Editor’s note: This article was first published in December 2011 as a pre-IPO piece. Its forecast that Zynga’s shares would soar did not come true, as they closed below the $10 offer price on the first day. Facebook went public in 2012, and Zynga was acquired by Take-Two Interactive in 2022.
In two weeks, Zynga will go public. Along with Facebook, which will probably make its stock market debut next year, it is one of the two most eagerly awaited companies. As we argued a few months ago, these stocks tend to rise sharply in the first 24 hours after they list. That is what happened with LinkedIn and Groupon, but with Zynga the picture looks gloomier, because with two weeks to go before its IPO, bad news is starting to come in.
For one thing, Zynga has cut its valuation by more than 30%. A company valued at around 14 billion has now settled at 9.05 billion dollars to make its debut more cautious and attract investors’ attention. The share price could be between 8.50 and 10 dollars.
Forbes reported internal problems at Zynga, a company that could face a talent drain because of the conditions its employees were subjected to. According to rumours, some Zynga employees who hold shares in the company will wait for the IPO to sell them.
Still, we argued that LinkedIn has yet to prove its business model and its shares nonetheless soared on the day of its IPO, and that Groupon, which rose more than 50% on the very morning of its debut, was losing money when it went public. Zynga, unlike LinkedIn and Groupon, does have a profitable, viable and proven business model, so we would have to be very wrong for its value not to shoot up on the stock market as theirs did.
In our view, tech stocks are a clear opportunity to make money in a single morning, although I wouldn’t hold them for more than 48 hours, just in case, since they are “fodder for speculation”.
It is rare to find any degree of certainty when investing in a stock. In Groupon’s case I made a 19% return in just a few hours. Of course, if I had been a bit more patient I could have made more than 40%, but honestly, a 19% return in a single day doesn’t come along every day.
For those interested in investing in Zynga, it will trade on the Nasdaq under the ticker ZNGA. Good luck.
Further reading
Featured image: Dreamyshade, CC BY-SA 4.0, via Wikimedia Commons.
