(TheDC/AP) – Zynga’s stock got a lukewarm reception in the opening minutes of its public debut Friday.
“The company’s stock opened at $11 a share on Nasdaq, up 10% from its initial public offering price of $10, but within the first 10 minutes of trading it ‘broke,’ falling below its IPO price,” according to a Wall Street Journal report.
The price was at the top of its expected range, a sign that investors were eager to dig into the latest in a series of high-profile technology IPOs this year. It values the company at about $7 billion.
The fact that shares in Zynga are trading down on their first day of trading is typical, according to a Motley Fool analysis.
“It hasn’t been a particularly good year for IPOs. Of the 116 companies that Nasdaq’s IPO website lists as having gone public in 2011 through Nov. 18, only 25 were in the black by the end of Black Friday. The average return of all IPOs, measured with closing prices at the end of their first days as public companies, is a loss of 20%.”
The popular investor site that humorously refers to its readers as “Fools,” however, notes a common flaw in the analysis done on IPOs: “One problem with ranking IPOs is that the “official” IPO price isn’t available to ordinary investors like you and me. It would be absurd to rate LinkedIn based on its IPO price of $45 when its stock opened its first day at $83 and closed at $94.25.”
Online deals site Groupon, which began trading in early November, has a market capitalization twice that of Zynga’s, $14 billion. But Zynga is selling a much bigger chunk of its available shares, 14.3 percent compared with Groupon’s 5.5 percent. It’s an issue of supply and demand — selling more shares means investors don’t have to scramble to get their hands on them.
Zynga rounds out a year of high-profile Internet IPOs. The biggest of them all, though — Facebook — is not expected until after April.
Cowen & Co. analyst Doug Creutz, however, initiated coverage Friday with a “Neutral” rating on the stock. Although Zynga is the leader in Facebook gaming, he’s concerned that it won’t be able to grow fast enough to justify its stock price. Growth in Facebook gaming has slowed, and Zynga’s market share has declined from 50 percent to 38 percent of daily active users, he wrote.
He’s also concerned that Zynga’s famously aggressive and hard-charging culture may not be the best field to grow good games in. Others have raised concerns that the focus on deadlines and profits might be squeezing out creativity and talent.
The Wall Street Journal reported that the company’s chief executive officer, “took more than $109 million off the table when he sold a small portion of his stake back to the social games company in March, according to regulatory filings.”
In November, online coupon company Groupon raised $700 million in its IPO. The granddaddy of all Internet IPOs might happen next year, as Facebook Inc. is expected to raise as much as $10 billion.