Zynga

Zynga IPO gets off to inauspicious start

Zynga Inc( ZNGA :NASDAQ)


Social-gaming company Zynga is officially trading on the Nasdaq, and so far, things aren't looking too good.

The company started selling its shares for $10 around 8 a.m. PT this morning. The stock initially jumped to over $11 a share, but soon dropped about 5 percent to around $9.50. Since then, the stock has been teetering between small gains and small losses, despite the market trading up on the day.

Earlier this month, Zynga said that it would price its shares at $8.50 to $10 a share, but decided yesterday to trade at the top of that range to raise $1 billion. While the move might have seemed sensible to Zynga, analysts view it as too bullish.

In fact, earlier this week, Sterne Agee analyst Arvind Bhatia said Zynga should be priced at just $7 per share, due to the company's financial troubles.

"While we believe in the potential for social games, we think Zynga's growth is slowing even faster than what is obvious at first, its margins are under pressure, and free cash flow has been declining recently," Bhatia wrote to investors. "Thus, we believe the implied valuation in the IPO is not justified."

Bhatia isn't alone. Morningstar analyst Rick Summer said last week that a $6-per-share stock price would be justified.

Other Web startups that went public this year had a strong showing on their first day of trading. LinkedIn had the best IPO day, kicking trading off at $45 per share and ending the day at $122.90. Groupon's shares were up 30 percent in their first day of trading last month.

That said, the day is young, and Zynga still has a lot of time to match its predecessors' strong opening performances. The only question is, will the company's many troubles, including declining profit margins and 94 percent of its revenue originating with Facebook, turn investors off?

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