December 16, 2011
Two days, two IPOs. And two big questions lingering in their wake.
The first of those deals was the IPO of fashion design franchise, Michael Kors Holdings (KORS), which made its debut Thursday after being priced late Wednesday night. So far, so good: The company’s ability to boost sales in the midst of a sluggish economy impressed investors and helped propel the stock to a solid first-day “pop” of 21 percent, as the stock closed at $24.20 a share, well above its $20 IPO price.
But the Kors deal was overshadowed by speculation surrounding online gaming company Zynga (ZNGA), which finally priced its IPO after the market close yesterday. Underwriters didn’t price the stock at $12 a share as had been rumored – a level that would have been above the forecast range – but rather at $10, at the top of end of the range. That still gives Zynga, which derives a chunk of its revenue from the sale of intangible goods used in online games, a hefty market capitalization of $7 billion. The delays and hiccups along the road – including the SEC’s demand that Zynga restate its earnings and adopt more conventional accounting methods – may have been a blessing in disguise, as it has meant that the company made its debut during a relative lull in what has otherwise been a stormy year for global financial markets. Even so, Zynga didn’t receive a particularly warm welcome on Wall Street. In its trading debut this morning, Zynga’s stock opened at $11 before sliding to $9.50 and then settling in back around $10.
Zynga’s IPO is the largest internet startup to go public since the blockbuster Google IPO way back in 2004. But just as the Kors IPO was overshadowed by Zynga’s deal, so the gaming company, in turn, is likely to see the spotlight move very rapidly back to Facebook, and the nonstop speculation about just when that company will make its shares publicly tradeable. Certainly, its financial strength and business model are likely to leave both Kors and Zynga in the dust: According to Gawker, which says it obtained information from a source “with knowledge of Facebook’s finances,” the company is debt-free, has an astonishing $3.5 billion in cash and is on track to earn close to $1 billion in profits this year, double what it did last year.
So, the two lingering questions are familiar ones. When will Facebook take the plunge? And will that deal have broad coattails, enabling other Silicon Valley tech startups to take advantage of the buzz to go public in their turn?
That’s certainly what venture capitalists are praying and hoping for, after years during which only a handful of their portfolio companies have managed to make it through the narrow gate that leads to a stock market listing. Facebook, they figure, is the best hope for them to break the jinx and deliver some solid returns to increasingly irritable and impatient institutional investors. “Hail Facebook!” one such venture investor said – anonymously – in a just-released forecast of what 2012 holds in store for the venture industry. “Long live Facebook!”