Zynga dips below IPO offer price

Shares of online games developer Zynga Inc fell on their first day of trading in a sign that sentiment in the IPO market was turning cautious for even the hottest tech names. The dip also underscored investor concern about Zynga's dimming growth prospects and its reliance on social network Facebook, from which it derives 95 percent of its revenue.
Zynga shares were down 5.9 percent at $9.41 in early afternoon trading. Zynga's IPO had been highly anticipated because it was seen as a way for investors to get a slice of Facebook's growth before Facebook's itself goes public. Zynga makes money on Facebook by selling virtual items such as jewellery and poker chips in its games. Facebook is expected to go public in 2012. "Facebook's valuations were in the stratosphere and the markets are just not going to embrace IPOs as they did," said Jeff Sica, President and Chief Investment Officer of SICA Wealth Management.
Some investors had been expecting a strong showing by Zynga on Friday because the company is profitable, unlike other high profile Internet IPOs such as Groupon and Pandora. "I was stunned when I saw this. This is a disaster for them. The way you're supposed to price deals is to give investors a 15 percent IPO discount to compensate them for the risk of backing a relatively new company," said Dan Niles, chief investment officer of AlphaOne Capital Partners, who did not buy shares in the deal.
"It makes me wonder about the underlying health of the market. IPOs like this can change the whole tenor of the market," he added. Zynga's Chief Executive Mark Pincus said in an interview: "Our approach has always been to focus on the longterm," Pincus said. "We thought this was the right time to go public."
"We're going to focus on the products and business results we deliver in the next four to eight quarters and hope the stock market values and appreciates that as they see us deliver it," he said. The company, which competes with Electronic Arts, sold 100 million shares of Class A common stock at $10 per share in the IPO, roughly 11 percent of its shares on a diluted basis, at the top end of the $8.50 to $10 indicative range.