Zynga stumbles on IPO

Casual game maker ends trading down 5 percent to $9.50 after initial jump gave way to daylong slide.

Tech industry IPOs have proven to be hostile territory this year, with companies like LinkedIn, Groupon, and Pandora all trading significantly lower than their opening valuations. Today, casual gaming kingpin Zynga made its much-anticipated debut on the NASDAQ, and with trading now closed, the company has joined the IPO losers crowd.

The IPO market has been on a dog-eat-dog run.

Following its first day of trading, Zynga finished at $9.50 per share, a 5 percent decline on its $10 opening price. The stock fluctuated wildly out of the gate, rising to as much as $11.50 before bottoming out at $9.00 in the early afternoon.

Yesterday, Zynga announced that it would begin trading on the NASDAQ today, pricing 100 million shares at $10 per. That figure came in on the high side of company expectations, after Zynga said in a Securities and Exchange Commission filing earlier this year that the IPO price would be set between $8.50 and $10.

"Our approach has always been to focus on the long term," Zynga CEO Mark Pincus told Reuters regarding the drop. "We thought this was the right time to go public. We're going to focus on the products and business results we deliver in the next four to eight quarters and hope the stock market values and appreciates that as they see us deliver it."

Zynga has faced substantial criticism going into its IPO. Analysts and industry watchers have noted the company's overreliance on the Facebook platform, which plays host to some 95 percent of traffic for Zynga's games. Four of the top five games on Facebook are from Zynga, according to AppData, with the sole exception being EA's The Sims Social.

The company's growth prospects have also been questioned, as the company struggles to increase profits while also building on its already substantial player base. Zynga attracts some 227 million monthly and 54 million daily active users, with top games such as CityVille, FarmVille, CastleVille, and Texas HoldEm Poker.

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Discussion

21 comments
blackace
blackace

@Dimebag_Darrell @nurnberg 100,000,000 shares of stock offered at $10 a share means Zynga put a value on their company of $1 billion. Their shares closed at $9.50 a share, meaning their company's first day ended at $950 million dollars. Zynga lost $50 Million dollars in value on it's first day on the stock market. That is why $9.50 a share is bad. If the dollar per share keeps going down, they will keep losing value. $0.01 per share lost equals $1 million dollars in company value lost. **************************************************** Yeah.. it's not a great start, but they can recover from that pretty quickly. Look at Sony. Their shared dropped almost 50% last year and they are more then a $1 billion dollar company.

MJ12-Conspiracy
MJ12-Conspiracy

Well......all I can say is the wheel fell off Zynga's wagon a long time ago.....they never had much of a wagon to begin with and their wheels were made of cardboard because that's all they could afford.......I'm speaking metaphorically mind you....

thenephariouson
thenephariouson

.... the gravy train nears its final destination...............

wwlettsome
wwlettsome

Zynga is going to have to prove that they can adapt their business model once the "point, click and go away" game fad ends in the not too distant future.

Chainer323
Chainer323

so does this mean they are gonna start spamming us even more then they already do to purchase stuff for their free games?

Bortson
Bortson

If you look at the overwhelmingly vast majority of all IPOs for say the past 20 years, stocks trading below their offer price in the days and months afterwards is the name of the game. Usually not the same day though. This is the only thing that should matter to you if you want to buy Zynga shares or not: Zynga issued 100million shares, so do you believe in 5 or 7 or 10 years that the total value of the company, IE all future cash flows to equity will be worth $1billion after discounting back to the present to make it worth $10 a share today? The market right now is saying no. If you think the social gaming scene is a bust, its probably too late to short Zynga already

Lhomity
Lhomity

Social gaming has long been over-valued and over-invested. No surprises here. I wouldn't go near any of this stock. The entire social and mobile gaming industry is a bubble and when it busts its going to make Atari circa 1983 look like a frontyard 25c lemonade stand just ran out of paper cups.

---Cipher---
---Cipher---

I don't think I'd really even consider buying one single stock.... Buy something worthwhile that doesn't rely on the "ville" for their success. "i" for succes however, decent bet. Lol. And no, stock market =/= roulette...

X_Colbert_X
X_Colbert_X

@redskinStu Comparing the stock market to a casino game reliant on pure luck is somewhat arrogant. The stock market actually has a predictable pattern and relies more on intelligence than random chance. It's not the stock market that's scaring people away from this, rather it's the fact that Zynga is a very, very risky investment to make--people would rather invest in a company that does not rely on another company to make its profit.

SicklySunStorm
SicklySunStorm

Some of our customer went nuts for these yesterday. I didn't bother... $9 per share is a long term hold, and I can't see any sudden jumps for this company on the horizon that would attract short term investors, and a long term view with most gaming companies that have a publicly traded share tends to be very risky. Not many people want risk right now. The only guys popping in and out of these with a few cent changes are the ones investing 5 or 6 figures at a time.

Richardthe3rd
Richardthe3rd

"Cityville, Farmville and Castleville?" Really? Invest with confidence people. Those are some VERY creative IP's I'm sure no one will get tired of. /obvious sarcasm There are so many red flags flying all around Zynga that it's not even funny. Pinkus talking about "the long term" is the most disingenuous thing I've ever seen. People buying into stuff like this just gives guys like Pinkus an opportunity to loot and run. And that's exactly what he'll do once interest starts to drop off in their IP's (which IMO is inevitable).

moonlightwolf01
moonlightwolf01

The real trouble for Zynga is relying on face facebook, Internat social sites are only good till someone thinks of something better, look at myspace or one of the other now forgotten social sites that came before facebook. Facebook will definitely last longer but like most things on the internet it will eventually disappear. Thats not mentioning Zynga's lack of innovation either, farmville-like games might be popular now but if better games come along that use the same (or multiple) platforms then the switch will occur pretty quick. All a casual facebook game needs is simple mechanics, social interaction and a decent free2play model. making one better than Zynga's host of farmville clones probably isn't too difficult.

SlowMotionKarma
SlowMotionKarma

You can't really extrapolate their future with just a day of trading, but I think it says something when their stock fluctuates so much on their first day. There's a lot of buzz about "social games", to which Zynga is the front-runner. Problem is, I don't think most "normal" investors will be clamoring for a stake in a company who's livelyhood is (almost) completely dependent on another platform's (Facebook) popularity. Not only do users have to use Facebook, but then they have to start playing a free-to-play game AND THEN pay for something before the company makes any money. They have to rely on a core of big spenders. The majority of the "unique users" don't spend a dime playing their games. What's more, with Facebook Credits they're only getting 70% of customer's purchases as well as solidifying their ties to the social platform. They're TRYING to remove themselves from Facebook, but that's where most of the uncertainty comes from. Will their users transition over to a Facebook-free environment? Register on the Zynga service, set up/find friends, and spend time (and money hopefully) away from Facebook? The majority play these games with the social aspect in mind and don't really "play" these games for the games themselves. After all, it's mostly just clicking on cows if you take away the social aspect. Uncertain future is why I think their stock will continue on the same fluctuating path.

Dimebag_Darrell
Dimebag_Darrell

@nurnberg 100,000,000 shares of stock offered at $10 a share means Zynga put a value on their company of $1 billion. Their shares closed at $9.50 a share, meaning their company's first day ended at $950 million dollars. Zynga lost $50 Million dollars in value on it's first day on the stock market. That is why $9.50 a share is bad. If the dollar per share keeps going down, they will keep losing value. $0.01 per share lost equals $1 million dollars in company value lost.

blackace
blackace

@nurnberg Can someone with some knowledge of stock markets explain why is a share of 9.50$ bad? ***************************************************************** It's not bad. The problem is they opened at $10 a share and has already lossed 5% of their 100 million shares, which isn't a good way to start. We'll see what happens next week. They really want to get to about $12-$13 in the first couple of months and grow slowly from their. The more people who buys their shares the higher the price will likely go. I own a substantial amount of IBM shares. Hehe!! They went from $95 just over a year ago to $190. I'm waiting and hoping for a split next year. I wish I could sell some of it.

nurnberg
nurnberg

Can someone with some knowledge of stock markets explain why is a share of 9.50$ bad?

BuiltForSin
BuiltForSin

I don't understand why so many people in the game industry were overhyping this IPO the past year(other than antagonizing hardcore gamers ofcourse), far too risky of an investment.. even by tech stock standards. The fact is Zynga IS too reliant on Facebook, they will always need them more than Facebook will ever need Zynga and even mild shifts in site presence or FB's desired cut on microtransactions could really hurt. There really isn't anywhere else they can go either, because even if they did find a marginally viable alternative base-wise, it likely would come nowhere close to FB's industry low cut on those MT's.

strayfies
strayfies

Haha, woops. Guess the market didn't agree with that $10.