Zynga shares slump 10 percent below IPO in first day
Summary: While there was hope for Zynga, the largest technology flotation since Google's public debut in 2004, the company's share price dropped by nearly 10 percent in its first day. — At the end of Zynga's first day of public trading today …
Context & Ripple Effects
Zynga's debut closes an arc that began when it filed in July to raise $1 billion and sharpened in November with a reported $10 billion valuation target from its bankers. The company finally went public yesterday, billed as the largest technology flotation since Google's 2004 listing — which made the first-day slide the number the whole consumer-web IPO class would be judged against.
The syndicated pickup across outlets like AllThingsD shows how much attention rode on this listing: after a year of high-profile consumer internet offerings, Zynga was positioned as a validation test for social gaming as a public-market category, and it failed that test on day one.
First-order effects
- Investors allocated shares at the IPO price are immediately underwater, and Zynga's employees and early holders see their paper wealth marked down roughly 10 percent before the company has traded a full session.
- The $10 billion valuation Zynga's bankers were reportedly targeting is effectively rejected by the opening market, handing the company less pricing power for any follow-on raise.
Second-order effects
- Other consumer-internet issuers and their underwriters preparing 2012 filings now have a fresh data point arguing for lower price ranges and smaller size, since even the largest tech float since Google could not hold its offer price.
- Rival social-game developers hoping to use Zynga's listing as a comparable for their own exits lose their benchmark, pushing them back toward staying private or selling to platform owners instead.
Third-order effects
- If first-day breaks keep recurring across the 2011-2012 consumer-web crop, public investors will systematically demand deeper discounts on ad- and virtual-goods-driven businesses, shifting bargaining power from issuers to buyers and slowing the pace at which social-gaming companies reach public markets.
- A depressed public valuation also pressures Zynga strategically: a cheaper currency makes acquisitions harder and increases the appeal of diversifying beyond its platform-dependent games business, a structural question the market is now explicitly pricing.
The trend: Consumer-internet issuers are discovering that 2011's public markets will no longer underwrite social-gaming growth at private-market valuations, forcing IPOs to price for skepticism rather than momentum.