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Zynga IPO: ZNGA $8.50-$10 – Farming For Dollars

Like Us On FacebookBetting on surging sales to attract investors, Zynga Inc. is leading the biggest week for U.S. initial public offerings in nine months. Zynga, the largest maker of games on Facebook and ten other companies, including Michael Kors Holdings, are expecting as much as $3.8 billion in IPOs this week. That’s the largest amount since the five days starting March 7 when HCA Holdings Inc. raised $4.4 billion.

Led by CEO Mark Pincus, Zynga’s management team has been telling investors while on their roadshow  to IPO that Zynga is working on its biggest-ever pipeline of online games. Zynga’s sales more than doubled in the nine months through Sept. 30, while Kors Holdings’ revenue jumped more than 60% in its first half. All this as consumer confidence sank to the lowest level since the recession started.

Zynga has 54 million daily active users that play games for 2 billion minutes per day. 2 billion minutes! Zynga is working to keep its lead over Electronic Arts (NASDAQ: ERTS) which harnessed its positioning  in online services by purchasing PopCap Games earlier this year. ERTS had a market value of $7.3 billion, 1.9 times trailing 12-month sales, as of Dec. 9.

Zynga’s games, featured on Facebook, include “Mafia Wars” and “FarmVille.”

Zynga’s offering is managed by Morgan Stanley and Goldman Sachs Group, Inc. (NYSE: GS). Zynga will list on the Nasdaq Stock Exchange under the symbol “ZNGA”.

Facebook is also considering an IPO that may value the company at over $100 billion.

2 Stocks to swing in the ZNGA IPO Hype: 

#1 – Glu Mobile Inc. (NASDAQ:GLUU) Monday Open Price: $3.41

GLUU engages in the design, marketing, and sale of casual and traditional mobile games worldwide. The company creates games and related applications based on its own original brands and intellectual property, as well as third-party licensed brands. GLUU’s original games, based on its own intellectual property, include:

  • Beat It!
  • Bonsai Blast
  • Brain Genius
  • Glyder
  • Gun Bros
  • Hero Project
  • Jump O’Clock
  • Magic Life
  • Stranded
  • Super K.O. Boxing
  • Toyshop Adventures
  • Zombie Isle

GLUU’s games, based on licensed intellectual property, include:

  • Build-a-lot
  • Call of Duty
  • Deer Hunter
  • Diner Dash
  • DJ Hero
  • Guitar Hero
  • Family Feud
  • Family Guy
  • Lord of the Rings
  • Paperboy
  • The Price Is Right
  • Transformers
  • Wedding Dash
  • Who Wants to Be a Millionaire?
  • World Series of Poker

GLUU develops and publishes games for the users of smart phones and tablet devices who purchase those games through direct-to-consumer digital storefronts, as well as for the users of feature phones served by wireless carriers and other distributors. GLUU was formerly known as Sorrent, Inc. and changed its name to Glu Mobile Inc.

GLUU has a market cap of $217.21 million, $37.05 million cash and $0 debt. Correct – $0 Debt.

With 63,700,000 shares outstanding, GLUU has a book value of $.91 per share. The historical price action has been volatile giving GLUU a current Beta of 2.41 attracting swing traders to ride the waves. Short interest has grown on the stock recently rising from 4.93 days to cover on 11/15/11 to 6.7 days to cover on 11/30/2011.

#2 – Majesco Entertainment Co. (NASDAQ: COOL) Monday Open Price $3.07.

COOL develops and markets video game products primarily for family oriented mass-market consumers. COOL publishes video games for various interactive entertainment hardware platforms, including Nintendo’s DS, DSi, and Wii; Sony’s PlayStation 3 and PlayStation Portable; Microsoft’s Xbox 360; and personal computers.

COOL also publishes games for various digital platforms consisting of mobile platforms comprising iPhone, iPad, and iPod Touch, as well as online platforms, including Facebook. COOL sells its products primarily to retail chains, specialty retail stores, video game rental outlets, and distributors.

COOL has a market cap of $199.28 million, $19.67 million cash and $0 debt.  Correct again – $0 Debt.

With 38,860,000 million shares outstanding, COOL has a book value of $.69 per share. The historical price action hasn’t been as volatile for COOL with a Beta of 1.81. The short interest here won’t help a momentum rally at a small 2.53 days to cover per the last settlement date of 11/30/2011, however it has grown in November.

Like GLUU, with futures being down this morning, look for entry into COOL somewhere off the bottom trend line until the bulls circle the wagon.

Pretty much everybody who has been on Facebook has at some point received a request to adopt a cow or been asked to water someone’s crops. It was amazing how popular FarmVille, the flagship title of game-maker Zynga, which together with their  fourteen other Facebook apps has managed to addict tens of millions of active U.S. users of the 230 million Farmville addicts worldwide.

This week, on December 16, Zynga hopes to raise $925 million in their IPO that would value it at a heady $7 billion.  For non-players, the appeal of Zynga’s products is hard to imagine. Everything that might identify them as games is missing. There are no movie-like graphics, no blood-filled adrenaline rushes, actually no skill required. All this kinda means no fun.

Instead, there’s an enormous amount of mouse-clicking.

In FarmVille you click to plant some crops and buy some cows then you wait for the software to reward your efforts by making the plants grow and the cows produce milk. From that, you can extract virtual currency that can be used to plant more crops and buy more cows. Next, complete the process again, and again, and again, slowly expanding your modest homestead into a sprawling plantation.  The setup is basically the same in CityVille.

Zynga’s games aren’t really games at all, they’re jobs. Easy, straightforward, consistently rewarding jobs, where toil translates directly to upward mobility, without the uncertainty that comes with today’s real workplaces. You put in the time knowing it will be worth it and spend your hard-earned returns without fear of getting caught short by a double dip. FarmVille, the release that fueled Zynga’s rise, came out in the summer of 2009, when a lot of Americans were finding the reward for their diligent labor was a severance notice and a mortgage default. Its timing was felicitous.

Like the real world, Zynga’s products offer shortcuts to those willing to pay for them: You can click-click-click to milk those cows, or you can give the company about $1 of actual money, from your actual bank account and retain a pixelated farmhand to do it faster. That money added up means Zynga could earn $1 billion this year partly thanks to such transactions. But it also comes from less than 5 percent of all players. Though more surely could afford to do so, the vast majority of Zynga devotees choose to plug ahead in their virtual occupations without electing to use the pay option. When unemployment is stuck above 8 percent, work is its own reward.

The question IPO investors must ask is will Zynga bring them real profits, or simply virtual ones?

Online games maker Zynga Inc is expected to make a strong debut on the Nasdaq stock exchange on Friday after it priced its initial public offering at the top end of a preliminary range but did not increase the size of the $1 billion deal.

Analysts and investors had expected Zynga to raise the price or boost the number of shares it was selling, since demand had seemed strong in recent weeks. The IPO, from the maker of “CityVille” and “FarmVille” games, has been highly anticipated because it is seen as a way for investors to get a slice of Facebook’s growth before the social network goes public itself.

Zynga sold 100 million shares of Class A common stock at $10 per share in the IPO, the top end of the $8.50 to $10 indicative range.

In addition, certain of Zynga‘s stockholders have granted the underwriters a 30-day option to purchase up to an additional 15 million shares to cover over-allotments, Zynga said in a statement late on Thursday. Zynga will not receive any proceeds from the sale of shares by the selling stockholders.

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