Digital Sky Technologies bought a stake in Zynga Game Network, the maker of the “Mafia Wars” and “FarmVille” games, to ride the growth in social networking, the U.S. company said Wednesday.
Digital Sky, partly owned by Russian billionaire Alisher Usmanov, and other companies are investing $180 million in Zynga, the games developer said in a statement. DST will account for “the majority of the new investment,” followed by Andreessen Horowitz and Tiger Global, Zynga said.
“The company’s growth is what impresses the most,” DST CEO Yuri Milner said Wednesday. “Zynga is using Facebook as a social platform. And everything related to Facebook is very interesting to us.” Milner declined to provide details of DST’s investment in Zynga or the size of its stake.
The U.S. market for games played on social networks, including Facebook and News Corp.’s MySpace, will triple to $2 billion by 2012, according to market researcher ThinkEquity. The growth contrasts with a 12 percent drop through October in the market for console games, such as those played on Nintendo’s Wii, industry researcher NPD Group said.
DST in May paid $200 million for less than 2 percent of Facebook. The company, which is “very happy with its investment in Facebook,” also bought a majority stake in Astrum, Russia’s largest multiplayer games maker, before investing in San Francisco-based Zynga, Milner said.
“Our investment strategy is to invest in absolute leaders in their industries,” Milner said. “Zynga is an absolute leader, with a large gap from its competitors, and this gap is widening.”
Zynga may be valued at $1 billion based on the sale price of a smaller rival Playfish, according to Jesse Divnich, an analyst with researcher Electronic Entertainment Design & Research. Zynga may generate a value of $1 billion should the company be taken public, Terry Schallich, head of capital markets at Pacific Crest Securities, a technology-focused investment bank, said last month.
“Social entertainment is at an early stage of development in western Europe and the U.S., and it’s growing at a fantastic speed,” Milner said Tuesday. “It’s a very promising industry.”
Zynga will have revenue of $210 million this year and $355 million next year, according to Justin Smith, founder of the industry-tracking web site Inside Social Games. The figures are based on estimates of Zynga’s revenue per player across all its games and its number of daily active users, Smith said Nov. 23.
Zynga and its rivals offer free-to-play games and generate revenue when players pay to add new features like a $3 chicken coop in “FarmVille.” The game, which lets people manage a virtual farm, has more than 65 million users.
The company’s other investors include Kleiner Perkins Caufield & Byers and Institutional Venture Partners, both based in Menlo Park, California; Union Square Ventures in New York; and Boulder, Colorado-based Foundry Group.
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