Zynga Inc. will brave difficult market conditions and resume its delayed initial public offering this month, seeking a market valuation of up to $7-billion (U.S.).
The maker of CityVille and FarmVille for mobile devices and social networks such as Facebook will seek to raise up to $1-billion by selling 100 million shares in a projected range of $8.50 to $10 a share.
The sale will match other recent Internet-related company issues, such as the Groupon Inc. offering, by selling just a sliver of its shares outstanding, at roughly 11 per cent after the offering.
The valuation represents a steep fall from earlier estimates by the company. An internal figure earlier this year put its worth at as much as $14-billion.
Based on outstanding shares of 699 million after the offering, Zynga’s proposed offering will give it a valuation of as much as $6.9-billion – at the top of its price range. After stock options are exercised, the company’s share count would rise to 893 million on a fully diluted basis.
The price could fall outside the range, depending on demand and market conditions over the next week while it markets its offering. The shares are expected to start trading on Dec. 15 on Nasdaq under the ticker ZNGA.
All the proceeds of the initial sale will go to the company, which differs from most other tech offerings. None of the executives or venture capital investors will sell in the first offering.
However, if the underwriters exercise an option to sell 15 million more of the company’s shares, depending on the IPO’s performance, they will buy them from pre-IPO shareholders, such as the private equity firms Silver Lake Partners and Avalon Ventures, and Russian investors Mail.ru and DST.
The rest of Zynga’s investors will have to hope that it follows the course of LinkedIn Corp. , the professionals-focused social network, which six months after its IPO was still trading well above its initial price, rather than that of most of the IPOs this year, including Groupon, which are struggling to deliver positive returns.
Many of the companies selling small-float deals – the typical tech or web IPO sells 25 per cent, according to Ipreo, the capital markets data provider – have seen their prices fall sharply as more shares hit the market.
While Zynga has more than 200 million monthly active players of its games, only 3.4 million spent any money in the September quarter on the virtual goods that drive its revenues, according to a recent regulatory filing.
The company also suffers significant churn in its games as players move on to the next title as it is released.
The latest in its Villeseries – CastleVille – launched this month and has quickly risen to number two in the popularity of social games on Facebook with 7.2 million daily active users, behind CityVille with 10.6 million, according to AppData.