Although Zynga is not scheduled to begin public trading on the stock exchange until Friday morning, many stock analysts are already warning investors to stay away from the popular online game company’s stock.
Zynga, the popular creator of the social games FarmVille and Mafia Wars, is expected to price the IPO in the $8.50 to $10 per share range. The midpoint price, which equates to a valuation over $9 billion, is well above the target price of $6 to $7 that analysts have set. When the company initially filed its IPO paperwork several weeks ago, Zynga was predicting the financial markets would value their company at $14.05 billion and the new target represents a one third reduction.
Even at the decreased valuation and stock price, the IPO is still set to be the largest from a U.S. Internet company since Google went public in 2004. Zynga is expected to sell 11.1% of its diluted shares for approximately $925 million.
Arvind Bhatia, an analyst for Sterne Agee who set a target price of $7 on the stock and is predicting it will underperform said the following:
“Zynga likes to tout that the initial traffic for ‘CityVille’ was huge, and if you index it to ‘FarmVille,’ the traffic was almost double. But since then, the traffic has fallen and is now tracking at about half of the point where ‘CityVille’ was at the same time.”
Due to investors being excited about the ties between this company and Facebook, many analysts feel there is a high likelihood of an initial “first-day pop” for the Zynga stock. However, they warn that the combination of the company’s dependence on the Facebook platform, low earnings relative to the industry, and indications that the company may be past its peak, make this stock a risky investment for long-term investors.