Story updated with Bhatia's other calls, Jive's IPO success.
Zynga, with has created Internet-based games like Farmville and Mafia Wars, will price its initial public offering later this week with an expected range between $8.50 and $10. That would put Zynga's IPO around $925 million, making the social media gaming giant the largest U.S. Internet company since Google (GOOG - Get Report) raised $1.7 billion when it went public in 2004.
|Zynga announced plans for the biggest Internet IPO since Google this week.|
"Another bear argument is that Zynga is overly dependent on the Facebook platform (94% of revenue is generated on Facebook)," Bhatia writes. "A slowdown or disruption in the growth of Facebook, or Facebook policy changes, will negatively impact Zynga (and it did in 2010)." Bhatia also notes that the barriers to entry in social gaming aren't that high, and that only a very small number of actual players generate all of the revenue, which makes Zynga even more vulnerable. Bhatia's coverage universe doesn't include other social media companies, although he does follow several video game-related companies. Among them, Bhatia has "buy" ratings on GameStop (GME - Get Report), Activision-Blizzard (ATVI - Get Report), Take-Two Interactive (TTWO - Get Report) and Electronic Arts (ERTS). He has a "neutral" rating on THQ (THQI). When Zynga debuts this Friday, investors will be expecting much more than Bhatia does, especially considering the success of Jive Software's (JIVE - Get Report) IPO. Jive sold 13.4 million shares at $12 a share, above the expected range. Shares of Jive rallied as much as 38% after their debut Tuesday. Based on Bhatia's price target, though, Zynga shares would fall 17% to 30% after their debut. Investors will now have to decide whether the Word With Friends creator is worth the risk. -- Written by Robert Holmes in Boston.
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