NEW YORK—Zynga, the online social gaming company, will sell 100 million shares today, Friday, priced at $10 per share in the biggest Internet IPO since Google Inc. in 2004.
The roughly $7 billion valuation of the San Francisco-based Zynga is around half of the $20 billion anticipated earlier this summer, as the financial markets have cooled considerably and investor risk appetite for IPOs has waned.
Zynga created popular Facebook games Cityville, Farmville, Mafia Wars, and Words with Friends. It generates most of its revenues from ads and in-game add-ons sold to users. The company’s stock performance could offer an intriguing gauge for two other highly anticipated IPOs—Facebook Inc. and Twitter Inc.
This year has seen the IPO of several high-profile Silicon Valley Web 2.0 companies. LinkedIn’s IPO was described as a success, while the shares of Groupon and Pandora Internet Radio have largely floundered since going public.
Part of the reason for that is the media and analysts over-hyping the shares, but the sagging economy and European sovereign debt issues nevertheless cast a dark cloud over the financial markets.
According to its Securities and Exchange Commission (SEC) filing, Zynga is profit-making, a rarity among technology startups. However, some analysts have questioned its future earnings prospects, as it makes the majority of its revenues from one platform—Facebook—and generates income from selling virtual goods such as properties in games.
Sterne Agee analyst Arvind Bhatia assigned a bearish “Sell” rating to Zynga shares this week, before it even began trading, according to a New York Post report. “When you look under the hood, what you see is growth slowing significantly, margins under pressure, and free cash flow is diminishing,” Bhatia wrote in a note to clients on Tuesday, setting a price target of $7 per share for Zynga.
“Cityville, currently Zynga’s best title in terms of traffic, is tracking, by our estimates, 50 percent below Farmville at the same point in its history,” wrote Bhatia.
However, BTIG analyst Rich Greenfield disagrees. Greenfield believes that Zynga offers “compelling upside over the coming year,” and argued that social gaming has become a regular pastime, and will only become more popular with time.
Zynga’s intense and cutthroat corporate culture has been much scrutinized leading up to its IPO. Some former employees have criticized CEO Mark Pincus for his caustic managerial style and extreme meritocratic performance reviews. The company also allegedly asked some underperforming employees to forfeit their stock compensation—which would likely vest upon Zynga’s IPO—or risk termination.
The company will begin trading today on the Nasdaq Stock Exchange under the symbol ZNGA.
