Zynga offering one more example of the nutty IPO market

The creator of FarmVille and Mafia Wars is a major success story, no question. It's the degree of success that's mind-boggling - or shall we say, presumed success. The WSJ, citing sources, says that Zynga will try to raise as much as $2 billion in the initial public offering and could value the company as high as $20 billion - double the amount from just a few months ago. These numbers, not too surprisingly, aren't based on current financial reality.

--Zynga had a profit of $90.5 million last year on revenue of $597.5 million.

--Profit margins fell from around 15 percent in in 2010 to around 5 percent.

--Most all of its business comes from Facebook. If that connection were ever cut off, it would not be great.

--The bulk of its revenue is generated by 3 percent of its players, who pay for virtual tools using Paypal or Facebook Credits.

--A small number of games have generated a majority of revenue.

What's amazing, however, is that Zynga had nearly $1 billion of cash on hand as of March 31 - a couple hundred million more than it had at year-end 2010. So this is not a company in need of funding. From DealBook:

Although the global economy is still wobbly, troubled by Europe's persistent debt crisis, a bevy of consumer Internet start-ups have flourished amid exuberant investor demand. A great deal of that enthusiasm is focused on an elite group of social Web companies -- Zynga, Facebook, Groupon and LinkedIn - all of which have seen their valuations soar sharply in the last six months. Zynga, for example, raised a round in February at an approximate $10 billion valuation. The social shopping site Groupon, which was valued at $1.4 billion, just last year, is now contemplating an offering near $30 billion, according to two people close to the company.

It's worth noting that these mega-offerings can't help but bulk up California coffers over the next year or two. Zynga, Facebook and LinkedIn are all based in Silicon Valley. Here's the filing.