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Zynga Pops Then Drops in IPO Debut (Update2)

Zynga story updated with closing share price.

NEW YORK ( TheStreet) -- Zynga (ZNGA - Get Report) shares popped 10% to open at $11 Friday as the gaming company made its public debut on the Nasdaq but demand didn't hold up and the stock closed at $9.50.

Shares of the FarmVille maker traded as low as $9 in early afternoon trading before staging a partial recovery. Zynga raised $1 billion in the IPO, making the stock offering the largest since Google's (GOOG - Get Report) in 2004, and valuing the company at $7 billion.

Zynga's relatively weak performance comes on the heels of hot offerings from other Internet companies.

LinkedIn (LNKD) shares more than doubled in their market debut in June, while Pandora (P) surged 63% during its first day of trading .

This week, shares of Jive Software (JIVE), which makes Facebook-like social networks for businesses, shot up 27% during its IPO.

But many of these companies saw shares drop following their IPO debuts. LinkedIn is down 31% this year while Pandora has fallen 40%.

"Perhaps investors may be a little more way of tech stocks in general having seen the slumps that others have endured over the past few months," said Lee Simmons, an industry specialist with Dun & Bradstreet. "That might be what's steering Zynga's IPO today."

Zynga also offered up more shares of its common stock -- 14% -- than other Internet companies like Groupon (GRPN), LinkedIn and Pandora who came to market with floats of less than 10%. These companies used smaller floats to push demand for shares higher which initially inflated their stock price.

Zynga on Thursday priced at the top of its expected range of between $8.50 and $10 a share, though analysts were mixed about the company's performance in the public markets.

Hudson Square analyst Daniel Ernst remains "positive on the offering" and believes its valuation is reasonable.

Sterne Agee analyst Arvind Bhatia, meanwhile, has already initiated coverage of the company with an underperform rating and said the company's valuation is "not justified."

Zynga's valuation is more than that of video game competitor Electronic Arts (ERTS) with a $6.8 billion market cap but less than Activision (ATVI) with a $13.6 billion market cap.

Last year, Zynga generated a profit of $90.6 million on revenue of $597 million. The company makes money from the sale of virtual goods, such as chickens or cows for its FarmVille game.

The company makes four of the five most popular games played on Facebook and forks over 30% of its revenue to the social networking giant. 90% of Zynga's revenue comes from the Facebook platform, though the company is pushing aggressively into mobile to diversify its business.

Zynga is going public during a volatile time for IPOs. Last week, five companies withdrew or postponed their offerings, according to Renaissance Securities.

"The market is overwhelmed with unknowns and there's a tremendous amount of fear regarding every industry, especially new companies," said Jeff Sica, president of SICA Wealth Management. "The market is losing confidence and its not going to focus on a good story or a long term prospect."

-- Written by Olivia Oran in New York.

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