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Zynga restates revenue

August 11, 2011: 2:13 PM ET

Zynga, the social gaming company behind such hits as Farmville and Mafia Wars, today restated Q1 revenue to reflect an accounting error in its original IPO registration. The new Q2 revenue figure is $242.89 million, which represents more than a 3% increase over the previously-reported figure.

In the filing, Zynga said:

Pursuant to our previous policy, we had applied our then most current estimate of the average playing period for paying players to current period sales but did not adjust the ending balance of deferred revenue for the revised estimates for related sales from prior periods. We determined such adjustment of the ending balance of deferred revenue was necessary in accordance with ASC 250. As a result, we restated our March 31, 2011 financial statements and determined we had a material weakness in internal control over financial reporting as of March 31, 2011. The impact of this restatement was to increase revenue by $7.5 million and increase the provision for income taxes by $2.5 million for the three months ended March 31, 2011 and to decrease deferred revenue by $7.5 million as of March 31, 2011.

Confused? Me too. Specifically over why Zynga needs to change its Q1 2011 accounting but not its calculations for prior years. The issue seems to be the way in which Zynga used to amortize the value of virtual goods users purchased over their lifetimes, but wouldn't that issue also have existed in 2009 or 2010? No comment from the company, of course, as it is in a quiet period.

Zynga also disclosed two other new pieces of info:

  1. 1. Revenue directly attributed to the company's top three games -- CityVille, FarmVille and Zynga Poker -- are accounting for an ever-shrinking percentage of total revenue (presumably due to the introduction of new offerings). The figure stood at 93% in 2008, fell to 78% last year and stood at just 63% in Q1 2011.
  2. 2. Last month Zynga secured up to $1 billion in revolving credit facilities, which previously had not been disclosed. Morgan Stanley and Goldman Sachs served as joint lead arrangers and joint bookrunners, while Bank of America, Barclays and J.P. Morgan also participated. More details can be found here.

Zynga is one of the fall's most highly-anticipated IPOs, with plans to raise $1 billion. No pricing terms have yet been disclosed.

Shareholders include venture capital firms Kleiner Perkins Caufield & Byers (11% stake), Institutional Venture Partners (6.1%), Foundry Group (6.1%), Avalon Ventures (6.1%), DST Group (5.8%) and Union Square Ventures (5.5%).

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Dan Primack
Dan Primack
Senior Editor, Fortune

Dan Primack joined Fortune.com in September 2010 to cover deals and dealmakers, from Wall Street to Sand Hill Road. Previously, Dan was an editor-at-large with Thomson Reuters, where he launched both peHUB.com and the peHUB Wire email service. In a past journalistic life, Dan ran a community paper in Roxbury, Massachusetts. He currently lives just outside of Boston.

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