The Initial Public Offering of Zynga, when its stock was first sold to the public, went poorly. The stock rose slightly at first, but ultimately it fell flat. At one point on its first day of trading it fell about ten percent, though it recovered to close only down about five percent.
Other companies, plenty of them, have gone public and doubled or more. It is also true that some companies have done nothing much at their IPO, often simply because the times were against them. Financial mood can have much to do with the price of a stock, though the market will eventually find true value over time.
Zynga’s stock may do well in the future, of course, and has already done well for those who were allocated shares before the IPO. However, Zynga’s failure to thrive may be a bad omen for Facebook, the most famous of the social media companies.
Unlike many internet companies of all stripes, Zynga is profitable. However, regular profits depend upon a continuing stream of popular games, and upon Zynga’s major platform and outlet, Facebook.
Like many Wal-Mart suppliers, Zynga is vulnerable when it deals with Facebook. However, the company is expanding into the Google+ network, and this diversification may provide a degree of stability.
Market capitalizations are found by multiplying stock price by number of shares. Market cap is a rough and ready way of getting a feel for what the participants in the stock market value. At $9.50 per share, Zynga has a larger market cap than Electronic Arts, a successful creator of games played on game consoles, phones, computers, and Facebook. That comparison may be one reason the stock fell.
It was popular at first though. Zynga stock went public at ten, immediately climbed to eleven, and then dipped below nine. Other social media and new media stocks that went public in 2011, such as Groupon, Pandora, Demand Media, and LinkedIn are depressed at the end of December, which may be evidence that the market is turning its back on social media stocks.
Facebook may come public as early as May of 2012. It has nearly 500 shareholders now, and once it reaches that number it will be regulated as if it had gone through an IPO. The original innovators and early investors might as well convert the wealth they have created to cash.
Facebook is one of the most popular sites on the web, and has a huge hoard of valuable information about its users. It could sell information and ads, and it already takes a cut of the money made by companies like Zynga.
Facebook is a brilliant concept, and a great company. The question is whether investors will believe in its future when it comes to market.