Zynga Stock Tanks On IPO Day

Typically, I’m pretty good at intuitively knowing whether or not something — a new product or service, etc. — is going to succeed or not. Often I don’t even really have to think about it. I can’t tell you how many times I’ve spouted off “Oh, that’s going to be huge” and/or “Oh, that’s going to to be awful” and been dead-on in my prediction. The latest such example of my soothsaying abilities was with Klout — I just knew that was going to be a big, smelly fail within seconds of hearing about it. Me and this guy were all over it. I really should get paid for being an oracle, come to think of it.

Anyway, with that said, I don’t think I’ve ever been more off on anything than I was with “Farmville.” When I first heard of it my reaction was something along the lines of, “Wait, so they think people are going to pay money to buy fake sh*t to pimp out virtual farms? HAHAHA…that will never work. People aren’t THAT stupid.” Boy was I ever wrong. Lesson learned: never underestimate the stupidity of the average consumer.

I tell you this because I suddenly today feel a bit better about being wrong over this — Zynga stock went on sale to the public today and basically tanked, as potential investors basically looked at the company and essentially thought, “You’ve got to be f*cking kidding me.”

Reports Mercury News:

In the most disappointing stock market debut for a tech company in 2011, shares of San Francisco online gaming company Zynga fell as much as 10 percent on Friday.

While they recovered from that nadir, the shares ended regular trading off 50 cents, or 5 percent, from their $10 initial offering price, which was set on Thursday.

Analysts blamed the poor debut on a range of factors, including the company’s relatively high valuation, poor market conditions, a vulnerable business model and skeptical investors.

For those of you who don’t know much about the stock market, this is the opposite of the way an IPO is supposed to go. The price of the stock is supposed to rise after it is made available as demand increases.

Further, analysts are now concerned that the “meh” reaction to Zynga stock may translate to Facebook meeting a similar fate when it finally goes public.

Reports Reuters:

Friday’s flop 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 .

“I was stunned when I saw this. This is a disaster for them. The way you’re supposed to price deals is to give investors a 15 percent IPO discount to compensate them for the risk of backing a relatively new company,” said Dan Niles, chief investment officer of AlphaOne Capital Partners, who did not buy shares.

“It makes me wonder about the underlying health of the market. IPOs like this can change the whole tenor of the market,” he added.

Investors said Zynga’s stock performance could hurt other private companies in the pipeline such as Yelp and even Facebook. Some investors regard Zynga’s IPO as a proxy for Facebook, because 95 percent of its $828 million in revenue in the past nine months comes from Mark Zuckerberg’s social network.

“Now we have an exciting IPO and people don’t want it and that’s a big concern for when Facebook comes out,” said Jeff Sica, president and chief investment officer of SICA Wealth Management.

Still, Marc Pincus remains a billionaire. For now anyway.