Zynga IPO to End the Year with a Bang, or Bust?

December 10, 2011

Finally something has come along to help investors forget about Groupon, and that is the Zynga IPO scheduled for December 15. With three other IPOs bowing out in the last three weeks and memories of brighter days quickly fading (read: LinkedIn), it is the last best chance to end the year on a positive note. And, you can bet venture capital firms and investment bankers are watching with one eye open and fingers crossed. While no one expects that Zynga will face the same fate as Groupon, which saw its share price plunge 24% not long after its IPO, the market and the company are already lowering expectations. Its original valuation of $14 billion has been slashed to just $9 billion in the face of growing investor doubt.  If it raises the planned $1 billion on the offering, it will still be larger than Groupon IPO, and the largest tech IPO since Google ($1.7 billion).

Zynga ipo

Soource: www.userlogos.org

There are two things analysts say that Zynga has going for it that Groupon didn’t: First, it is actually making money. Its earnings came in at just under $13 million for the third quarter. But investors are nervous over the fact that its earnings actually declined by 54% over the prior year.  Second, the planned offering is for 14% of its shares compared to the paltry offering by Groupon of only 5.5% of its shares.

Investors are anxious over this offering because it represents the first real play for Facebook. Zynga creates virtual game apps and Facebook is its primary platform. Some see it as an indication of how the Facebook IPO will fare. Some analysts see the possibility of slowing Facebook growth hurting the outlook for Zynga. One thing for certain is that investors who own Zynga shares are definitely hitching their horse to the Facebook wagon.

It’s no wonder that Zynga would seek some pre-road show publicity by sending Alec Baldwin on an American Airlines flight to create a fracas over his playing Words with Friends. Any game worth getting kicked off a plane for must be good.


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