 Dec-09

Diluted Shares

Estimate (M)88.6 138.1 #"@A$ 174.7 176.3 187.5 176.3-187.5

Preferred Shares

Issued (M)49.5 20.1 16.4 1.6 11.25

Type of PreferredConventional

Convertible

Conventional

Convertible

Conventional

Convertible

Conventional

Convertible

Conventional

Convertible

Liquidation Multiple 1x 1x 1x 1x 1x

Anti-Dilution

Provisions

Weighted

Average

Weighted

Average

Weighted

Average

Weighted

AverageWeighted Average

Pay to Play

Provisions None None None None None

Conversion Rate

(Preferred to

Common)

1 to 1 1 to 1 1 to 1 1 to 1 1 to 1

Issue Price/Share in

$$0.11 $0.25 $0.84 $9.49 $16.00 14.97-17.68 15.92-17.68

Dividend Rate (Non

Cumulative)8.0% 8.0% 8.0% 8.0% 8.0%

Amount of Funding

(M)5.6 5.0 13.8 15.2 180.00

Pre- Money (M) 10.0 34.5 133.2 1657.8 2820.0

Debt

Post Money (M) 15.6 39.6 147.0 1673.0 3000.0 $2806-$3315 $2806-$3315

Investors

Digital Sky

Technologies,

Andreessen

Horowitz,

Institutional

Venture Partners,

Tiger Global

Kleiner Perkins Caufield and

Byers, Union Square

Ventures, Foundry group,

Avalon Ventures

Avalon Ventures, Clarium

Capital, Foundry Group, Pilot

Group, union Square

Ventures, Reid Hoffman, Peter

Thiel, Brad Pittman, Andy

Russell, Brad Feld



!

NeXt Up! 39

Liquidation Scenarios: Zynga has raised funding through four rounds. There is preference or seniority

among preferred share holders and in the case of liquidation, each preferred shareholder gets an amount

in proportion to his contribution to the total funding.

Exhibit 29: Liquidation preference

Source: Company Reports and NeXt Up Research; ** Conversion price and shares issued for Series C

are estimates

Scenario 1: Exit Valuation less than or equal to $229.4 M

In this case, Series A, Series A1, Series B, Series B1, Series C preferred shareholders receive their

proceeds of $5.59 M, $5.03 M, $13.81 M, $15.19 M and $180 M because of their seniority over common

shareholders and the remaining proceeds are shared among common shareholders.

Scenario 2: Exit Valuation between $229.4 M and $248.6 M

At an exit valuation of $229.4 M, Series A preferred shareholders convert all 49.5 M shares in to common

stock as the stock price is greater than the conversion price of $ 0.1129. Series A1, Series B, Series B1,

and Series C preferred shareholders receive their proceeds of $5.03 M, $13.81 M, $15.19 M and $180 M

and the remaining proceeds are shared among common shareholders.


At an exit valuation of 248.6 million, Series A1 preferred shareholders convert all 20.1 million shares in to

common stock as the issue price is more than the conversion price of $ 0.2500. Series B, Series B1, and

Series C preferred shareholders receive their proceeds of $13.81 M, $15.19 M and $180 M and theremaining proceeds are shared among common shareholders.

Series A Preferred 49.5 0.1129 5.59 1.00 0.08 5.59

Series A1 Preferred 20.1 0.2500 5.03 1.00 0.08 5.03

Series B Preferred 16.4 0.8419 13.81 1.00 0.08 13.81

Series B1 Preferred 1.6 9.4922 15.19 1.00 0.08 15.19

Series C Preferred 11.3 16.0000 180.00 1.00 0.08 180.00

Liquidation

Rate ($,M)Funding Type

Shares

(M)

Issue

Price/Share

($)

Total

Investment

($,M)

Liquidation

Preference

(X)

Dividend

Rate



!

NeXt Up! 40


At an exit valuation of 343.6 million, Series B preferred shareholders convert all 16.4 million shares in to

common stock as the issue price is more than the conversion price of $ 0.8419. Series B1, and Series C

preferred shareholders receive their proceeds of $15.19 M and $180 M and the remaining proceeds are

shared among common shareholders.

Scenario 5: Exit Valuation between $1854.40 M and $3000 M

At an exit valuation of 1854.4 million, Series B1 preferred shareholders convert all 1.6 million shares in to

common stock as the issue price is more than the conversion price of $ 9.49. Series C preferred

shareholders receive their proceeds of $180 M and the remaining proceeds are shared among common

shareholders.

Scenario 6: Exit Valuation greater than $3000 M

At an exit valuation of 3000 million, Series C preferred shareholders convert all 11.3 million shares into

common stock as the issue price is greater than the conversion price of 16. Beyond this point, the entireproceeds are shared among common shareholders as all Series A, Series A1, Series B, Series B1 and

Series C preferred shareholders have converted all shares to common stock.



!

NeXt Up! 41

Exhibit 30: Payoff Graph for an M & A case !


! !

$0

$2

$4

$6

$8

$10

$12

$14

$16

$18

$20

$0 $210 $540 $940 $1,340 $1,740 $2,140 $2,540 $2,940 $3,340

S h a r e

P r i c e

Common ShareholdersSeries ASeries A1Series B

Series B1Series C

Bull CaseValuation@ $3315 M

Bear CaseValuation@ $2806 M

Series Aconverts@ $0.11

Series Bconverts @$.85

Series B1converts @$9.5

Series Cconverts@ $16

Valuation ($,M)

Series A1converts

@ $0.25



!

NeXt Up! 42

!!

Exhibit 31: Summary of Funding Rounds for Zynga

!!Source: Company Reports and NeXt Up Research

Initial 1st 2nd 3rd 4th 5th 6th 7th

Oct-07 Nov-07 Jan-08 Feb-08 Jul-08 Jun-09 Nov-09 Dec-09

Shares Autorized (M)

Common 20 25.00 25.00 29.28 36.28 42.28 168.33 336.66

Series A Preferred 6.00 6.22 6.21 6.21 6.21 24.85 49.70

Series A1 Preferred 3.10 2.51 2.51 10.05 20.10

Series B Preferred 3.71 3.71 14.85 29.70

Series B1 Preferred 0.80 1.60

Series C Preferred

Preferred Stock

Pricing ($)

Common 0.0001 0.0001 0.0001 0.0001 0.0001 0.0001 0.000025 0.000025

Series A Preferred 0.9030 0.9030 0.9030 0.9030 0.9030 0.2258 0.1129

Series A1 Preferred 2.00 2.0000 2.0000 0.5000 0.2500



Series C Preferred

Dividends ($)

Series A Preferred 0.0722 0.0722 0.0722 0.0722 0.0722 0.0181 0.0090Series A1 Preferred 0.16 0.1600 0.1600 0.0400 0.0200



Series C Preferred

Amended and Restated Certificate of Incorporation



!

NeXt Up! 43

INVESTORS

1. Reid Hoffman (Angel funding)2. Avalon Ventures

3. Clarium Capital

4. Foundry Group

5. Pilot Group

6. Union Square Ventures

7. Kleiner Perkins Caufield & Byers

8. Digital Sky Technologies

9. Andreesen Horowitz

10. Institutional Venture Partners

11. Tiger Global

12. Peter Thiel

13. Bob Pittman14. Andy Russell

15. Brad Feld

Exhibit 32: Summary of Funding Rounds for Zynga

Source: Company Filings and NeXt Up Research

Period

Apr-08

Series A1 Jun-08

Jul-08Series B1 Mar-09

Dec-09

Total $219.6 million

$13.812 million$15.187 million

$180 million

$5.589 million

$5.025 million

Investment RoundsInvestment Rounds Funds Raised

Series A

Series B

Series C



!

NeXt Up! 44

MANAGEMENT

Mark Pincus, Founder & CEO

Mark Pincus is the founder of Zynga. Prior to Zynga Mark founded firms such as Tribe Networks,

SupportSoft and FreeLoader.

After selling FreeLoader, Mark founded Support.com in August 1997 with Cadir Lee and Scott Dale to

address the problems in Windows computing. Support.com later became SupportSoft. Mark also started

Tribe.Net, one of the first social networks in 2003. Mark has also worked with several corporations such

as TCI and Liberty Media (out of Denver).

Mark holds a BS in Economics from Wharton and MBA from Harvard Business School.

Mark Vranesh, CFO

Mark Vranesh joined Zynga as CFO in May 2008. Prior to that Mark served as VP Finance at Fortinet for

about a year. Prior to Fortinet, Mark was a GM/VP Finance at SupportSoft for eight years. Mark also

(3+$4)a)#+&0().547)h0$(4)i)>-2$%)SSN'()75%7)4+67)practice, most recently as an Audit Senior Manager

and earned a degree in Business from Cal Poly San Luis Obispo in 1990.

Scott Dale, VP of Engineering

Scott Dale is the Vice President of Engineering at Zynga. Prior to joining Zynga, Scott co-founded

Houseglue (a media content storing and sharing service for families and friends) in 2006. Earlier, Scott

co-founded SupportSoft with Mark Pincus and Cadir Lee. Scott spent eight years at SupportSoft serving

as both Vice President of Engineering and Chief Technology Officer.

Scott has also worked for Hewlett Packard and Apple. He holds a BS in Computer Science from Stanford

University.

Robert Goldberg, SVP of Business Operations

<-8+04)j-;98+0%)5()"#$%&'()Senior VP of Business Operations. His role includes revenue management,

marketing and corporate development. Robert has over 25 years of senior management experience at

leading media, e-commerce, enterprise software companies as well as at venture capital firms such as

Idealab and NBCi.

Michael Luxton, Co-Founder and CTO



!

NeXt Up! 45

Michael Luxton is the co founder and CTO of Zynga. Michael is responsible for overall technology and

platform strategy for the company. Prior to Zynga, he worked at NetApp for over six years in engineering

roles. Before NetApp, Michael worked at eUniverse, where he was a developer. Michael studied math

and physics at UC Santa Cruz.

Vish Makhijani, SVP of Casual & Mobility Divisions

d5(7)K&=75c&$5)5()?+$5-0)d56+)N0+(59+$4)-:)"#$%&'()J&(2&;)&$9)K-85;54#)Divisions. Prior to joining Zynga,

Makhijani was CEO of Yandex, a Russian search company, where Vish is still a board member. Prior to

Yandex, Vish had a long career with Yahoo!, most recently as VP of Yahoo! Search. Vish holds a BS in

Accounting.

Eric Schiermeyer, Co-Founder and SVP of Product

Eric is a co-founder and Senior Vice President of Product at Zynga. Prior to Zynga, he co-founded three

successful start-ups including eUniverse (Intermix Media) and DVDwave. Intermix Media was the founder

of MySpace.com.

Eric studied philosophy and economics at University of California, Santa Cruz. He has interests in world

religions, philosophy, martial arts and yoga.

Steve Schoettler, Member of Founding team and VP of Platform

Steve is a member of the founding team of Zynga and is VP of Platform. Steve is responsible for security,

payments, risk management and platform services. Prior to Zynga, Steve spent nearly five years at

Kontiki as Manager of Solutions Architecture. Steve has occupied senior engineering and management

positions at several start-ups including GO and General Magic.

He holds a BS in Electrical Engineering and Computer Sciences from University of California, Berkeley.



!

NeXt Up! 46

BOARD OF DIRECTORS

Mark Pincus (Founder and CEO)

Please refer to the Management section

Bing Gordon (Kleiner Perkins Caufield and Byers)

Bing Gordon has been a partner at Kleiner Perkins since June 2008. Prior to KPCB, Bing was the Chief

Creative Officer of Electronic Arts from 1998 to 2008. Bing joined EA in 1982 and was instrumental in the

60+&45-$) -:) 47+) :-2$95$%) 82(5$+(() 3;&$) 47&4) &440&64+9) kNJR) &() 5$545&;) 5$/+(4-0A) R5$%) 7&() 905/+$) h '̀()

80&$95$%) (40&4+%#) &4) @`) (3-04(1) h '̀() 30565$%) (40&4+%#) :-0) 3&6=&%+) %--9() &$9) -$;5$+) %&*+() &$9)

contributed to design and marketing at many EA franchises.

Bing has been a director at Amazon since 2003 and was a founding director at Audible. Bing is also a402(4++)-:)47+)[08&$)?67--;)-:)?&$)F0&$65(6-)&$9)(+0/+()-$)47+)>&;+)N0+(59+$4'()`9/5(-0#)J-2$65;A Bing

Holds a BA in Drama and Literature from Yale and a MBA from Stanford University

Brad Feld (Foundry Group)

Brad Feld has been an early stage investor and entrepreneur for more than 20 years. He co-founded

Foundry Group, Mobius Venture Capital and prior to that Intensity Ventures. Previously, Brad was the

CTO of AmeriData Technologies, which was acquired by GE Capital in 1995. Prior to that, he founded

Field Technologies in 1987, which was later acquired by AmeriData Technologies.

Brad currently serves on the board of directors of a number of private firms such as Rally Software, Gist,

j$531)l+.(j&4-01)j-;9)?#(4+*(1)?45;;?+620+)&$9)e29#'()R--=A)R0&9)7-;9()&)R?)&$9)K?)5$)K&$&%+*+$4)

Science from Massachusetts Institute of Technology. He is avid art collector and marathon runner. He

has completed eight marathons as a part of his mission to run marathon in each of the 50 states

Reid Hoffman (LinkedIn)

Reid Hoffman is the founder and Chairman of LinkedIn, a professional networking site with 17 M

members. Reid also serves as director on the boards of SixApart and Mozilla Corporation. Reid was theCEO of LinkedIn from 2003 to 2007 and from December 2008 to June 2009. Prior to LinkedIn, Reid was

Executive Vice President of PayPal wherein he was in charge of all business relationships.



!

NeXt Up! 47

During his tenure at PayPal, Reid played a key role in the acquisition of PayPal by eBay in 2002 and was

responsible for partnerships with Intuit, Visa, MasterCard and Wells Fargo. Reid holds a BS in Symbolic

Systems from Stanford University and MS in philosophy from Oxford University

Rich Levandov (Avalon Ventures)

Rich Levandov is a general partner at Masthead Venture Partners and has been a managing member at

Avalon Ventures since 2007. Rich has over 25 years of experience as an entrepreneur, operating

executive and venture capitalist with a variety of early stage technology companies. In the past 11 years,

Rich has been involved in over 75 investment decisions, led over 20 investment decisions and has been

a director of over 15 companies.

Rich joined Masthead Ventures in 2003 to co-found their $160 M early stage fund. Prior to joining

Masthead Venture Partners, he was VP of Business Development at America Online. Prior to America

Online, he co-founded Phoenix Technologies, which played an important role in the standardisation of the

personal computer industry around the IBM PC standard. Rich holds a BS degree from BinghamtonUniversity and is also a member of the MIT Enterprise Forum.



!

NeXt Up! 48

Appendix A: What Multiple?

It becomes very difficult to value companies while they are on a high growth trajectory. Not only do therevenues 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 perioddo not sufficiently alter the valuation and then discount the value to the present assuming a cost of capitaland 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.5;;)0+&67)47&4)X(4+&9#)(4&4+Y);+/+;)5$)O)! 5 years.

Exhibit A1: Hypothetical Revenue Growth Pattern of a Firm Since Inception


At 15% or lower growth rate, the market multiple (Exhibit A2) is then determined primarily by the yield onten year notes. Although yield at the time of writing could be higher due to loose monetary policy, webelieve 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 steadystate 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 anyrevenue level. This could vary dramatically from actual net margins.

!

"!

#!!

#"!

$!!

$"!

B!!

B"!

C!!

C"!

! $ C D @ #! #$ #C #D

#$%&'()#$&$%)*+,-$.



!

NeXt Up! 49

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: Valuation as a Function of T-bill Rate and Revenue Growth

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

We are providing our methodology as a framework. Investors can change any of our variables to arrive attheir own metrics.

Revenue

Growth2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0% 6.5%

5% 34x 27x 22x 19x 17x 15x 13x 12x 11x 10x

10% 41x 32x 19x 23x 19x 17x 16x 174x 13x 12x

15% 50x 39x 32x 27x 23x 20x 18x 16x 15x 13x

20% 60x 47x 38x 32x 27x 24x 21x 19x 17x 15x

25% 72x 56x 45x 38x 32x 28x 24x 22x 19x 17x

30% 86x 66x 54x 44x 38x 32x 28x 25x 22x 19x

35% 102x 78x 63x 52x 44x 38x 33x 29x 25x 21x

40% 120x 92x 74x 61x 51x 43x 37x 33x 29x 24x

45% 141x 108x 86x 70x 59x 50x 43x 37x 32x 28x

50% 165x 125x 99x 81x 67x 57x 49x 42x 36x 31x

T Bill Rate

Cost of equity khg=risk free rate (T-Bill)+ B (changed to 1.5 and 1) x (equity risk premium) (assumed4%)

gn!

growth in the stable period, made assumption that it's 4%

ROEst ! X X in the stable period, made assumption that it's 10%

ROEhg ! return on equity in the high growth period, made assumption that it's 30%

Beta - 1Assumptions:

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)Formula:

Cost of equity khg=risk free rate (T-Bill)+ B (changed to 1.5 and 1) x (equity risk premium) (assumed4%)

gn!

growth in the stable period, made assumption that it's 4%

ROEst ! X X in the stable period, made assumption that it's 10%

ROEhg ! return on equity in the high growth period, made assumption that it's 30%

Beta - 1Assumptions:

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)Formula:



!

NeXt Up! 50

In our valuation methodology, we also have tried to look at comparable group of companies and estimatetheir 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 mayattribute a higher or lower multiple than peer group based on these two variables as outlined in ExhibitA3.

Exhibit A3: Valuation as a Function of EBITDA Margins and Revenue Growth


EBITDA

Margin0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%

50% 2.5x 3.3x 4.0x 4.8x 5.6x 6.3x 7.1x 7.9x 8.7x 9.4x 10.2x

45% 2.3x 2.9x 3.6x 4.3x 5.0x 5.7x 6.4x 7.1x 7.8x 8.5x 9.0x

40% 2.0x 2.6x 3.2x 3.8x 4.5x 5.1x 5.7x 6.3x 6.9x 7.5x 8.2x

35% 1.8x 2.3x 2.8x 3.4x 3.9x 4.4x 5.0x 5.5x 6.1x 6.6x 7.1x

30% 1.5x 2.0x 2.4x 2.9x 3.3x 3.8x 4.3x 4.7x 5.2x 5.7x 6.1x

25% 1.3x 1.6x 2.0x 2.4x 2.8x 3.2x 3.6x 3.9x 4.3x 4.7x 5.1x

20% 1.0x 1.3x 1.6x 1.9x 2.2x 2.5x 2.8x 3.2x 3.5x 3.8x 3.1x

15% 0.8x 1.0x 1.2x 1.4x 1.7x 1.9x 2.1x 2.4x 2.6x 2.8x 3.1x

10% 0.5x 0.7x 0.8x 1.0x 1.1x 1.3x 1.4x 1.6x 1.7x 1.9x 2.0x

5% 0.3x 0.3x 0.4x 0.5x 0.6x 0.6x 0.7x 0.8x 0.9x 0.9x 1.0x

Revenue Growth



!

NeXt Up! 51

Appendix B: Top Applications of Facebook

Source: AppData

S.No NameAverage Users

Monthly (million)Developer

1 Farmville 74.8 Zynga

2 Birthday Cards 39.1 RockYou

3 Café World 30.3 Zynga

4 iHeart 28.8 Mmkay

5 Happy Aquarium 27.9 CrowdStar

6 Causes 25.3 Causes

7 Texas HoldEm Poker 24.9 Zynga

8 FishVille 24.9 Zynga

9 Facebook for iPhone 24.6 Facebook

10 Mafia Wars 24.2 Zynga

11 Pet Society 19.4 Playfish

12 FamilyLink.com 18.5 FamilyLink.com

13 Mobile 18.1 Facebook

14 PetVille 18.0 Zynga

15 MindJolt Games 16.0 MindJolt

16 Zoo World 14.9 RockYou

17 YoVille 14.8 Zynga

18 Restaurant City 14.5 Playfish

19 Pillow Fight 14.5 Shikha

20 Friends Exposed 14.5 Topzy



!

NeXt Up! 52

Appendix C: Other Zynga Games

Vampire Wars

Vampire Wars is a time based pyramid game where the goal of players is to become the most powerful

vampire rather than achieving the highest level in the game. Users can become the most powerful

vampire by recruiting the maximum number of players in to their clan and by acquiring a mix of abilities.

We estimate that Vampire Wars has 3.1 M monthly active users on Facebook and 4.8M monthly active

users on MySpace.

Street Racing

Street Racing is one of the popular Zynga games on MySpace. Users can challenge other players in a

one-on-one or a crew race. The main goal is to win races and earn money to acquire cars and property.

Players can also use virtual currency to get car upgrades and reach higher levels in the game. The

factors that affect the chances of victory in one- on-one challenges are attack statistics and possession of

a car with superior specifications. We estimate that there are 1.2 M monthly active users of Street Racing

on Facebook. Street Racing has 4.6 M monthly active users on MySpace.

Pirates

In Pirates launched by Zynga in March 2009 on Facebook and MySpace, Users can build a fleet of pirate

ships with their friends, engage the enemies in battle and dominate the seas. Pirates can loot and plunder

the seas in search of gold, power and wenches.

All players begin with a common set of resources such as health, energy and gold. These resources get

used based on the actions or quests performed by the players. Pirates $++9)4-)EN;2$9+0')4-)&9/&$6+)4-)

higher levels of the game. The players can either purchase virtual goods or earn a reward in exchange for

carrying out quests. We estimate that there are 900k monthly active users on Facebook alone.

Scramble

Scramble is an adaptation of the Scrabble game, in which players have to generate words from a jumbled

grid of letters. Players can match their wits against others in a live game or host a private game to which



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they can invite a maximum of 20 friends. We estimate that there are 680k monthly active of Scramble on

Facebook.

PathWords

PathWords was launched by Zynga in September 2008. It belongs to the genre of games related to

scramble puzzle. Users are presented with a grid of letters that they can encircle to create words. Once a

word is formed, the letters used to form the word, disappear from the grid and are replaced by new ones.

Users can host a game with their :05+$9()&$9)40#)4-)8+&4):05+$9(')(6-0+()5$ the Ladder mode. We estimate

that there are 580k monthly active users of Path Words on Facebook.

Fashion Wars

Fashion Wars, launched in August 2009, allows users to select a diva and participate in fashion

competitions. Style and attitude are the characteristics that determine the ranking as well as the ability of

a diva to earn money or win a competition. These characteristics depend on the items which the diva has

i.e. essentials, perks and vehicles.

Players can increase the popularity of their diva by attending events or battling with other users. Users

can earn money by recruiting friends to join their team. We estimate that Fashion wars has 680k monthly

active users on Facebook and 1.8 M active users on MySpace.

Word Twist

In Word Twist, the players have to come up with several different combinations of words using the set of

letters given to them. The computer generates boxes and lets the user know the number of combinations

of letters that are possible. Users can invite friends to play the game or play alone. We estimate that there

are 440k monthly active users of Word Twist on Facebook.

Special Forces

[(+0();-%%5$%)5$) 4-)?3+65&;)F-06+()%&*+)8+%5$)&()&) 0+60254) 5$)&) 3;&6+)6&;;+9)XB7+)J-**&$9YA)Players

begin with standard amounts of energy, stamina, health and cash. They can purchase upgrades and

recruit others to join their squad for carrying out mission and proceed to higher levels of the game. Each



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NeXt Up! 54

mission would involve an expenditure of energy. So users need to wait for their energy levels to be

recharged. Players can also invest in contracts which provide hourly payoffs. We estimate that there are

400k monthly active users of Special Forces on Facebook.

Dragon Wars

Players can raise a dragon army and fight against others. The players start by doing several tasks (i.e.

quests) before evolving in to actual tasks within the game. Users need to complete quests with their

allotted energy for obtaining gold. The gold can be used to purchase land for sustained income.

Players can use cash to buy stronger weapons which would give them an upper hand while attacking

other players. We estimate that there are 350k active monthly users of Dragon Wars on Facebook.

Dragon Wars has 1.9 M monthly active users on MySpace.



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Appendix D: Social Networking Sites


! !

Business Networking Family Friends Students

AdvisorGarage Amiglia 43 Things AlumWire

ArtBreak CafeMom Amitize.com B4ClassBlogtronix Cingo aSmallWorld Campusbug

Commutal CommonGate Badoo.Com CampusRank

CompanyLoop Family 2.0 Bebo College.com

ConnectBeam Famiva Eons CollegeMedium

Decorati Famster Facebook.com College Tonight

DoMyStuff Geni.com Faceparty DormItem.com

Doostang Genoom Flingr Graduates.com

Fast Pitch Kincafe Friendster Half.com

HooversConnect Kinzin hi5 iHipo

iKarma Inc. MayasMoM Lovento LocalSchoolsImageKind Minti Multiply.com Pazap.com

Jambo MomJunction Mycool Quizilla

Jigsaw MothersClick MySpace.com RateMyProfessor

Konnects myfamily.com NetFriendships Student.com

Lawyrs OneGreatFamily Netlog Studentbid.com

Linkedin OurStory.com Orkut StudentSN.com

mediabistro.com Parentography Passado Uloop.com

Pairup.com The Family Post Piczo

Ryze.com Plazes

Spoke.com Pownce.comViadeo ProfileHeaven

WebCrossing reunion.com

XING Vox.com

Xanga

XuQa



!

DISCLAIMER

The research is prepared by NeXt Up Research. Next Up Research is not registered as an investment

advisor in the United States. Nor is it a member of FINRA.

The views expressed in this report correspond to our subjective views on the subject securities andissuers. This report does not purport to be a complete statement of all material facts related to anycompany, industry, or security mentioned. The information provided, while not guaranteed as to accuracyor completeness, has been obtained from sources believed to be reliable.

This notice shall not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be anysale of these securities in any state in which said offer, solicitation, or sale would be unlawful prior toregistration or qualification under the securities laws of any such state.

Neither Next Up 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 at this time and are subject to change without notice andmay or may not be updated. Past performance should not be taken as an indication or guarantee of futureperformance, and no representation or warranty, express or implied, is made regarding futureperformance.

This research report was intended to provide background information for accredited or institutionalinvestors. Recipients who are not market professionals or institutional investors should seek the advice of their personal financial advisor before making any investment decisions based on this report.

Email: [email protected] for further information.

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