'Farmville' maker's stock lukewarm in public debut

December 16, 2011 - 12:45 PM
Zynga IPO

The corporate logo for Zynga is shown on an electronic billboard at the Nasdaq MarketSite, Friday, Dec. 16, 2011 in New York. Stock in the San Francisco company began trading at Nasdaq, Friday following its IPO. (AP Photo/Mark Lennihan)

NEW YORK (AP) — Zynga's stock got a lukewarm reception in its public debut Friday.

The online game developer's stock fell 36 cents, or nearly 4 percent, to $9.64 in midday trading, though earlier it traded slightly higher. It was by no means the eye-popping jump that's been the norm for freshly public Internet darlings such as Groupon Inc. and LinkedIn Corp.

But CEO Mark Pincus said Zynga's focus is on "delivering great products" that expand audience for social games over the next few years — and not on the next trading day.

"We didn't have any expectations coming into this whole process," he said in an interview. "We decided to go public a long time ago."

Zynga Inc., which specializes in Facebook games, raised $1 billion in its initial public offering of stock. That makes it the largest Internet-related IPO since Google Inc. went public in 2004 and raised $1.4 billion. Pincus rang the Nasdaq's opening bell in San Francisco, a first in the city for a freshly public company.

The company's roughly 1,700 San Francisco employees woke up at the crack of down to celebrate with cinnamon buns and hot cocoa. Zynga also delivered video of the opening ceremony over the Internet to its offices around the world.

Zynga's $10-per-share IPO price was at the top of its expected range, a sign that investors were eager to dig into the latest in a series of high-profile technology IPOs this year. It values the company at about $7 billion.

Online deals site Groupon, which began trading in early November, has a market capitalization twice that of Zynga's, $14 billion. But Zynga is selling a much bigger chunk of its available shares, 14.3 percent compared with Groupon's 5.5 percent. It's an issue of supply and demand — selling more shares means investors don't have to scramble to get their hands on them.

Zynga rounds out a year of high-profile Internet IPOs. The biggest of them all, though — Facebook — is not expected until after April.

Zynga charges small amounts of money — a few cents, sometimes a couple of dollars — for virtual items in online games. The games are free to play. Players can acquire items that range from crops in "Farmville" to buildings in "CityVille," its most popular Facebook game.

With its huge player base and a few loyal spenders, Zynga earned a net income of $90.6 million in 2010, an unusual pre-IPO money-maker in the sector.

Cowen & Co. analyst Doug Creutz, however, initiated coverage Friday with a "Neutral" rating on the stock. Although Zynga is the leader in Facebook gaming, he's concerned that it won't be able to grow fast enough to justify its stock price. Growth in Facebook gaming has slowed, and Zynga's market share has declined from 50 percent to 38 percent of daily active users, he wrote.

He's also concerned that Zynga's famously aggressive and hard-charging culture may not be the best field to grow good games in. Others have raised concerns that the focus on deadlines and profits might be squeezing out creativity and talent.

In November, Groupon raised $700 million in its IPO. The granddaddy of all Internet IPOs might happen next year, as Facebook Inc. is expected to raise as much as $10 billion.

Zynga is trading under the ticker "ZNGA" on the Nasdaq Stock Market.

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AP Technology Writer Peter Svensson contributed to this report.