NEW YORK (Reuters) - Strauss Zelnick, chief executive of video game maker Take-Two Interactive Software Inc <TTWO.O, took aim social gaming company Zynga on Tuesday, questioning its business model and whether investors received enough data before its planned public stock offering.
“Zynga is a direct marketing company, 97 percent of which don’t pay them anything, 3 percent who do,” said Zelnick, referring to Zynga’s user base. “They churn quite quickly and they get new customers. That is their model.”
Take-Two, unlike Zynga, gets paid for everything it makes, Zelnick said.
San Francisco-based Zynga, which makes games FarmVille and CityVille for Facebook users, filed for an initial public offering this summer and is about to kick off its investor road show. With millions of Facebook users, Zynga is expected to raise about $1 billion at a valuation of an estimated $14 billion.
“I would argue being the No. 1 player in (social gaming) is complicated, which is why Zynga hasn’t gone public yet because their metrics are sketchy,” Zelnick said during a wide-ranging talk at the Reuters Global Media Summit on Tuesday.
He said Take-Two would avoid flashy acquisitions, which is the route Zynga has chosen, buying smaller game developers at the rate of one a month over the last year.
“I think they have disclosure issues, I think you are seeing their acquisition costs go up, marketing costs go up and they have very high churn,” said Zelnick who once ran one of the largest direct marketing companies in America for German media giant Bertelsmann (BTGGg.F).
Zelnick said Zynga would need to provide investors with details of the rate at which it loses customers to give a more complete picture of its financial prospects.
A Zynga spokesman declined to comment.
Regarding the National Basketball Association, Zelnick said the end of the professional league’s lockout last week would be good for sales of Take-Two’s NBA 2K 12 basketball game.
Take-Two, which also makes the Grand Theft Auto games franchise, previously disclosed that NBA 2K 12 sales were slowing in relation to the lockout.
Zelnick said Take-Two is hiring more creative development staff to add to is 2,200 employees around the world.