Zynga Gets Caught In The IPO Blame Game

Dec.19.11 | About: Zynga (ZNGA)

When the stock market sells off, as it did last week, securities analysts can attract a lot of attention by slamming a company. It proved to be more newsworthy to pick on the defenseless, such as Zynga (NASDAQ:ZNGA), the social game developer, which made its public debut on Friday, Dec. 16.

By now, most have seen the TV news clips from Tuesday, Dec. 13, with the reports that Sterne Agee & Leach Group had initiated research coverage of Zynga with a “Sell” rating and a price target of $7 per share. At the time, the company was still in registration. Its IPO had not yet started trading.

Naturally, there was no way anybody could get off a short-sell order before the deal opened for trading, but the drumbeat of negative news had started. Others picked up on the story.

Braving the Storm

On Thursday evening, bankers priced 100 million shares at $10 each. The IPO opened Friday morning at $11 and sank as low as $9 before closing at $9.50, DOWN 5 percent from its initial offering price.

In reality, Zynga was and still is defenseless against any such denigrating reports. The company and its bankers are subject to the “quiet period” and cannot comment until its expiration date on Jan. 25, 2012, according to EDGAR Online.

Clouds with Silver Linings

By the way, Sterne Agee was not a member of the underwriting group, so it is free to issue any comment it wishes at any time.

On Friday, Cowen and Company also initiated research coverage with a “Hold” rating.

Nevertheless, there was something positive coming out of these less-than-enthusiastic research recommendations. Their estimates became public knowledge. That was something you didn’t have to go on before.

Here are Zynga’s numbers, according to Thomson First Call:

Revenues:

2010 Actual: $597.4 million

2011 Estimate: $1,148.6 million

2012 Estimate: $1,375.8 million

2013 Estimate: $1,624.7 million

Net income

2010 Actual: $90.6 million

2011 Estimate: $49.3 million

2012 Estimate: $152.7 million

2013 Estimate: $231.7 million

These numbers aren’t all that bad when one looks back to the 1999/2000 era of insanity-dot-com.

During that period, countless companies went public with no revenues and millions of dollars of losses -- and their IPOs skyrocketed into the ozone. Based on the above numbers, Zynga is a real company with real revenues and net income while its stock is trapped in the 28-day quiet period.

We will not be publishing next week. The staff of IPOScoop.com LLC would like to take this opportunity to wish everyone Happy Holidays and a Happy New Year.

Disclosure: Neither the author nor anyone else on the IPOScoop.com staff has a position in any stocks mentioned, nor do they trade or invest in IPOs. The author and IPOScoop.com staff do not issue advice, recommendations or opinions. I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.