Zynga prices IPO at $10
SAN FRANCISCO -- It's game on for Zynga's IPO. The social-gaming giant on Thursday set its initial public offering at $10 per share, the high end of its planned price range of $8.50 to $10.
The company expects to raise $1 billion. It begins trading Friday in what could be a zinger of an initial public offering: The biggest by a U.S. Internet company since Google in 2004.
Zynga's games, including CityVille and Words With Friends, first gained traction on popular social-networking site Facebook. Zynga is offering 100 million shares, which could raise about $1 billion to develop games and possibly acquire companies or technologies, according to Zynga's filing with the Securities and Exchange Commission.
Under its current IPO scenario, Zynga would be valued at $9 billion, less than half the $20 billion Zynga anticipated when it filed to go public in July.
Zynga's performance could be a significant marker for an oft-times balky tech IPO market. LinkedIn's IPO earlier this year was successful, but shares of discount-deals site Groupon and Internet radio service Pandora sputtered after the companies went public.
Groupon, whose IPO raised $805 million last month, closed its first day of trading valued at $16.5 billion, later dipped to about $10 billion, but has since rebounded. Wednesday, shares closed at $22.55, down 77 cents, giving it a market value of $14.2 billion.
In a possible precursor to Zynga's IPO, online gaming firm Nexon went public Wednesday on the Japanese stock market, raising about $1.2 billion, but had a lukewarm first day of trading.
No matter how its shares do, Zynga still faces questions about its long-term business prospects and its ability to innovate. Most of the company's revenue comes from the sale of virtual goods, yet less than 3% of Zynga's 240 million players buy them.
Zynga's sales more than doubled through September, to $829 million, and it has earned $121 million since the start of 2010, according to its SEC filing. What is more, the top five games on Facebook are Zynga titles: CityVille, CastleVille, FarmVille, Zynga Poker and Words With Friends.
"The question is, will the company be able to continue to crank out winning games and maintain growth?" says Greg Sterling, an independent analyst who closely follows social-media companies.
Zynga's management team, led by CEO Mark Pincus, has told investors in road show presentations that the company is working on its biggest-ever pipeline of games.
And Wedbush Securities analyst Michael Pachter anticipates a ramp-up of Zynga games the next few years to help it expand revenue while maintaining an operating profit of better than 50%.
Morgan Stanley and Goldman Sachs are managing the IPO. Zynga shares will trade on Nasdaq under ZNGA.
