This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Why Zynga's IPO Fell Flat

Stocks in this article: LNKD P GRPN ERTS ZNGA

By Julia Boorstin, CNBC Correspondent

NEW YORK ( CNBC) -- Zynga's (ZNGA) long-anticipated IPO did not benefit from the same first-day bumps that sent LinkedIn (LNKD) and Groupon (GRPN) soaring higher earlier this year.

The social gaming company raised $1 billion -- issuing 100 million shares at $10 a share -- making it the largest Internet-related IPO since Google's (GOOG) $1.4 billion offering back in 2004. The $10 price was at the upper end of the $8.50-$10 range, valuing the company at around $7 billion, $8.9 billion including unexercised options and warrants.

Zynga's valuation may be huge compared to video game giants Electronic Arts (ERTS) -- $6.9 billion -- and Activision Blizzard (ATVI) -- $13.6 billion. But it's actually much smaller than expected. Earlier this year the company was valued at $14 billion -- it sold shares to investors for around $14. Some industry watchers talked about a $20 billion valuation and some employees reportedly were granted stock options at a higher valuation than $14 billion.

More from CNBC
Still a Season for Miracles to Happen
The Grinch Who Stole Your Bonus
Payroll Taxes and a Two-Santa Theory

As soon as Zynga priced Thursday night, it was clear that this stock would not see the massive first-day jump investors were trained to expect by LinkedIn and Groupon to expect. Yes, Zynga priced at the upper end of its range, but the company could have priced as high as $12 per share without re-issuing its S-1 SEC filing. And, on top of that, the company had the option of issuing an additional 15 million shares of stock. Yes, this means that the stock was priced accurately, but it also means that the company didn't see the massive demand it was prepared to handle.

So what went wrong? Zynga's rare in its pre-IPO profits -- $90.6 million in 2010. But Wall Street seems to have soured on Internet fare. Groupon shares, after jumping 40% opening day from its $20 IPO price, fell to as low as $15 before rebounding a bit. And Pandora (P) is pretty much flat from where it started trading in June.

Analysts have been piling on Zynga, warning about its growth prospects. Cowen & Co analyst Doug Creutz initiated coverage with a neutral rating, warning that Zynga's market share of Facebook gaming is declining and Facebook gaming growth is slowing. Stern Agee's Arvind Bhatia, rated the stock a sell before it priced, warning about slowing growth and declining free cash flow.

Plus, while investors may be look to Zynga for access to the social media space, once Facebook goes public, Wall Street will no longer need that proxy.

-- Written by Julia Boorstin, CNBC Correspondent

CNBC is a world leader in business news, providing real-time financial market coverage and business information.

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 17,356.87 +288.00 1.69%
S&P 500 2,012.89 +40.15 2.04%
NASDAQ 4,644.3120 +96.4780 2.12%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs