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| Zynga shares fall 5% on stock market debut | |
| (about 4 hours later) | |
| Shares in Zynga, the online games maker behind Mafia Wars and FarmVille, fell 5% on their first day of trading. | |
| The firm had said on Thursday it was to raise $1bn (£640m), having priced its initial public offering (IPO) of 100 million shares at $10 a share. | |
| Shares in the company initially rose as much as 10% on the Nasdaq on Friday before rolling back to close at $9.50. | |
| Its flotation is the largest by an internet company since Google raised $1.9bn at its IPO in 2004. | Its flotation is the largest by an internet company since Google raised $1.9bn at its IPO in 2004. |
| Zynga's IPO price values the company at about $9bn. | Zynga's IPO price values the company at about $9bn. |
| But its performance on its first day of trading stunned investors, who had expected a strong showing because the company is profitable, unlike other recent high profile internet IPOs such as Groupon and Pandora. | |
| "This is a disaster for them. The way you're supposed to price deals is to give investors a 15% IPO discount to compensate them for the risk of backing a relatively new company," said Dan Niles, chief investment officer of AlphaOne Capital Partners. | |
| Founded in 2007, Zynga doubled sales to $829m in the first nine months of 2011. | Founded in 2007, Zynga doubled sales to $829m in the first nine months of 2011. |
| Unlike its main rivals, it does not charge for the actual games, but makes money by selling add-ons including weapons or extra characters. | Unlike its main rivals, it does not charge for the actual games, but makes money by selling add-ons including weapons or extra characters. |
| Market leader | Market leader |
| Zynga's other revenue stream is unique advertising, such as Starbucks paying to have a virtual coffee shop in CityVille. | Zynga's other revenue stream is unique advertising, such as Starbucks paying to have a virtual coffee shop in CityVille. |
| Users might have to visit that virtual store 10 times in order to build a Starbucks franchise in their own virtual cities. | Users might have to visit that virtual store 10 times in order to build a Starbucks franchise in their own virtual cities. |
| Stephanie Chang, research analyst at Renaissance Capital, said: "It's currently the leader in the social gaming space. It has 54 million daily active users, which is more than the next 14 game developers combined." | Stephanie Chang, research analyst at Renaissance Capital, said: "It's currently the leader in the social gaming space. It has 54 million daily active users, which is more than the next 14 game developers combined." |
| She also pointed to the company's exposure to an estimated 3% of internet users, which gave it advertising potential of $1.5bn. | She also pointed to the company's exposure to an estimated 3% of internet users, which gave it advertising potential of $1.5bn. |
| "That's a source of growth they haven't even tapped into yet," she said. | "That's a source of growth they haven't even tapped into yet," she said. |
| Facebook exposure | Facebook exposure |
| Zynga publishes four of the top five games played on Facebook, and 95% of its revenue is generated from the social network. | Zynga publishes four of the top five games played on Facebook, and 95% of its revenue is generated from the social network. |
| Facebook, which is itself expected to go public next year, takes a 30% cut of the revenue Zynga makes on its platform. | Facebook, which is itself expected to go public next year, takes a 30% cut of the revenue Zynga makes on its platform. |
| But while its exposure to Facebook may be enticing to some investors, it could also pose a future risk. | But while its exposure to Facebook may be enticing to some investors, it could also pose a future risk. |
| If Facebook's user growth slows, Zynga's growth is also likely to slow. | If Facebook's user growth slows, Zynga's growth is also likely to slow. |
| Investors will want to see that the games maker can diversify and make money from other avenues. | Investors will want to see that the games maker can diversify and make money from other avenues. |