Zynga Stalls
The much-anticipated IPO of Zynga stock has stalled on arrival - but with no clear strategy for future growth, what did the company expect?
It's not exactly a great time for a company to go public - market uncertainty and instability would depress the valuation of just about any company, no matter how fantastic its prospects. It's a fact that apologists for social gaming giant Zynga will return to again and again in the coming weeks and months. The firm's IPO may have been disappointing, they'll say, but it's in line with wider difficulties in the market.
To an extent, this claim is borne out by looking at other tech companies that have floated on the NASDAQ this year. It's been far from a golden year for tech IPOs, with the likes of Pandora (online music streaming), Boingo (global wi-fi access) and Friendfinder (online dating) all nosediving from their original offer prices.
It's worth considering, though, that these aren't exactly companies that any sane market watcher would have anticipated great things from. They all compete in extremely difficult markets in which they face stronger competitors, structural difficulties and uncertain futures. In other words, if you're comparing Zynga with those companies, you're already saying something pretty negative about Zynga.
There has, however, been one notable tech IPO this year that hasn't particularly underperformed, even if it's not exactly been stellar either. LinkedIn, a networking and recruitment service designed as the dark, suit-wearing mirror to Facebook's endless stream of social musings and drunken photographs, enjoyed a solid IPO and is still trading well above its initial price.
The difference between LinkedIn and the other companies mentioned above is that it has a clear market leadership in a sector it largely created and defined in the first place, and enjoys a dominant position that competitors have struggled to catch up with - not unlike Facebook's position, in other words. The suggestion is that while times may be tough on the NASDAQ, there's still room for companies with genuinely strong positions and prospects to succeed.
It doesn't speak terribly well of how the market perceives Zynga, then, that its early post-IPO performance and the bulk of its analyst ratings lump it in with Groupon and Pandora, not with LinkedIn or any other successful IPO of recent years. The tech market is prone to bubbles and fads, but at the moment we're in a bear market and investors are deeply wary of any company that doesn't have a clear path to success ahead of it.
In the videogame sector, many people are wearing blinkers when it comes to Zynga. The company's enormous success in growing one specific audience in social gaming has led it to be held up as a prime example of Where The Market Is Going, without there being all that much evidence to support that claim. Asked to pump cash into the company, investors appear to have been much more lukewarm on Zynga's claims than the games business itself has been.
The problem for Zynga - the problem which the stock market has identified but to which the company's apologists remain blind - is that it's reaching the end of its natural expansion potential, and it's going to have to work hard and reinvent itself in order to surpass its present size. Right now, Zynga appeals to one market - Facebook users in North America. You could be even more specific, and perhaps a little unkind, and point out that it particularly appeals to North American Facebook users with poor impulse control related to deferred gratification.