Social gaming company Zynga debuted on the stock market with a billion-dollar listing, the largest tech listing since Google’s in 2004. Its stock price soared in the early hours of trading only to drop below the opening price by the closing bell.
The Facebook gamemaker offered 100-million shares — one-seventh of the company’s total — at US$10 a pop, boasting games such as FarmVille, Mafia Wars and Words With Friends was valued at a whopping US$7-billion.
In the first few minutes of trading, shares were selling on the Nasdaq market at around US$11 a share, a 10% premium, but Zynga stock ended the official trading day down five percent from its opening price.
There was a later drop to US$9.41 in after-hours trading.
“The trading of Zynga today highlights the difficulty of judging true demand for a hot IPO, and the extent to which the shares landed in the hands of flippers,” said analyst Lou Kerner of institutional brokerage firm Liquidnet.
Zynga’s entrance on the stock market surpassed that of group buying service Groupon, which raised US$700-million when it went public in November, only to see its stock price fluctuate wildly.
Despite concerns by some analysts that new internet stars are being precariously overvalued, Zynga’s stock was snapped up quickly.
Zynga offered only a small portion of the company’s stock, about 14%, to the public.
Investors remain hungry for technology stocks and Zynga has shown it can make a profit, according to Virginie Lazes of investment bank Bryan, Garnier & Co.
Zynga games are free to play but the company makes money by selling virtual in-game goods to players and serving up advertising.
The games developer boasts around 230-million players per month in 175 countries, dwarfing its social gaming competitors, and reported cumulative revenue of US$1.5 billion in its SEC filing.
Zynga said revenue soared nearly five-fold last year over the previous year to US$597.4-million and it reported a net profit of US$27.89-million.
For the first nine months of this year, Zynga reported revenue of $828.9 million, up from $401.7 million during the same period last year, and a net profit of $30.6 million.
The San Francisco startup is listed as “ZNGA” on the Nasdaq exchange.
Ahead of the listing Global Equities Research analyst Trip Chowdhry was bearish on Zynga’s prospects, saying it was overvalued at US$7-billion and that a more realistic figure would be between US$2-billion and US$2.5-billion.
“The valuation is very ahead of the fundamentals,” Chowdhry said.
“What you’re seeing today is its peak,” he said. “There’s only one way it can go and it’s down.”
Liquidnet had given Zynga an “underperform” rating before the opening bell, reasoning that the San Francisco firm’s growth was slowing and its profit margins were under pressure.
“Another bear argument is that Zynga is overly dependent on the Facebook platform (94 percent of revenue is generated on Facebook),” Kerner said in a note to investors.
“A slowdown or disruption in the growth of Facebook, or Facebook policy changes, will negatively impact Zynga,” he explained.
The social games arena in which Zynga is a champion is open to competition from rival startups, as well as videogame titans such as Electronic Arts.
Bullish sentiment about Zynga, however, is backed by the company having a “first-mover” advantage in the market, and being large enough to leverage its position onto social networking platforms such as Google+ and Mixi.
Zynga is building a game-themed social network in a move that promises to reduce its dependence on Facebook.
Zynga recently provided a glimpse at “Project Z,” an online community where people could play the social gaming star’s globally popular titles without having to go to Facebook.
Zynga is partially owned by emerging markets internet giant Naspers, through its shares in Russian investment giant Digital Sky Technologies. –AFP