'Red flag' as Zynga accounting change adds $27 million

'Red flag' as Zynga accounting change adds $27 million
Craig Chapple

By Craig Chapple

October 17th 2011 at 11:47AM

Alterations made to recognise revenue faster

$27 million has been added to Zynga’s revenues for the first half of this year after accounting changes, raising a red flag at finance analysts PrivCo.

Zynga would have reported a loss without the change, according to VentureBeat.

According to amendment 4 in the IPO filing, the accounting change relates to virtual goods.

The estimated useful life for durable goods has now been shortened to 15 months for the first half of this year, compared to 19 months a year earlier.

“It’s a red flag when a company wants to suddenly start recognizing revenue faster,” said chief exec Sam Hamadeh at finance analysts PrivCo.

Net income for the three months ending June 30 was at $1.4 million, compared to the entire six months income at $18.1 million.

Hamadeh also told VentureBeat that Zynga has used cash from investors to buy out insider-owned stock whilst it claimed that the company’s value had doubled during January to March.

Class B common stock was bought by the firm from Michael Verdu and Cadir Lee in January for $6.43 a share whilst Zynga chief exec Mark Pincus’ shares sold in March were done so at $13.96 a share.

Despite the share sales, Pincus will still hold 70-1 voting stock as the company approaches its stock flotation.