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November 29, 2011 6:39 pm
Zynga, the US social games company, is set to cap a highly volatile year for initial public offerings of technology companies with a share sale provisionally scheduled to price in the middle of December.
The company behind FarmVille and CityVille, which are among the most popular games on Facebook, has been the most hotly anticipated tech IPO of the year after Groupon, the daily deals company whose shares have been volatile since listing in early November.
An internal valuation conducted for Zynga in August valued the company at $14bn, though the volatility that has hit the markets since then and the poor performance of some other IPOs may make that figure hard to match now. In September, both Zynga and Groupon put off their IPO plans until later in the year amid market uncertainty and questions about the sustainability of their growth rates.
Zynga’s chief executive, Mark Pincus, along with chief operating officer John Schappert and chief financial officer David Wehner, are due to begin a “roadshow” of meetings with potential investors next week, with the shares expected to begin trading at the end of the following week, according to a person in the industry.
While Zynga has more than 200m monthly active players of its games, only 3.4m spent any money on the virtual goods that drive its revenues in the September quarter, according to a recent regulatory filing. The company also suffers significant churn in its games as players move on to the next title as it is released.
The latest in its “Ville” series – CastleVille – launched this month and has quickly risen to number two in the popularity of social games on Facebook with 7.2m daily active users, behind CityVille with 10.6m, according to AppData. But Doug Creutz, game analyst at Cowen and Company, said in a note on Tuesday that losses of users in other games meant Castleville had added fewer than 1m daily users to Zynga’s total over the past few weeks.
“We do not believe that CastleVille will provide a definitive answer to questions about Zynga’s growth prospects ahead of its potential IPO,” he said.
Among other tech IPOs this year, shares in Groupon have fallen below their IPO price of $20 to as low as $14.85 this week, while LinkedIn has declined by 33 per cent since it announced a secondary share offering at the beginning of the month.
Traders have questioned whether the latest crop of consumer internet companies can sustain their rapid expansion. “The key is slowing of growth rates. Momentum traders do not get behind IPOs whose growth is slowing,” said Mike Bellafiore, head trader at SMB Capital.
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