How low will the stock price of Zynga go? Or is an uptrend to finally happen today after two consecutive days of price declines?
That’s the $8.9 billion-question in the minds of investors who are wondering whether they made a mistake in buying Zynga shares (stock code: ZNGA) during its initial public offering (IPO) last week.
Down 9.5% after 2 trading days
At the end of its first trading day on Friday, December 16, the stock of the popular Facebook games maker fell 5% to close at $9.50.
Yesterday, Zynga’s second trading day, the stock fell another 4.74%. Each share is now trading at $9.05, down a combined 9.5% from its $10 IPO price.
The company was able to raise a total of $1 billion in its initial public offering, after issuing 100 million shares priced at $10 each. The IPO price puts Zynga’s market value at $8.9 billion.
The IPO made Zynga’s founder, Mark Pincus, a billionaire but after the two-day losing streak, the value of his holdings is estimated to have fallen slightly below $1 billion.
Concerns over future growth prospects
Pincus retained a 37% voting power in the company after the IPO, which investors find too huge a controlling stake which contributed to the stock’s price decline.
Wall Street also doubts Zynga’s future growth potential due to its over-reliance on Facebook. Zynga makes money using the “freemium model” where games like Farmville, Mafia Wars, HoldEm Poker, and the like, are offered to the public for free charging a fee only on premium items that players use while playing.
Ninety-five percent (95%) of the company’s revenues are via Facebook, with the social networking site taking a 30% cut in all of those sales. Investors fear that Facebook’s declining membership growth would ultimately hurt the profitability prospects of the games maker in the future.
Tech stocks falter after IPO
Investors who were used to raking in profits during a stock’s first trading day were disappointed but not necessarily surprised, following several price meltdowns in tech stocks after their IPO.
LinkedIn (stock code: LNKD), a professional networking site, ended trading yesterday at $64.94, down 31% from its first trading day (May 20, 2011)’s close of $94.25.
Discount deals site Groupon (GRPN) is also trading below its first trading day (November 4, 2011)’s price of $26.11. Groupon closed at $22.00 a share, down 15.7% in less than two months.
With most tech companies declining in value after their IPOs, investors are wondering whether Facebook, expected to go public in 2012, will meet the same fate or will reverse this trend.