Zynga IPO: Is The StockVille Already a Flop?

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zygna ipo overvalues companyAlthough 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.

[Sources Include: Forbes & Reuters]

David Angotti

David Angotti

After successfully founding and exiting an educational startup in 2009, I began helping companies with business development, search engine marketing (SEM), search engine optimization (SEO),... Read Full Bio
David Angotti
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  • Cityville Player and a person who invests.

    Seriously, to all investors who might actually purchase some stock when they go IPO (that would be 3% of us players). They are pissing off the other 97% in droves. I can tell you that I have one of about 30 neighbors who pays. So that lends credibility to their 3% payers estimate. The problem with pissing off the other 97%, as they are doing, is that the other 97% aren’t going to pay and refuse to pay, so they will quit the game. I have already had two of my biggest helpers quit. I am also thinking of quitting because of a new population requirement (my city won’t be able to grow for a year). So, this game runs on the fact that friends help friends to complete goals. If all of the friends go away, then everybody who is left, is hamstrung and can’t complete anything (because you need friends to complete stuff)(it is a social game). So what you are going to end up with is 3% of the players who are all alone. These “whales” will feel lonely and will eventually get tired of building their city that nobody will ever admire as the greatest city out of all of the people they know (it is so wonderful to them because they have the stuff all of the non-payers don’t have). It is a symbiotic relationship between non-payers and payers, and Zynga is killing 97% of that relationship. I for one won’t give you 50 cent per share for this stuff (as a non-paying player representing 97% of the buying audience).