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Farmville creator Zynga falls well below its $10 IPO price


By The Drum Team, Editorial

December 16, 2011 | 3 min read

Social game giant Zynga 's initial public offering quickly went off the boil yeterday. Originally priced at $10 a share on NASDAQ, it initially moved up over $11 - but then started to to slip . At the close in New York it was changing hands at $9.50 - down 5 percent..

Zynga was the biggest Internet-related IPO since Google went public in 2004, selling 100 million shares at the high end of its expected range $8.50 to $10.00. This brought in around $1 billion in cash and valued the firm, which created Words with Friends, FarmVille and Mafia Wars at $8.9 billion. Then came the slippage.

The disappointing start came on a day when major market indices were trending up. The Wall Street Journal said the share price sounded a warning to other Internet and non-Internet companies planning IPOs in the new year. Facebook is planning to go public between April and June in an offering which could raise as much as $10 billion and value the social network giant at $100 billion.

Zynga which filed to go public in July, once expected to raise $2 billion giving it a valuation of $20 billion

The WSJ pointed out, however, that Zynga , unlike many other young Web companies, IS profitable, selling virtual goods in its popular games such as "FarmVille" and "Mafia Wars." In the first nine months of the year, Zynga's revenue doubled to $829 million from a year earlier .

The company, which launched in 2007, plans to put the proceeds from its IPO towards game development and marketing in 2012.

Sam Jardine, TMT Associate at law firm Eversheds, commented; “Now is not an ideal time for tech IPOs, unless they have a very strong value proposition. The timing on this coincides with a report yesterday on a trend among UK AIM-listed companies which are being taken private, suggesting that the market is not strong.

"That said, Zynga is listing on NASDAQ, and much has been made of investors tapping into Zynga's growth potential via its close Facebook integration. However, we're not sure longer term. The business is great, but is it unique enough?"

“Zynga has also been criticised for its self-cannibalising business model, which sees it invest heavily in new games but churns through its existing saturated customer base. To sustain greater revenues the company will need to look at new ways of increasing its customer base. Maybe it should think about ‘2-for-1’ on barley bushels?”

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