Zynga’s First Day of Trading Sees Decline, “Significant Concerns.”
By Yannick LeJacq | December 16, 2011 | News | No comments | Share
The new industry giant Zynga, creators of Mafia Wars and all things -ville related, officially went public today to mixed reactions from financial and business analysts. The San Francisco-based company entered the scene with high expectations, raising $1 billion with an initial public offering (IPO) priced at $10 per share, making it the largest IPO from a U.S.-based internet company since Google went public in 2004, raising $1.4 billion in the process. Zynga’s was valued at $7 billion, or 6.8 times revenue in the year through September 30th, 2011, making the the company’s valuation more than three times that of Electronic Arts’s over the same period.
So far, reports of the company’s first-day performance have been mixed. While investors were enthusiastic about Zynga’s IPO, analysts expressed concerns about the company’s viability for continued growth.
Doug Creutz, an analyst for the Cowen Group, commented that while Zynga has lead the market in Facebook and social gaming, he still has “significant concerns” for the company’s future performance. Zynga’s daily active users (DAU), he noted, have decreased “dramatically” in recent months along with its percentage relative to the entire Facebook gaming space, shifting from 50 percent to 38 percent this year. At the same time, Creutz continued, the company’s expenses have “exploded” alongside the slowing pace of its growth. “Zynga’s culture may not be congruent with creativity,” he speculated, wondering if this would catch up with the company in the coming year.
In its coverage of the company’s performance, The Washington Post added that Zynga’s size relative to other internet based companies may have actually helped to impede its first-day performance:
Zynga 'shouldn’t be valued at three times what other companies in that space are valued at,'said Jeffrey Sica, chief investment officer of Morristown, New Jersey-based Sica Wealth Management LLC, which oversees $1 billion. 'That’s why people looked at it as having a potential downside. Investors found it too rich.'
Zynga was also held back by 'overall concern in the market,' said Sica, who nevertheless advised clients to buy the Zynga IPO. 'An IPO investor can’t be oblivious of the environment the IPO is coming out in.'Lee Spears and Douglas MacMillan, The Washington Post
According to The Washington Post’s report, Zynga’s shares, “listed on the Nasdaq Stock Market under the symbol ZNGA, fell 4.2 percent to $9.58 at 12:53 p.m.” How its future performance will continue into next year is difficult to predict, but many analysts are not entirely optimistic. Another analyst group began its coverage of Zynga with an “Underperform” rating, saying that “Zynga’s growth is slowing even faster than what is obvious at first.”
