Hey, did you hear the one about Zynga's IPO? Initial investors had to invite 10 friends or wait 10 minutes to buy additional shares. OK, that was lame. No, the real joke was Zynga's share price at the end of it all: $US9.50, after going off at $US10 on the NASDAQ.
Sure, the company raised a billion with the sale, but by the end of the day the company's valuation was five per cent less than it expected. And it was only a five per cent drop, reports Forbes, because of a "stabilising bid," from the company's underwriters to prop up the share price.
Whatever the case, Zynga's overall valuation is a lot less than what was bandied about this summer as financial sector hypemen jumped on the mic and started throwing out figures like $US14 billion and $US20 billion. By comparison, Electronic Arts is valued at $US6.9 billion and Activision at $US13.6 billion. Both generate more revenue than Zynga.
No, Zynga is just a $US8.9 billion company, and its $US1 billion IPO is only the largest in the US for an Internet company since Google's $US1.9 billion in 2004. And while that sounds like a hellacious success, Wall Street really only gives a stuff for two things: growth and share price. Don't show enough of the former, and they will screw you over the latter. CNBC points out that Zynga got dogpiled by analysts who gave dire warnings about growth prospects, despite "rare" pre-IPO profits ($US90 million in 2010).
Of course, we (and others) have reported about the company shedding users — losing three million dailies last time we checked, with an attendant profit drop. Also, the company held back 15 million shares, meaning it both came in under its target price and failed to generate huge demand. To Reuters, one analyst added that the $US10 share price didn't reflect the customary discount given to investors for backing a new company. In other words, you didn't cut your valuation enough for us to blow it up after the bell rang and make a shitload of money for ourselves.
There's also the fact Facebook itself will go public next year, with Zynga as a kind of coal mine canary for how that deal will look. Remember, Facebook gets a 30 per cent rake of whatever Zynga makes in games hosted there. Investors also know that every time Facebook changes the rules, which happens often, that has implications for an otherwise stable, profitable stock. Reuters also mentions that some analysts sniffed at the disparity between CEO Mark Pincus' equity stock (two per cent of the company) and his voting stock (37 per cent of the control) but that sounds like an excuse.
There's a tendency, largely because of breezy, bitchy coverage of the markets such as this story, to react to daily fluctuations in share price as if they're the end of the world or an enormous victory. They aren't; this is how a company looks after the first day its stock was offered and, for God's sake, just added $US1 billion (with a B) in capital. Zynga is still far and away the dominant maker of social games.
Zynga got in bed with investors yesterday, but it may not have been the one suffering performance anxiety. What you probably saw was, after talking up a company with meaningless big numbers, the market finally put its money where its mouth is. Then blamed Zynga.