Zynga thought its success thus far could justify a $10-per-share stock price. But Wall Street disagrees.
The social-gaming company's stock closed the day today down 50 cents to $9.50, making it the first major Web IPO this year to close lower on its initial trading day.
The writing appeared to be on the wall earlier today when Zynga's shares were unable to sustain an early-morning surge that saw the stock climb to $11.50. Throughout much of the afternoon, Zynga's shares stayed in the red, hitting a low point of $9 before climbing back up to its closing price.
Zynga's sobering first day on the Nasdaq was expected by analysts who have been saying for the past week that the company's initial announcement of an IPO price range of between $8.50 and $10 was too high. Sterne Agee analyst Arvind Bhatia said Zynga should have priced its shares at $7. Morningstar analyst David Summer argued last week that Zynga was really worth only $6 per share.
The social-gaming company's issues are numerous, the analysts say. Bhatia pointed to the company's slowed growth over the last year, as well as its declining profit margins, as fundamental issues that could wreak havoc on Zynga's financials next year. He was also concerned that Zynga derives 94 percent of its revenue from Facebook, putting it at significant risk if the world's largest social network changes developer policies in the future.
Zynga's IPO is the last major offering of a year that saw its share of ups and downs for Web startups. However, unlike Zynga, all those Web companies, including LinkedIn, Groupon, and Pandora, saw their shares gain in their first trading day. LinkedIn had the best IPO this year, closing the day at $122.90 from a starting price of $45 per share.
Luckily for Zynga, it has nothing but time to jumpstart its stock. But it appears shareholders will make the company work for it: in after-hours trading today, Zynga is trading 10 cents lower, to $9.40.
Zynga declined CNET's request for comment on its disappointing opening day.