Zynga’s IPO and the Addiction Factor
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The Fiscal Times
November 30, 2011

Got an avid FarmVille player among your family members or Facebook friends? The much-ballyhooed IPO of social/cyber-game company Zynga (which counts FarmVille among its offerings) is apparently finally on track for sometime in the week before Christmas. So you might want to consider giving shares in the company in the hopes that the FarmVille players on your list will recoup some of what they lose to Zynga by paying for "gold" and other fancy cyber-game items.

Underwriters have begun to touch base with prospective institutional investors in the IPO, trying to get a sense of the market's mood and the kind of valuation those buyers might find acceptable. When Zynga first filed its S-1 statement with the SEC in the summer -- its notice of intent to go public, complete with all kinds of financial disclosure -- the company valued itself at as much as $20 billion. That's a massive price tag to affix to a company whose "products" include a townhouse that exists only in CityVille cyber-space.

Of course, the dollars that flow into Zynga's coffers are entirely real, and investors will be looking for clues that they will increase as the company rolls out new games and new products tied to its existing games. Some of those may be contained in a revised prospectus that the company will file with the SEC before making a final decision on the number of shares to offer and the initial price range, and before embarking on a road show.

One potential investor, who encouraged his child to begin playing some Zynga games as a way of gauging the degree to which players become addicted and willing to spend, admits that he's tempted to invest after monitoring the results. "The parental credit card has taken a beating," says the investor, who declined to be identified.

Zynga's underwriters hope to get the deal done -- finally -- within the next three weeks, before investors shut up shop before the holidays and while holiday market exuberance lingers. Certainly, the first two days of post-Thanksgiving trading offer encouragement for any company stuck in the backlog of IPO deals and eager to go public at last. A successful Zynga IPO would pave the way for the much larger and even more feverishly anticipated IPO of Facebook, rumored to be the highlight of the 2012 calendar. 

Business journalist Suzanne McGee spent more than 13 years at The Wall Street Journal before turning to freelance writing. Author of the book Chasing Goldman Sachs, she has written for Barron’s, The Financial Times, and Institutional Investor.