Zynga prices IPO at top end of range

(Reuters) - 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.

Zynga publishes four of the top five games played on Facebook and has more than 200 million monthly users. Facebook, which takes a 30 percent cut of the revenue Zynga makes on its platform, is expected to go public next year.

"They could have easily raised the size and the price. I expect it to trade strongly when it opens," Scott Sweet, an analyst at IPO Boutique, said of Zynga.

The IPO, equivalent to about 11 percent of diluted shares, values Zynga at $8.9 billion. The company had been valued at roughly $14 billion in November, according to an internal estimate in a regulatory filing.

At $1 billion in proceeds, Zynga's IPO would still be the largest from a U.S. Internet company since Google Inc raised $1.9 billion in 2004.

Zynga and the lead underwriters on the deal, Morgan Stanley and Goldman Sachs, declined to comment.

Zynga, which is profitable, generates revenue from less than 3 percent of its players, who buy virtual items like trucks and poker chips in its free games.

Others said Zynga wanted to play it safe with the IPO given the volatile financial markets and what happened to another online game company, Nexon, whose shares fell on their first day of trade in Japan this week.

"The market's been pretty tough this past week, so they probably took a more conservative approach," said Dan Niles, chief investment officer of AlphaOne Capital Partners.

Groupon Inc, another closely watched Internet IPO this year, jumped on its first day of trading in November, but slumped below its $20 issue price about three weeks later.

But unlike Groupon, Zynga is profitable. It posted net income of $12 million during the third quarter and is on track to make $1 billion in revenue this year. But profit growth has been lumpy as the company invested in new games.

Greencrest Capital analyst Max Wolff said Zynga's shares on Friday "could easily go to $12 and change," before stabilizing.

CHALLENGES AHEAD

Zynga's near $9 billion valuation is less than videogame maker Activision Blizzard Inc's $13.6 billion market capitalization and higher than Electronic Arts Inc's $6.9 billion, even though they earn much more in revenue.

Zynga is valued at nine times its sales for the last 12 months, while Activision's multiple is three times its 12-month sales, reflecting the growth potential investors see in online social games.

While Zynga's exposure to Facebook could be enticing to some investors, it also poses a major risk. In the future, Zynga will have to show Wall Street that it can diversify and make money from mobile and other new ventures.

Zynga now generates 95 percent of its revenue from Mark Zuckerberg's social network. If Facebook's user growth slows, Zynga's growth is likely to lose momentum as well. Zynga's growth rate of bookings, which is the money it makes upfront when its users buy items, is also slowing, raising concerns among investors.

"It's not a trend that seems to be stabilizing yet. We believe investors will likely question Zynga's premium valuation," said Sterne Agee analyst Arvind Bhatia in a research note.

Another concern analysts have cited is Zynga CEO Mark Pincus' influence over the company. He owns a special class of C shares that carry 70 times more voting power than regular A shares. This is high compared to many other companies. LinkedIn Corp, for example, has a 10-1 voting ratio.

Still, Greencrest Capital's Wolff said investors may look past Pincus' controlling stake because of the company's dominance on Facebook.

"While there are a lot of reasons to be skeptical about the company, including Mr. Pincus' 70 (times) share class voting rights, the bottom line is they have five of the top six games (on Facebook)," he said.

(Reporting By Liana B. Baker in New York and Alistair Barr in San Francisco, Additional reporting by Sinead Carew in New York, Alexei Oreskovic in San Francisco and Sakthi Prasad in Bangalore; Editing by Bernard Orr)

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Zynga prices shares at $10, top end of range: IFR

Shush, already. That's the message the Federal Communications Commission is sending with new rules that force broadcast, cable and satellite companies to turn down the volume on blaring TV commercials.

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Zynga seeks lower IPO value in tough market

(Reuters)- Zynga Inc is seeking a more modest valuation than Wall Street expected for its initial public offering, hoping to attract investors after a series of Internet stocks fell below their IPO price in recent weeks.

The social games maker, known for Facebook games like "FarmVille" and "Mafia Wars," plans to sell 100 million new shares between $8.50 and $10 each, which will raise $925 million based on the midpoint of the range, according to a regulatory filing on Friday.

The deal values Zynga at as much as $9.04 billion, about a third less than the $14.05 billion valuation that the company cited in a filing two weeks ago.

"Given what's transpired in the markets over the several months and overall macro uncertainty, it seems like Zynga is trying to take a practical and prudent approach to the deal to make it seem more appetizing to investors," said Robert W. Baird & Co analyst Colin Sebastian.

Shares of high-profile Internet companies such as Groupon Inc and Pandora Media Inc have crashed below their IPO price, casting a shadow over other Web startups hoping to tap public markets.

At $925 million, Zynga's IPO would still be the largest from a U.S. Internet company since Google Inc raised $1.7 billion in 2004. Zynga is selling 11.1 percent of diluted shares in the offering.

The IPO has been hotly anticipated because it would be the first chance for most investors to get a piece of Facebook's growth, since the vast majority of Zynga's games are played on the social network. Facebook plans to go public in 2012.

But analysts say Facebook's user growth is slowing, and that has a knock-on impact on Zynga.

"The exponential growth with Facebook gaming we saw in the last two years is not going to happen and is definitely slowing," said Interpret analyst Michael Cai.

A Zynga spokesman declined to comment the IPO.

GROWTH CONCERNS

With more than 260 million monthly active users, Zynga publishes free games and makes money from selling virtual items -- such as tractors and weapons -- that players then use in games.

On average, less than 3 percent of Zynga's players pay for its games, according to M2 Research analyst Billy Pidgeon. "It remains to be seen how sustainable Zynga is with their conversion rate so small," he said.

The company is profitable, unlike Groupon and Pandora, but earnings are volatile because it has to spend on coming out with new games. Zynga reported a 43 percent drop in net income in the September quarter to $13 million, even as revenue jumped 80 percent to $301 million.

While Zynga's valuation has been cut from earlier estimates, Zynga would still be among the largest publicly traded U.S. game developers after it debuts on Nasdaq under the "ZNGA" ticker.

Video game developer Activision Blizzard Inc currently has the industry's highest market value, at $14.2 billion, followed by Electronic Arts Inc, at $7.7 billion.

Zynga Chief Executive Mark Pincus and Chief Financial Officer David Wehner will lead a roadshow to investors beginning Monday, with stops in cities including Chicago, Boston, New York, Denver and San Francisco.

Pincus, who started many companies before he founded Zynga, will hold a class of shares with 70 times more voting power than the common stock that will be sold in the offering.

Such concentrated voting power is rare and could put off investors, said Lise Buyer, founder of IPO advisory firm The Class V Group.

"Future shareholders should assume Zynga won't listen to them," Buyer said.

HAUNTED MANSION

In a video for the roadshow posted on the Web, Zynga executives showed off items that players can pay for, such as an airstrike in a game that cost 50 cents and a haunted mansion for $7.

The company also has a "highroller" membership that cost $5 a month for fans of its casino games -- a subscription model, if it takes off, would offer steadier growth potential.

"There are a lot of areas of growth for Zynga and we are aggressively executing in each area," Chief Operating Officer John Schappert said in the video.

To find new users, the company is focused on bringing its games to smart phones and tablets and away from Facebook, where it pays a 30 percent cut to have its games.

"Zynga rides on top of Facebook but Facebook is much larger and supports many other businesses besides Zynga like advertising shopping and search," said Pidgeon.

While Zynga was one of the first companies to build games for Facebook, it will be tougher to crack the mobile market, which is becoming crowded with deep-pocketed rivals from Walt Disney Co to Electronic Arts, analysts say.

Zynga aims to set its IPO price on December 15 and the stock is scheduled to trade on Dec 16.

Based on a fully diluted share count of 904 million, which includes existing shares and stock options, the IPO price values Zynga at $7.7 billion to $9.04 billion.

(Reporting by Liana B. Baker in New York and Brenton Cordeiro in Bangalore; Editing by Lisa Von Ahn, Dave Zimmerman)

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