Zynga goes public - investors eye CEO, growth potential with doubts
Zynga was the talk of the New York Stock Exchange when they rank the opening bell but after taking an immediate 5 percent hit, investors are reassessing Zynga as being overhyped.
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"Now we have an exciting IPO and people don't want it and that's a big concern for when Facebook comes out," said Jeff Sica, president and chief investment officer of SICA Wealth Management.Skip to next paragraph
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The cooling off in the IPO markets could hurt Facebook's estimated $100 billion valuation, BGC analyst Colin Gillis said.
Zynga's reliance on the platform was supposed to attract investors looking to bet on Facebook's growth. With Facebook's IPO expected to be at least several months away, Zynga is one of the few indirect ways to bet on the website's future.
Facebook takes a 30 percent cut of the revenue Zynga derives from the social network, which features more than 222 million monthly active Zynga users.
Zynga CEO Pincus said he was looking beyond the share price drop and said the company went public at the right time.
"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," he said.
In San Francisco, hundreds of employees got to work early to watch Pincus ring the bell to open Nasdaq trading and wore T-shirts saying "I love play" featuring the ZNGA trading symbol printed on the sleeves. Cinnamon buns and hot cocoa were served before the ceremony.
The company, which competes with Electronic Arts, sold 100 million shares of Class A common stock at $10 per share in the IPO, roughly 11 percent of its shares on a diluted basis, at the top end of the $8.50 to $10 indicative range.
The IPO values Zynga at $8.9 billion. In November, the company had been valued at roughly $14 billion, according to an internal estimate in a regulatory filing.
But that lowered valuation may still have been too rich for some, said Sterne Agee analyst Arvind Bhatia.
Zynga's near $9 billion valuation is less than videogame maker Activision Blizzard Inc's $13.6 billion and higher than Electronic Arts Inc's $6.7 billion. In the last four quarters, Activision and Electronic Arts generated more revenue than Zynga.
Analysts and investors have also expressed concern over how it profits from less than 3 percent of its players who buy items in its free games.
Plus, its reliance on Facebook appears unhealthy to investors who want to see Zynga diversify its revenue sources. Pincus on Friday said the company's 13 million daily users of its mobile games is a good start, and doesn't trail its daily users on Facebook as much as people assume. Zynga had 50.5 million daily users on Facebook on Friday, according to AppData, a website which tracks Facebook applications.
Yet Zynga's growth rate of bookings - the money it makes up front when users buy items, is slowing - which most analysts said is a red flag and could hurt Zynga's future revenue.
Zynga is the second online games company selling virtual items to slip in its trading debut this week. On Wednesday, Nexon Co shares fell following its $1.2 billion IPO, which was Japan's biggest offering this year.
At $1 billion in proceeds, Zynga's IPO is still the largest from a U.S. Internet company since Google Inc raised $1.9 billion in 2004.
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