Zynga to Seek Up to $1B IPO Selling Shares for $8.50-$10

By Lee Spears and Douglas Macmillan - Dec 2, 2011 8:09 AM GMT+0700

Zynga Inc. will sell about 15 percent of its common stock in an initial public offering, said a person with knowledge of the matter, breaking with a practice among Internet companies this year of using a lower free float to boost demand.

Zynga, the biggest maker of games on Facebook, plans to sell shares for $8.50 to $10 apiece in its initial public offering to raise as much as $1 billion, said the person, who declined to be identified because the terms are private. That would value Zynga at as high as $7 billion, less than it previously had targeted, the person said.

The game developer decided against a low float for its stock as companies such as Groupon Inc. and Pandora Media Inc. tumbled following their IPOs, the person said. While selling fewer than 10 percent of their shares helped those companies boost early demand for their offerings, the stocks have more recently dropped below their initial prices.

“It’s a reflection of what we’ve seen in Groupon,” said David Dillon, a San Francisco-based portfolio manager at HighMark Capital Management, which oversees about $17 billion. “If you price yourself too high, you do yourself a disservice in the long term.”

Zynga, whose shares will trade on the Nasdaq Stock Market under the symbol ZNGA, plans to disclose IPO terms tomorrow, the person said. Morgan Stanley and Goldman Sachs Group Inc. (GS) are managing the IPO.

Dani Dudeck, a spokeswoman for San Francisco-based Zynga, declined to comment.

Pricier Than EA

Led by Chief Executive Officer Mark Pincus, Zynga is seeking to capitalize on the popularity of social networks and virtual goods. The company lets users play games for free and then makes money by selling items -- say, a townhouse in “CityVille” or a shipyard in “Empires & Allies.”

A $7 billion market value would price Zynga at 6.8 times trailing 12-month sales of $1.02 billion, according to financial results disclosed in the company’s IPO filing. Electronic Arts Inc. (ERTS), the game maker that bought Zynga rival PopCap Games in August, at today’s close was valued at $7.73 billion, or 2 times sales in the last 12 months, Bloomberg data show.

Zynga’s targeted valuation is also less than half the $14.05 billion that the company said in a September regulatory filing represented its fair value in August.

To contact the reporters on this story: Lee Spears in New York at lspears3@bloomberg.net; Douglas Macmillan in New York at dmacmillan3@bloomberg.net

To contact the editors responsible for this story: Tom Giles at tgiles5@bloomberg.net; Jennifer Sondag at jsondag@bloomberg.net