Investors and companies once again find themselves hoping that Zynga can provide a spark for the IPO market.
Initial public offerings are always an uncertain investment to an extent, with companies often going public without a long-proven track record of success, sometimes looking for the funds necessary to keep the company going. The 2011 IPO market has not proven any easier, with many companies canceling or delaying their IPOs over the summer as the global economy suffered a downturn with both the U.S. and Europe struggling through debt crises.
Ultimately many analysts and even companies have found themselves looking from one high-profile IPO to the next, hoping that it would perform well and provide some encouraging signs for investors. Most recently, daily deals site Groupon completed a $700 million IPO, but it quickly followed the same pattern of most other companies this year and slumped below its early trading prices.
But Forbes reports that online gaming company Zynga, the creator of popular mobile and Facebook games like FarmVille and Words with Friends, stands a strong chance of surviving where many others have not. Valuing itself at $7 billion, Zynga has set far more modest goals than some recent IPOs and actually manages to back it up with a well-established business model that has already managed to make substantial profit – $30 million on $829 million of revenue over the past nine months.
Indeed, Bloomberg reports that Zynga announced on Thursday, December 8, that the company already has enough orders to cover the sizable portion of shares it intends to sell – 14 percent of common stocks, well more than many recent IPOs – at a price range of $8.50 to $10 per share.
Bloomberg notes that Zynga has given itself a substantially larger price-to-sales ratio than some of its primary competitors, but this still compares favorably with other IPOs seen so far this year.
Meanwhile, The Chicago Tribune reports that Zynga founder and chief executive officer Mark Pincus claimed at a luncheon in Boston that his company could reasonably double the number of players who actually pay for the company’s games. At present, paying customers account for only 3 percent of the 6.7 million players of Zynga games.
Investors are likely to remain wary after a bed that saw collapses from essentially every major IPO, but Zynga nonetheless offers as much promise of a spark as any of those earlier entrants held.