Zynga Said to Price 100M Shares at $10 in IPO

By Lee Spears - Dec 16, 2011 5:10 AM GMT+0700

Zynga Inc., the largest maker of games for Facebook Inc.’s website, raised $1 billion in its initial public offering, pricing the shares at the top of the marketed range, said a person with knowledge of the IPO.

The developer of games such as “CityVille,” “FarmVille” and “Mafia Wars” sold 100 million shares for $10 each, according to the person, who declined to be identified because the details haven’t been released. Zynga had offered the stock for $8.50 to $10 apiece. It will start trading tomorrow on the Nasdaq Stock Market under the symbol ZNGA.

The offering is the biggest by a U.S. Internet company since Google Inc. (GOOG) raised $1.9 billion in its 2004 IPO, Bloomberg data show. The game maker’s surging sales appeal to investors seeking growth that outpaces members of the Standard & Poor’s 500 Index, according to Tim Cunningham, a money manager at Thornburg Investment Management Inc.

“Growth is really scarce, so I think that makes it more valuable than usual,” said Cunningham, who helps oversee about $74 billion at Thornburg in Santa Fe, New Mexico. Founded by Chief Executive Officer Mark Pincus in 2007, Zynga doubled sales to $829 million in the first nine months of 2011.

The IPO values Zynga at as much as $7 billion, or 6.8 times revenue in the year through Sept. 30. That’s more than three times rival Electronic Arts Inc. (ERTS)’s price relative to sales over the same period.

Electronic Arts, based in Redwood City, California, bolstered its own online services by purchasing PopCap Games this year. EA, the maker of “The Sims” and “Scrabble” for mobile devices had a market value of $6.9 billion, or about 1.8 times trailing 12-month sales.

‘More Competition’

Nexon Co., a Tokyo-based maker of games for Facebook including “Zombie Misfits,” fell on each of its first two days of trading this week after holding a $1.2 billion IPO, Japan’s biggest this year. The stock is down 4.3 percent since the offering.

“You’re definitely going to see more competition” for Zynga as other companies expand their user bases, said Richard Greenfield, an analyst at BTIG LLC in New York. “On the other hand, I think it’s also going to bring more people into the overall social gaming space.”

Zynga planned to offer about 14 percent of its common stock, according to a regulatory filing. That compares with less than 10 percent for companies including Groupon Inc., LinkedIn Corp., and Pandora Media Inc., which made their public debuts this year. Internet companies have used smaller free floats to boost initial demand for their stock, pushing the price higher.

Avalon Ventures, Google

Zynga planned to sell all of the shares in the IPO, and to use net proceeds of about $889 million for game development, marketing and general corporate purposes.

Backers including Avalon Ventures, Foundry Group and Google may trim their stakes if underwriters exercise an over-allotment to buy 15 million additional shares, according to the original terms of the offering. Venture firm Kleiner Perkins Caufield & Byers, Zynga’s biggest shareholder after Pincus, didn’t plan to sell shares in the IPO.

The market value Zynga sought in its IPO was less than a $14.1 billion fair-value estimate of the company’s worth as of August, according to the prospectus. The company settled on a price range after taking into account recent IPOs that underperformed, according to a Dec. 10 filing. Morgan Stanley and Goldman Sachs Group Inc. led Zynga’s offering.

Social Media

Groupon, the Chicago-based provider of online coupons, raised $805 million in its IPO last month, including the over- allotment option. The shares, which surged as much as 31 percent in the first weeks of trading, have since fallen 12 percent from their high.

Angie’s List Inc., the Indianapolis-based operator of a consumer-reviews website, raised $132 million in its IPO last month, including an over-allotment. The stock surged in its first day of trading before falling as much as 11 percent below its offer price.

Both Groupon and Angie’s List are trading above their offer prices. Sixty percent of the Internet or social-media companies that completed U.S. IPOs since 2010 are trading below offer price, Kevin Pleines, an analyst at Birinyi Associates Inc. in Westport, Connecticut, said in a Dec. 13 research note. Buyers of the shares at their opening trade in the public market have lost an average of 32 percent, Pleines said.

Zynga gets more than 90 percent of its revenue from Palo Alto, California-based Facebook, operator of the world’s largest social network. Facebook is examining a $10 billion IPO that would value the company at more than $100 billion, a person with knowledge of the matter said last month.

To contact the reporter on this story: Lee Spears in New York at lspears3@bloomberg.net

To contact the editor responsible for this story: Jennifer Sondag at jsondag@bloomberg.net