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DealBook: Tesla Motors’ Bid for Cash May Also Energize Critics

May 15, 2013 by Leave a Comment

Tesla Motors on Wednesday announced plans to tap the markets for more cash, a move that will buy it time to meet its ambitious goals but will also fuel debate over its prospects.

Tesla, the maker of electric cars founded and led by the entrepreneur Elon Musk, said it hoped to raise approximately $830 million by selling new shares and debtlike securities. The company said that Mr. Musk personally planned to buy $100 million of shares in the offering.

The plans could raise questions about the company’s ability to generate cash flows from its operations. Last week in an investor conference call, Mr. Musk played down the notion that Tesla would soon tap the public markets to raise new money. “We don’t have any plans right now to raise funding,” he said.

Tesla’s main product, a luxury sedan called the Model S, was the subject of New York Times articles this year involving a test drive of the car and its charging capacity. Mr. Musk has repeatedly challenged the articles, saying they were unfair.

Since then, however, Tesla has generated a stream of positive headlines, including a glowing review this month for the Model S from Consumer Reports.

The financing announced on Wednesday could prove a pivotal development in the intense debate over Tesla’s future.

The company’s shares have risen by 150 percent this year as more investors have started to express belief that the company will make electric vehicles that people will flock to buy because they perform as well as gasoline cars.

Other investors, however, remain unconvinced. They have bet against Tesla’s shares, saying they believe there is not much of a market for its cars beyond a small group of enthusiasts. These skeptics say they think that excitement has evolved into a stock mania. Tesla’s market value, nearly $10 billion, now exceeds that of Fiat. But the investors who placed those skeptical bets, called short-sellers in stock-market parlance, have suffered heavy losses as Tesla shares have soared. In fact, because of the paradoxical dynamics of short-selling, when these investors unwind their negative Tesla bets, they help force the company’s shares even higher. That phenomenon partly explains why Tesla’s stock is up 50 percent in just the last five days.

“Right now, Tesla is a story stock,” said Carter W. Driscoll, who analyzes clean-technology companies for Ascendiant CapitalMarkets. “Let’s be realistic here, they’ve only produced a quarter’s worth of vehicles.”

For investors betting against the shares, that skepticism will have been particularly painful in recent days. For Tesla, though, the meteoric spike in its shares presents an attractive opportunity to raise money without hurting existing shareholders too much.

“You have to give them kudos for their timing,” Mr. Driscoll said.

The company will take in the money in two ways: it will offer new shares on the public markets to investors; and it will raise $450 million from the debtlike securities, which the company will have to pay back in 2018. The company expects to price the offerings after the close of regular trading on Thursday, according to Sarah Meron, a Tesla spokeswoman.

The company said some of the money would be used to pay down a big federal loan that helped it set up production facilities for the Model S.

Critics of the Obama administration’s clean-energy financing program have focused on the Tesla loan. In last year’s presidential campaign, Mitt Romney included Tesla in group of companies he called “losers.”

The company has about $440 million outstanding on the loan, which was made by the Energy Department. Ms. Meron declined to say when the company would pay off the loan.

The cash from the loan also gives Tesla an important cushion to fall back on if its young operations stutter. During the investor call last week, Mr. Musk did say the company might tap markets to protect itself against “some sort of risk event.”

While buying time for Tesla, the decision to raise cash could also end up emboldening critics who said they believed that Tesla was going to experience weak cash flows from its operations this year. In the investor call last week, Tesla executives did not project that cash flows would be positive in the second quarter. They also suggested a decline was possible in North American sales as the year progresses.

The company has also stopped giving out the number reservations in place for its cars, a metric that investors had previously found useful for assessing future demand.

Article source: http://dealbook.nytimes.com/2013/05/15/tesla-motors-bid-for-cash-may-also-fuel-critics/?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

DealBook: Dell in $24 Billion Deal to Go Private

February 5, 2013 by Leave a Comment

The decision to take Dell private puts the company more firmly under the control of Michael S. Dell.Justin Sullivan/Getty ImagesThe decision to take Dell private puts the company more firmly under the control of Michael S. Dell.

Dell announced on Tuesday that it had agreed to go private in a $24 billion deal led by its founder and the investment firm Silver Lake, in the biggest leveraged buyout since the financial crisis.

Under the terms of the deal, the buyers’ consortium, which also includes Microsoft, will pay about $13.65 a share. That is roughly 25 percent above where Dell’s stock traded before word emerged of the negotiations of its sale.

Dell’s board is said to have met on Monday night to vote on the deal.

As a newly private company — now more firmly under the control of Michael S. Dell, who is contributing his stake of nearly 16 percent to the deal — the computer maker will seek to revive itself after years of decline. The takeover represents Mr. Dell’s most drastic effort yet to turn around the company he founded in a college dormitory room in 1984 and expanded into one of the world’s biggest sellers of personal computers.

But the advent of new competition, first from other PC manufacturers and then smartphones and the iPad, severely eroded Dell’s business. Such is the concern about the company’s future that Microsoft agreed to lend some of its considerable financial muscle to shore up one of its most important business partners.

Analysts have expressed concern that even a move away from the unyielding scrutiny of the public markets will let Mr. Dell accomplish what years of previous turnaround efforts have not.

Nevertheless, the transaction represents a watershed moment for the private equity industry, reaching heights unseen over the past five years. It is the biggest leveraged buyout since the Blackstone Group‘s $26 billion takeover of Hilton Hotels in the summer of 2007, and is supported by more than $15 billion of debt financing raised by no less than four banks.

Article source: http://dealbook.nytimes.com/2013/02/05/dell-sets-23-8-billion-deal-to-go-private/?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

The Boss: Paul Gaynor of First Wind, on Learning From Setbacks

January 26, 2013 by Leave a Comment

My sister went to special schools for years. She graduated from college and is doing well, but it made me appreciate all she had to go through and all I had. I look at people with disabilities personally.

After high school, I started at Worcester Polytechnic Institute as a computer science major, and I failed my first computer science course. The phone call to my dad to tell him did not go well. I switched to mechanical engineering and found it more intuitive.

I graduated in 1987 and got a job at the power systems division of General Electric. The company hired engineers for its technical sales program and had them rotate among departments. After training, I worked in Boston selling gas and steam turbines.

After working there for four years, I attended the University of Chicago for an M.B.A., then joined what is now GE Energy Financial Services for five years, most of the time as vice president and manager in Singapore. I next worked as senior vice president and chief financial officer for a start-up pipeline development company in London that G.E. owned with another company.

That start-up lit an entrepreneurial fire under me. It was highly risky and didn’t succeed, but it was an unbelievable learning experience.

In 2000, I got a job with the Singapore Power Group. The Singapore government was privatizing state-run industries and brought me in for my C.F.O. experience, to help it adopt some Western business practices and ready the organization for the public markets. An I.P.O. never took place, however. When the country’s telephone utility went public the shares dropped, so the government changed its mind.

I left by mutual agreement, then joined a few colleagues from G.E. who had started an investment company in 2003 to take advantage of the disruption in the power market after the Enron bankruptcy and the California energy crisis. It was another high-risk proposition, and we stayed at it for a year but did not do well.

In 2004, another G.E. colleague asked me to join UPC Wind Management as president and chief executive, and I accepted. Because another wind company had a similar name, we changed our name to First Wind in 2008.

First Wind has 16 wind farms totaling nearly 1,000 megawatts of wind power, the equivalent of supplying power to 300,000 homes. Some people will always be against development, whether it’s a shopping mall, a condo project or a wind farm. But before going ahead, we do a large amount of research on the effect of sound and the impact on roads, water, views, and avian and other habitats. Our studies then go to an agency that issues permits. The agency reviews the documentation, typically has hearings and then decides whether to assign a permit.

Failure has influenced my perspectives on business. I learned more from my couple of negative experiences than from the successes. Failure has made me skeptical about outcomes, which has influenced how I run First Wind. We take credit for something only when it actually happens and not a second before, because you can get burned in the final seconds of a deal.

In 1994, I was in a plane accident at La Guardia Airport in New York. The plane aborted takeoff in a snowstorm, and in the 15 seconds before we hit the ground I thought I was going to die. Then we skidded off the runway. That event was life-altering. I travel a lot, and since then I’ve made good choices about flying and weather.

As told Patricia R. Olsen.

Article source: http://www.nytimes.com/2013/01/27/jobs/paul-gaynor-of-first-wind-on-learning-from-setbacks.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

DealBook: After I.P.O. Drought, Brazil Is More Hospitable to Investors

January 8, 2013 by Leave a Comment

A branch of Banco do Brasil in Rio de Janeiro.Ricardo Moraes/Associated PressA branch of Banco do Brasil in Rio de Janeiro.

SÃO PAULO, Brazil — The nation’s main stock exchange here forecast at the start of 2012 that 40 to 45 companies would hold initial public offerings to list their shares. Only three did.

“Very few transactions got done, and very few got done well,” said Fábio Nazari, head of equity capital markets at BTG Pactual. Many issuers encountered “very difficult conditions.”

Some of the lackluster performance can be chalked up to investors nervous about the global economy, but much also had to do with government policies in Brazil.

Last year, the country changed regulations and applied pressure to reduce consumer prices in several sectors, including retail banks and electricity utilities. Those measures may succeed in reducing consumer costs, but investors complained about lowered profit outlooks and accused the government of changing the rules in the middle of the game.

The government also used taxes and regulatory measures to weaken the currency in the first half of 2012. The value of the country’s currency, the real, fell more than 18 percent from March 1 to June 1, increasing uncertainty for foreign investors.

In Brazil, tough economic conditions also hung over the markets last year. In the first three quarters of 2012, the country’s gross domestic product rose only 0.7 percent. The Bovespa index was up 7.4 percent in 2012 — a healthy return but not the double-digit yearly gains it often had a few years ago.

Going into 2013, however, both government agencies and the private sector are taking steps to encourage start-ups and growth industries to raise financing through the public markets. In addition, analysts say, the most disruptive policy changes are already in place, so companies will find a more hospitable climate for stock offerings.

“We don’t foresee more big moves from the government,” Mr. Nazari said. “The past has been priced into valuations, and economic growth should pick up this year.”

Brazil has only 365 publicly traded companies, and they do not fully reflect the strength and diversity of the economy, the world’s seventh-largest. Commodities producers dominate the main stock index, even though industries that serve the country’s growing middle class are growing faster. But Mr. Nazari said at least 30 companies were ready to list in the next 12 to 18 months.

Two big stock offerings are already on tap to be listed on the BMFBovespa, the main stock and futures exchange in Brazil.

Banco do Brasil, the state-controlled banking conglomerate, has announced that it intends to spin off its insurance operations into a new company, BB Seguridade, which would then hold an I.P.O. in the first half of 2013. The deal, if it goes through, could raise 5 billion reais.

And local investment banks say Votorantim Cimentos, Brazil’s largest cement producer, is preparing for an I.P.O. this year that would aim to raise 6 billion reais.

Investors may also turn to I.P.O.’s to seek better returns. After decades in which investors could buy short-term government bonds and earn double-digit returns, interest rates in Brazil have dropped. Most traditional fixed-income investments now hardly keep up with inflation.

Jean-Marc Etlin, chief executive of Itaú BBA Investment Bank, said that in an environment of relatively low interest rates, Brazilian investors had incentives to increase their stock market allocations, potentially creating demand for new companies.

Mr. Etlin also said there were thousands of Brazilian companies, mostly family owned, that could provide the basis for sustained activity.

“Brazil’s equity capital markets literally restarted just 10 years ago, with the first I.P.O. under new governance rules. We are still in the early stages,” he said.

Since Brazil’s first modern initial public offering in 2002, 70 percent of financing has come from foreign investors, so the market in the near term is dependent on global trends.

Brazil had a banner year in 2009, when companies raised nearly 46 billion reais on the public markets, according to the BMFBovepsa (that figure includes I.P.O.’s and follow-on offerings, when companies issued additional shares). That year included I.P.O.’s of the bank Santander Brasil, which raised 13.2 billion reais, and the credit card operator Visanet, which raised 8.4 billion reais.

Renato Ejnisman, managing director of Bradesco BBI, Banco Bradesco’s investment banking division, said the market this year was not likely to return to 2009 levels, but “two or three times as many deals as in 2012 is pretty doable.”

Facundo Vazquez, head of Latin America equity capital markets at Bank of America Merrill Lynch, said foreign institutional investors preferred larger deals because they were more easily traded on the public markets, while risk-averse investors were more comfortable putting money into big companies that dominated their sectors.

Conglomerates looking to spin off units will be “the sweet spot,” he predicted, as such operations are big deals with plenty of liquidity from well-known companies.

Mr. Nazari of BTG Pactual also said that bigger offerings attracted more interest. “Right now, it is easier to do a $2 billion deal than a $200 million one,” he said. “A lot of investors are sitting on cash, waiting for the new year and for opportunities.”

The government itself is taking measures to facilitate listings, although more for smaller offerings. The Comissão de Valores Mobiliários, Brazil’s main securities regulator, announced in November that it would consider, on a case-by-case basis, easing requirements for smaller I.P.O.’s.

The equity arm of the state-owned development bank BNDES has 108 billion reais invested in nearly 400 companies, some of which are publicly traded giants like Petrobras, but most of which are privately held.

The BNDES, short for Banco Nacional do Desenvolvimento (or the National Development Bank in English), said in October that it intended to encourage or even oblige its start-ups and other companies to hold I.P.O.’s or at least join the exchange’s access tier, Bovespa Mais.

The Bovespa Mais requires companies to meet the same governance requirements as public companies and to go public, with at least 25 percent of their shares listed, within seven years.

Linx, a midsize software firm in which the BNDES holds a 21.7 percent stake, filed paperwork with regulators at the end of December to hold an I.P.O. this year. Linx is expected to try to raise 500 million reais.

Both government and private sector entities are also working together to present by March a package of regulatory and tax measures to pave the way for smaller I.P.O.’s, though the measures probably would not be in place until 2014.

In general, the change in regulations and investor demand could finally help end Brazil’s drought in I.P.O.’s, analysts said.

“In 10 years or less, we could easily see the number of listed companies in Brazil double,” said Mr. Nazari of BTG Pactual.

Article source: http://dealbook.nytimes.com/2013/01/08/after-i-p-o-drought-brazil-becomes-more-hospitable-to-investors/?partner=rss&emc=rss

Filed Under: Economy News Tagged With: , ,

DealBook: For Groupon, Faint Praise From Many Underwriters

December 14, 2011 by Leave a Comment

Many of the banks that helped prepare Groupon for the public markets are hesitant to click buy on the shares of the daily deals site.

Five of the company’s underwriters, who had to wait until Wednesday to initiate coverage, stamped Groupon’s stock with neutral or hold ratings. Their price targets ranged from $21 to $27.

The stock, which in recent weeks has dipped below its offering price of $20, is currently trading around $22.75. It was off nearly 3 percent in morning trading on Wednesday.

Analysts echoed the longstanding concerns about Groupon, including competitive pressures, the unproven business model and limited upside opportunity. Two underwriters, Citigroup and Deutsche Bank Securities, even led with the same pun — “waiting for a better deal.”

Critics, in part, are skeptical that Groupon can sustain its aggressive growth trajectory. The company recorded revenue of $1.1 billion for the first nine months of the year, but also splurged on online advertising, spending about $613 million on marketing in that period.

Two of Groupon’s lead underwriters, Morgan Stanley and Credit Suisse, fell on the more bullish end of the spectrum.

Morgan Stanley, which won the coveted top-left spot in Groupon’s prospectus, initiated coverage at equal-weight, with a $27 price target. Though it showered praise on GroupOn for its “prime mover status and scale,” Morgan Stanley warned investors to “wait for a better entry point to build a position.” Morgan Stanley also pointed out that Groupon’s competitive advantage might be eroded as merchants became more sophisticated on the Web and rivals attacked its market share.

“Groupon’s competitive advantage of sales-driven leads, deal execution strategy and high quality customer service is not rocket science,” the firm said, “but has proven difficult to replicate at scale.”

Credit Suisse was slightly more cautious, with a $25 target, just 7 percent above the closing price on Tuesday. The firm said it had a positive outlook on the company, but also noted several risk factors, including low barriers to entry and a new business model where “58 percent of the voting shares are controlled by insiders.”

Deutsche Bank, the most bearish of the group, predicted a slight pullback, to $21 a share. “Our near-term neutral stance on Groupon shares rests largely in the nascency of the business model in the service/product shift, along with a transition from aggressive growth via marketing to improved profitability,” the bank said.

Still, the mixed bag of research reports on Wednesday did include several bullish calls. At least four underwriters, including the co-lead, Goldman Sachs, issued buy or outperform ratings.

Goldman, one of the most optimistic of the bunch, initiated coverage at $29 and praised the four-year-old company as “the key to unlocking the massive local advertising market with which the Internet has long struggled.”

Article source: http://feeds.nytimes.com/click.phdo?i=1a55a44eaa033d3eb626f53905017310

Filed Under: Business News Tagged With: , ,

A Proposal for New Accounting Standard-Setter for Private Companies

October 4, 2011 by Leave a Comment

The parent organization of the Financial Accounting Standards Board will propose on Tuesday that a new body be set up to modify accounting rules for private companies, some of which have complained that existing rules are too complicated and costly.

The new group, to be called the Small Company Standards Improvement Council, would be able to modify or allow exceptions to Generally Accepted Accounting Principles, known as GAAP, for nonpublic companies.

The new group would be led by a member of FASB, and its meetings would include all seven members of the accounting standards board, said John J. Brennan, the chairman of the Financial Accounting Foundation, which appoints members of the accounting board. Decisions would be subject to ratification by FASB, which presumably would want to keep variations in standards to a minimum.

The American Society of Certified Public Accountants has been leading a campaign for a separate standard-setter, and that was the proposal made in January by a panel whose members were chosen by the society, the foundation and state boards of accountancy. The foundation said that it rejected an entirely separate board out of concern that it would create a “little GAAP” for private companies and a “big GAAP” for public companies.

“The objective is to have GAAP be GAAP, with differences that will be almost inside baseball,” Mr. Brennan said in an interview. “The goal is when a banker looks at financial statements, they know that GAAP is GAAP.”

Under American law, public companies — those whose securities trade in public markets and are registered with the Securities and Exchange Commission — must follow GAAP. All other companies may use any system of accounting they choose. In practice, lenders are often willing to consider cash-flow statements or tax returns in making lending decisions.

One argument for different accounting rules is that those lenders can call the company and seek extra details, while public company investors are unlikely to be able to obtain additional information. Therefore, there may be less need for disclosures from private companies that can be expensive to compile.

Among the rules some private companies would like to have modified are those on fair value measurement, the impairment of good will, the consolidation of off-balance-sheet entities, disclosure of uncertain income tax benefits and accounting for stock options. It is expected that private companies that want to use the full GAAP could continue to do so.

In a speech in June, the chief accountant of the S.E.C., James Kroeker, cautioned against immediate action, saying that “in a number of areas additional research, study and outreach, particularly to investors, would be warranted prior to implementing any significant change in the standard-setting structure applicable to nonpublic entities.”

The S.E.C. has no direct authority in the area, but it would be able to decide whether a company that took advantage of private company exceptions to GAAP would have to redo its books when it filed to go public.

In a letter supporting the establishment of a separate board, William A. Pickert, an accountant in Wichita, Kan., said he had been “alarmed at the increasing frequency of the issuance of financial statements with GAAP departures. While once a very rare situation, this practice is becoming routine.” He said lenders would accept such statements because they understood some rules were overly burdensome.

The society of accountants, in encouraging letters to support a separate standard-setter, argued that “history and the current environment clearly show that FASB cannot effectively balance the competing needs of both the public company and private company areas.” It added that “it does not make sense to incur significant cost to comply with standards that have become ever more irrelevant in the private company world.”

A dissenting panel member, Teri Yohn, said no evidence had been given “to suggest that there are sufficient differences between public companies and private companies to warrant different standards.” Ms. Yohn, a professor at Indiana University, added that “differential accounting standards for private companies will add significant complexity and cost to financial reporting.”

If different rules are adopted for private companies, an issue will arise of how investors should be informed when a company chooses to use the private rules. Teresa S. Polley, the chief executive of the Financial Accounting Foundation, said she did not think a different auditor’s letter would be necessary.

“They are following GAAP,” she said. “We don’t see the need for there to be any disclosure of an exception.”

The foundation said it would not adopt any changes until it considered public comments, which are due by Jan. 14.

Article source: http://feeds.nytimes.com/click.phdo?i=5130c56f84dc261dcc45e17046aba87a

Filed Under: Business News Tagged With: , ,

You’re the Boss Blog: Choosing Between Profits and Growth at TerraCycle

August 25, 2011 by Leave a Comment

TerraCycle's office in Brazil.Courtesy of TerraCycleTerraCycle’s office in Brazil: A middle path?

Sustainable Profits

The challenges of a waste-recycling business.

In a venture-backed company like TerraCycle, there is an explicit expectation of aggressive revenue growth. So far, we have succeeded on that front, growing to more than $16 million in projected annual revenue this year — with a 103-percent yearly compounded growth rate since our inception. While this has put us on the Inc. 500 list, it hasn’t always synched with that other very important line on our profit-and-loss statement: the profit.

Until 2008 the more we grew the more money we lost. In fact, 2010 was the first year we produced a profit, a modest one at that. The question we have long faced is, should we invest as much as possible in revenue growth and merely demonstrate profitability? Or should we slow down and de-emphasize revenue growth in favor of profit growth? This question is top of mind because there has been consistent debate among our investors, those that favor a  short-term earlier exit versus those that are going for the big, long-term payoff. Me? I’m here for the long term.

When a business is large, mature and public, an emphasis on short-term profits may make sense and may be demanded by the public markets. That said, there is merit to the criticism that public companies are so focused on the next quarterly report that they often feel pressured not to make the strategic investments that would lead to longer term growth because they can’t afford to disappoint large blocks of impatient investors.

In the case of a small, private business  — particularly one, like TerraCycle, that has significant growth potential and limited competition — the emphasis on short-term profits seems counter-productive. In these circumstances, I believe the priority should be running a tight ship and investing every spare dollar above some minimum threshold of profit into growth. I understand the need to ensure that the business model is viable and sustainable, but beyond that, I think growth should be the priority.

Which brings up a larger question. One of the great things about public markets is that they allow investors to come and go freely, depending on their objectives and their belief in a company’s trajectory. For investors in a private company, an initial public offering can offer liquidity and an exit with a nice upside. It can also provide the company with access to capital markets. But we all know there are downsides to going public. If you don’t need capital to build your business or if you can find other ways (besides debt) to get that capital, and if you could otherwise provide an acceptable exit for investors who are ready to move on, wouldn’t staying private be the preferred option?

I’ve been giving this matter a lot of thought. Many companies I have admired — Stonyfield, Ben Jerry’s, Tom’s of Maine and Honest Tea, have sold to multinationals (all of which happen to be clients of TerraCycle). Investment banks call us regularly, suggesting it’s only a matter of time before we sell, too. The alternative might be an I.P.O., and the banks all suggest they have teams to assist us with that eventuality. Of course, if TerraCycle generates large enough profits, it could offer to redeem shares of investors who want to exit, but that would run against our strategy of prioritizing our resources for growth. And if the profits are that strong, wouldn’t the amount demanded by investors  also grow -– making buying them out with profits more difficult?

While this debate has gone on for years, we have seen the possibility of a middle path open up. Recently, a Brazilian investment group bought a minority interest in our Brazilian subsidiary. The group not only brought capital, but through their resources has been able to fuel our Brazilian operation with faster growth. Better yet, we can use the proceeds of this sale to bring liquidity to our investors in the parent company. This approach, should we choose to roll it out more broadly, might be a way for a relatively small company to develop strong local partnerships to turbo charge activities in foreign operations, while also creating cash to let earlier investors in the parent company exit. That would allow the company to remain private, independent and focused on growth.

So far, it seems like both our short-term and long-term investors like this approach.

Tom Szaky is the chief executive of TerraCycle, which is based in Trenton.

Article source: http://feeds.nytimes.com/click.phdo?i=08c5f4ddfb17132a55d70186c6eee901

Filed Under: Small Business Tagged With: , ,

DealBook: Zynga Files for $1 Billion I.P.O.

July 1, 2011 by Leave a Comment

Zynga's office in San Francisco.David Paul Morris/Bloomberg NewsZynga’s office in San Francisco.

With real-world profit and an inexhaustible supply of virtual cows, Zynga is gunning for a blockbuster debut on the public markets.

The online gaming company filed to go public on Friday, teeing up one of the most highly anticipated technology offerings this year. The start-up, founded four years ago by its 45-year-old chief executive, Mark Pincus, said it expected to raise about $1 billion in the offering, based on a figure used to calculate the registration fee.

But Zynga’s ambitions for its eventual I.P.O. may be substantially higher.

According to people briefed on the matter, Zynga is expected to ultimately offer up to 10 percent of its shares at a valuation near or above $20 billion. The company has selected Morgan Stanley to lead the offering; Goldman Sachs, JPMorgan Chase, Bank of America Merrill Lynch, Allen Company and Barclays Capital are also participating.

A spokeswoman for Zynga declined to comment.

The filing offers the first official glimpse inside the business model of Zynga, the company behind FarmVille and CityVille and some of the most popular games on Facebook. Unlike some of its Internet peers that have struggled to claw their way into the black, Zynga swung to a profit last year, recording profit of $90.6 million. Revenue roughly quadrupled last year, to $597.5 million. On an adjusted net income basis, the company recorded profit of $392.7 million in 2010 and has been in the black every year for the least three years.

The numbers reveal how the company’s stable of cartoonish games, has become one of the Web’s most powerful cash machines. As of the end of March, Zynga had $995.6 million in cash on hand.

Zynga’s filing comes amid a growing sense of urgency among some of the largest Web companies to go public.

For several years the I.P.O. market was effectively off limits, chilled by the financial crisis and the anemic recovery in the jobs market.

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.

LinkedIn, which went public in May, crushed expectations on its first trading day, its value more than doubling out of the gates. After pulling back in the days that followed, to about $60 per share, LinkedIn has rebounded to more than $92 a share – still roughly double its offer price.

Now, it’s Zynga’s turn to test investor’s appetite.

Jim Wilson/The New York TimesMark Pincus

At a $20 billion valuation, Zynga is technically cheaper than LinkedIn. At that price, Zynga is trading at 220 times last year’s profit, or 33 times revenue. LinkedIn – with a $8.8 billion market capitalization– is trading at roughly 570 times 2010’s profit and more than 36 times revenue. There are certainly a broad swath of competitors in the online gaming space, including stalwarts like Electronic Arts, but, so far, no has been able to shake Zynga’s dominance on Facebook, the world’s largest social network.

The company has 279.5 million monthly active users on the platform, according to the latest data from AppData, which tracks game developers on Facebook. Of the site’s top five games, four of them are Zynga’s, including the leader, CityVille. That game, which Zynga released just late last year, has more than 87 million monthly active users.

While Zynga has prospered on Facebook’s platform, its dependence on the social network represents one of the greatest threats to the game maker. In the risk factors section of its filing, its relationship with Facebook is listed as the first risk.

“If we are unable to maintain a good relationship with Facebook, our business will suffer,” according to the filing. “Facebook is the primary distribution, marketing, promotion and payment platform for our games.”

At times, the relationship has been strained over disputes concerning Facebook Credits, its virtual currency system, and changes to the site’s notification system. Tensions flared last year over Facebook Credits, which effectively takes a 30 percent “tax” from virtual good purchases, but the pair hammered out a five-year agreement in May to keep Zynga on the platform. Notably, the company’s revenue figures are net of Facebook’s cut.

“I think that’s the major risk in the story,” said Lou Kerner, a Wedbush Securities analyst. “They do exist at the whim of Facebook, but it’s certainly in Facebook’s own self-interest to have a vibrant gaming ecosystem.”

According to the filing, proceeds of the offering will be used “for general corporate purposes, including working capital, game development, marketing activities and capital expenditures.” In an investor letter, Mr. Pincus said he plans to continue to make big investments “in servers, data centers and other infrastructure.” And in a sign that Zynga will continue to be very active in the deals space — the company has made over a dozen acquisitions to date — Mr. Pincus said he plans “to fund the best teams around the world to build the most accessible, social and fun games.”

When Zynga finally goes public, Mr. Pincus, who founded the company in 2007, and its venture capital investors will see their fortunes multiply many times over. The group — which includes Yuri Milner’s DST Global, Kleiner Perkins Caulfield Byers, Silver Lake Partners and Andreessen Horowitz — has sunk hundreds of millions of dollars into Zynga.

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