David Paul Morris
The biggest Internet IPO of the year ended trading Friday down 5 per cent from its $10 debut price, following a brief pop above that level early in the morning on the Nasdaq.
Zynga Inc. , creator of such popular online games as FarmVille and CastleVille, managed to raise $1-billion (U.S.) by issuing 100 million shares, achieving a valuation of about $7-billion.
After briefly surging 15 per cent in the opening minutes of trading, the stock settled in around $9.50 and closed at that level.
Although the games are free, Zynga makes money by selling advertising and "virtual goods" - that's right, imaginary goods - that players can incorporate into their games. For the first nine months of the year, the San Francisco-based company reported earning $30.7-million on revenue of $828.9-million.
But it's not today's numbers that investors are buying. It's the perceived potential of the company given the size and reach of its user base. Zynga games are played in 175 countries. Every day 54 million people connect to play, generating the equivalent of 2 billion minutes of playtime.
For now, all of Zynga's revenue is generated by players who access the gaming community through Facebook. If that model sounds a bit suspect, consider that Zynga is more robust than some other Internet companies currently in IPO mode.
Earlier this week, Jive Software Inc. raised $160-million. The shares are up 25 per cent since listing at $12. The Silicon Valley firm's technology helps companies operate their own social networks. Jive said it lost $38.1-million in the first nine months of the year, on sales of $54.8-million. And it lists as competitors such tech giants as IBM and Microsoft.
Zynga's stock may be down, but losses and questionable markets are not scaring away investors, even in an investing environment that has seen a lot or risk aversion.
LinkedIn Corp. , which runs a social network for professionals, saw its stock soar to $122.70 on its opening day in May after pricing at $45. Since then, the stock has given up a lot of its gains, trading most recently at $65.25.
Groupon Inc. , the company that pioneered online group discounts, saw its stock soar nearly 50 per cent in its public debut, to $29.52, up from $20. It was most recently trading at $22.19.
Of course, the mother of Internet IPOs awaits in the wings. The Street's rumour mill is suggesting that Facebook could raise $10-billion by selling just 10 per cent of the company, giving the seven year-old company a valuation of $100-billion.