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Mark Lennihan / AP
The corporate logo for Zynga is shown on an electronic billboard at the Nasdaq MarketSite.
For technology companies, this year has been a return to the glory days of "rocket shot" IPOs, but it looks like the comeback tour is just about over.
Online game maker Zynga fell flat in its stock debut last week, falling from its offering price of $10 a share to just a bit over $9 by the close of trading Monday. (Click here for the latest price.)
Sam Hamadeh, CEO of financial data provider PrivCo, said Zynga shares fell in part because the company sold a higher percentage of its shares than other recent tech IPOs. What's more, buyers are concerned about the company's reliance on Facebook and a plateauing of its once-meteoric growth.
But the failure of the stock to achieve even a first-day spike is indicative of what analysts say is a changing sentiment toward tech companies. "I think certainly you've seen investors becoming more skeptical," Hamadeh said.
After LinkedIn's May IPO that saw the stock price quickly double, market observers inevitably began making comparisons with the gogo tech bubble years of the late 1990s. Tech companies were hotter than they had been for years.
Pandora's IPO was also a hit, debuting at $16 after targeting the $10 to $12 range. But neither company's shares held onto those highs, and other buzzed-about tech IPOs in recent weeks also failed to live up to their initial hype. Angie's List and Groupon both struggled to maintain early momentum. Jim Krapfel, equity analyst at Morningstar, said investors viewed these as cautionary tales when evaluating Zynga.
"With Groupon and Angie's List, both sold off 30, 40 percent in the weeks subsequent to their offerings," he said. "It's just a lot of uncertainty with these names." The promise of huge future revenues is tempered by largely unproven business models, Krapfel said.
When market sentiment turned negative in August, this let more air out of the IPO balloon. "Until that improves meaningfully, that kind of trend will likely continue into 2012," Krapfel said.
More down-to-earth public offerings for tech companies could even affect Facebook, whose own IPO is expected in 2012. Krapfel says the social networking giant is in a better position than its peers due to its size and clout, but it wouldn't be immune to widespread market malaise created by a deepening European debt crisis or the U.S. economy slipping back into recession. Hamadeh said Facebook would benefit if it viewed as a caveat Zynga's fixation on raising $1 billion regardless of the strain that placed on its share price.
Another reason Zynga failed to pop, according to Hamadeh, was an uncharacteristic lack of interest from retail investors. This lack of enthusiasm could be contagious and drag down future offerings.
"For new IPOs coming online, I think that would certainly give investors pause," he said.
Amateur buyers usually gravitate toward names they recognize and companies with a lot of buzz. This time, retail investors stayed away. Maybe they were too busy playing Farmville.
A list of six stocks investors should avoid next year, with Dave Rovelli, Canaccord Genuity, among them; Netflix, Research in Motion, and Ericsson.
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People are finally running out of the casino money used in these crap shoots. Today investors are looking for capital preservation and are going into investment grade corporate bonds and municipal bonds. Bravo.
From nothing comes nothing. I have no idea how anyone could think this is anything worth investing in. Its contribution to society ADD kids.
Speculators blew smoke up all those companies as$es and tried to get people to bite on their initial IPOs, but no one took the bait. Not, because companiesdo business on the internet, it doesn't automatically make them a tech company. Zynga's games are for the ultra casual gamers and they too grow tired of the bugs and browser crashes they cause. Only one I see doing well is Facebook, but that is if nothing crazy happens between now and their 2012 IPO.
Anyone who has played a Zynga game knows that their software is buggy, bugs come back after software updates (indicating lousy quality control) and their customer support is caviler at best. What makes that a good investment?
lol - and you're actually being objective and somewhat kind there...:)
It's a risky basket to put too many eggs into, that much is certain. There are many better mousetraps out there...
+1 - Not not mention that hopefully at least a few people have realized that anything they play for "free" means THE PLAYER is THE PRODUCT and that "unproven business model" is a euphemism for "business that makes nothing, or provides any valuable service to any sector of society".
I'm guessing if we could total up the GDP lost from doing this versus working at one's job, we would be afraid. Very afraid.
That equation, specifically for smartphones and social networking, would reveal some truths nobody probably wants to talk about. At some point, we're going to look back on this awkward phase of "the internet revolution" and realize just how much it's all cost us in terms of lost productivity.
S. Savage, Rob-LVNevada - I don't know where you work but most companies use network appliances called web filters that block certain sites. Facebook, myspace and most social network sites are on the blacklist by default, (including gaming sites, porn, and mp3 download sites) when the filters are installed.
Maybe you guys don't work, are retired, or own your own business, so maybe you don't know - But I can tell you, being in IT myself, that upper management cracks down on things like this in MOST companies i'm familiar with including my own. People just don't spend their days playing games on facebook in big companies.. just doesn't happen. One of my co-workers was fired for, among other things, being on his iPhone too much. He wasn't productive - he lost his job.
On the other side, there are studies that casual internet browsing on companies time actually increases worker productivity. Maybe checking in on your 'farm' is actually good for business: http://scienceblogs.com/cognitivedaily/2009/01/casual_fridays_are_workplace_i.php
Monkey - The two jobs I've had in the past 10 years that allowed employees access to the internet did/do not block sites such as Facebook and Youtube.
The first company had 700+ employees and the more recent one is a huge worldwide corporation that basically uses an "honor system" not only for internet use, but for things like punching in and out. Yes, they believe that we can be honest enough to show up for work daily and on time without a clock monitoring us.
And for the most part, it works. We get our work done, we show up on time and we don't look at porn.
If most companies treated their employees like responsible adults, there would be no need for monitoring and site blocking software.
Ah, classic dilemma. Which came first, the chicken or the egg?
Uh, I've been in IT for almost 3 decades now doing Enterprise Application Architecture work and in some cases being that very "upper management" of which you speak...mainly within the Fortune 500, but most recently within companies found in the top 10 or 50.
I'm tellin ya - over that span of time, the amount of time we as a nation are flushing down the toilet via smartphones and social networking has grown exponentially over the last few years - I imagine it's like the perfect hockey stick on someone's graph with a slow build through the 2000s, and then since 2009 or so, ZOOOOM! Off to the races.
Have we increased productivity through the use of such devices and sites? Absolutely, unequivocally, without a doubt. Some customer-focused industries have been able to capitalize on the ability to instantly reach out to their customers (and their friends). It's great for marketing...more stuff to suck away more of our free time...lol
Is the increase larger than the drag? My contention is that it's not. Only time will tell. In looking at the forthcoming generations, who are trained to use their gadgets 24/7 while walking, talking, eating, and studying routinely from the age of 9 or 10 - I predict we're going to have issues as they try to assimilate into the workforce. The sleep deprivation and reinforcement of attention span disorders brought on by many of these games and sites - will only be measurable over longer periods of time.
to the Aurthur of this story question: Yesterday TELMEX announced in Mexico that it was withdrawing from the NSE and other foreign markets. How is this legal and even possible? I mean when a company goes public can it go back and retrieve it's public offering?
Crazy,
They did not say they were goint to retieve the public offering, only dropping some markets. Many companies only trade on one market, example Zynga said they would list in NY, yet not London, Toronto, or Hong Kong, but had they wanted to they could have, and if sales are low in London, they could drop them.
Well I don't blame people for not investing in a company whose revenues are based on virtual tractor fuel and farming equipment (Yes, I admit I have played FarmVille before)
Crazy:
I don't know about the exact instant after an IPO, but many companies over the years have taken themselves private, and hence de-listed themselves, either through management or private equity companies making tender offers for all the shares outstanding.
Companies going private was a very common fad in the early to mid-2000's, especially after Sarbanes-Oxley made it financially and legally onerous for small companies to be publicly traded.
None of these companies are really making that much money to go public. Once again these companies are being rushed to IPO wihout any sound judgement.
Couldn't have happened to a nicer bunch of crooks! Their customer service is deplorable, their sites are rampant with hackers, and they have no protections in place for the protection of consumer goods (i.e. private information)!!!
I need to make a company that have little revenue but gets lots of publicity. Then I too can make a killing on Wall Street selling my worthless company for zillions of dollars to ignorant investors on Wall Street. This is what is wrong with America. Where building an economy on the back of "communal" businesses that don't have sound business models. The giveaway model of making a business gets a user base but doesn't generate wealth other than the wealth that is stolen from investors pockets. I would have thought that Web 1.0 provided enough lessons about this that we would be repeating the same crazy mistakes 10 years later.
Imagine if a car company came out that offered "open source" cars that were free to buy. Theres would be plenty of takers. The company would get lots of attention. But it would be very obvious that it was a stupid business model that was going to crash and burn. So why do we do this over and over in the tech world? Does the abstraction of software make it too hard to conceptualize what is wrong with the business?
Zynga has hundreds of millions of dollars in revenue.
The games are free-to-play, but many people purchase "extras." There are many people who spend more than $60 on the game. $60 is the price of a new Xbox 360 or PS3 game, and people, over time, can spend more than that on a free-to-play game.
You do not understand the business model. It is that simple.
Don't mock something when you clearly are clueless about it. It only makes you look bad.
I don't think much of Zynga's silly games but it's too early to say if Zynga failed to pop. Check 6 months from now when stock owners can cash out.
If the stock price 6 months from now is (say) $5.00 and you exercised 50,000 shares at $0.10/share by working in Zynga for 4 years, that yields $245,000. That's the down payment for a house. Not bad considering there are so many tech companies out there who can't even go IPO. My wife and myself both worked for startups which still haven't gone IPO after 8+ years. Zynga went IPO in less than 5 years. People who got stock in 2007-2010 time frame will cash out when they can sell in 6 months.
Except, well, in some cases Zynga pulled many of those options back...doing something none of us in the tech world actually thought or considered as possible...sigh
This is a continuing saga of expectations running wildly out of line with reality. Not one of these companies is anywhere near the valuations cited. For each to succeed would mean developing a business model where growth is justified based upon a succinct statement of downside protection from competitive market share degradation. Smoke and mirrors stories don't bother with well considered business and corporate development and finally the retail "suckers" may be gaining awareness.