Doubts over Zynga IPO as trade anxiety deepens

Analysts are debating whether turmoil across the financial markets will damage Zynga’s bid to go public.

The social gaming giant, which has routinely won praise as a worthwhile investment, now faces a market gripped by anxiety.

“Any company with an IPO planned for this week will probably pull it,” Dow Jones Investment Banking deputy managing editor John Morris said yesterday.

Confidence in new digital economy companies is being put to the test, with public newcomer LinkedIn suffering a 17 per cent decline in the US yesterday. Internet radio company Pandora tumbled 8 per cent.

These results suggest the social network economy, which Zynga is central to, may have lost its sheen. Before the market panic, many had already claimed that social gaming in particular was in a bubble.

Zynga’s IPO, the largest games-related public offering for years, is seen as a canary in the mine for the whole social games business.

The risks of Zynga’s IPO failing are unclear, but the impact would be unmistakable. If the Farmville group does not raise enough investment, that could cast doubts across the social games sector.

"The sound you just heard was the IPO window slamming shut," said Geoff Yang, a partner at Redpoint Ventures.

Piers-Harding Rolls, a games analyst at IHS Screen Digest, said it would be difficult for any company presently seeking an IPO.

“People are looking for safe havens,” he told Develop.

“So a company like Zynga, which is relatively new to the market, might be considered less secure. Established brands present a safer option.”

He said market turmoil “certainly doesn’t enhance Zynga’s position, but its performance is solid and based on decent historical revenues.”

Paul Deninger, a senior managing director of investment bank Evercore Partners, remained upbeat about new market opportunities.

“Whether the market is good or bad, many investors are going to be looking at stocks relative to their other opportunities,” he said.

“And on a relative basis, the growth potential of these [technology company] IPOs is still extraordinary.”

Regarding the LinkedIn stock scare, Deninger said the hit “could just be an example of the market taking the air out of the stock.”

Lou Kerner, an analyst at Wedbush Securities, said “the market will calm down at some point, at which point Zynga will be able to get out.”

Zynga had been hoping to raise as much as $1 billion during its IPO, with a expected valuation between $10 and $20 billion.