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'Farmville' maker's stock lukewarm in public debut

Fri, 12/16/2011 - 7:05am
BARBARA ORTUTAY - AP Technology Writer - Associated Press

Zynga's stock got a lukewarm reception in its public debut Friday.

The online game developer's stock fell 3 cents to $9.97 in midday trading. It wasn't the eye-popping jump that's been the norm for freshly public Internet darlings such as Groupon Inc. and LinkedIn Corp.

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, raising $1.4 billion. CEO Mark Pincus rang the Nasdaq's opening bell in San Francisco.

The $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, online coupon company 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.

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