Zynga falters in debut, sheds doubt on IPO market

Fri Dec 16, 2011 6:09pm EST
 
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By Liana B. Baker and Alistair Barr

NEW YORK/SAN FRANCISCO (Reuters) - Online games developer Zynga Inc scored badly as it went public on Friday, dashing hopes for the year's hottest tech IPO, as investors frowned on its over-reliance on Facebook, dimming growth prospects, and outsized control by CEO Mark Pincus.

Zynga's stock fell 5 percent below its $10 initial public offering price to close at $9.50 on Nasdaq on Friday, dealing losses to IPO buyers used to racking up gains on a stock's first day of trading.

Investors had eagerly awaited the IPO as a way to get a slice of Facebook's growth before the leading social networking website goes public, possibly in 2012. Zynga makes money on Facebook by selling virtual items such as jewelry and poker chips in its games such as "FarmVille" and "CityVille."

At least one analyst said on Friday that some investors may have been turned off by Chief Executive Mark Pincus' large voting stake and control over the company. He has a special class of shares that grants him 37 percent voting power even though his equity stake is much lower, and public shareholders will have less than 2 percent of votes.

"We believe that having a CEO/owner-controlled board is particularly dangerous for investors in young companies," said Cowen and Co analyst Doug Creutz.

Creutz, who has a neutral rating on the stock, added that history is full of examples of CEOs who have built young companies but cannot manage them when they mature.

Asked about his voting shares, Pincus told Reuters he decided to retain such huge control over Zynga because he believed from the start that he was the best person to lead the company.

"Investors who want to see the company deliver long-term value are going to be better served by the fact that I can continue to ensure the company keeps its focus on the long term and we don't let short-term swings and opportunities reduce that," he said in an interview.   Continued...