Facebook gaming king Zynga has, as expected, raised a billion dollars (£644.7 million) on the stock market through its long-awaited initial public offering (IPO) - but it has resulted in the company being valued at barely a third of the figure that was originally expected.
Bloomberg reports that Zynga sold 100 million shares at $10 apiece - the upper end of the $8.50 to $10 range it specified in a regulatory filing earlier this month, suggesting that its pre-IPO roadshow, in which it pitched to investors across the US to raise interest and therefore push up the price, was a success.
However, those 100 million shares equate to 14 per cent of common Zynga stock. When the company first revealed its intent to go public in July, it said it would only sell up to ten per cent of its shares, valuing the company at near or above $20 billion. With the IPO completed, it is worth barely a third of that, at $7 billion (£4.5 billion).
That decline is partly due to ongoing market uncertainty, particularly surrounding tech IPOs after shares in Groupon and Angie's List declined in value following their own flotations. But Zynga's own fortunes have changed greatly over the course of 2011.
The introduction of Facebook Credits, from which the social network takes a 30 per cent cut, as the mandatory virtual currency on Facebook naturally hit Zynga's bottom line. In October, Facebook changed the way it calculates user metrics for apps on its network; previously it counted as users those who landed on the app permissions page, even if they refused. As the most successful developer on Facebook, Zynga was naturally the hardest hit, with the then-recently launched Adventure World losing 58 per cent of its users overnight.
A slew of acquisitions - 16 in 14 months - had an obvious effect on Zynga's finances. So too did a concerted push to step up the frequency of its releases, launching Adventure World and Mafia Wars 2 while seeking to reduce its reliance on Facebook with launches on Google+ and smartphones. The effect was clear, and immediate: in the three months to September 30 Zynga's profits fell 54 per cent despite an 80 per cent increase in revenue. The irony is surely not lost on Zynga that, in the process of making itself more attractive an investment opportunity in the long term, hurting its finances in the short term pushed down its share price ahead of the IPO.
There were problems, too, with Zynga being the first social game developer to go public. While those familiar with the free-to-play space accept that only a small proportion of users actually pay to play - the average is around three per cent - the Securities And Exchange Commission raised eyebrows at Zynga's reliance on so small a number of users for its revenue.
There were PR problems, too, with reports that Pincus was strong-arming staff into giving up their stock options or face dismissal. Pincus would later describe that claim as "false and skewed", but the damage was done. There were reports of widespread employee dissatisfaction, and claims that the company had failed in bids to buy Angry Birds developer Rovio, and PopCap, the casual game developer eventually bought by EA.
Yet even though Zynga's IPO may not have met its lofty expectations, this is still the biggest flotation of a US tech company since Google raised $1.9 billion in 2004. Its valuation is 6.8 times its revenue in the year to September 30 - more than three times the price-to-revenue ratio enjoyed by Electronic Arts.
In August it emerged that Zynga had tweaked its stock structure to give CEO Mark Pincus more power, who apparently feared being outvoted on corporate matters by staff who were given stock options in the early days of the company. It also means that those buying shares in the IPO will draw dividends, but have virtually no say in how the company operates.
Inside Social Games reports that all of the shares sold in the IPO were Class A. Class B shares have seven times the voting power of Class A, and Pincus' Class C shares have 70 times that of Class A. It means that the 14 per cent of company stock sold in the IPO hold just 1.8 per cent of the voting power.
Source: Bloomberg / Inside Social Games