Zynga's $1B IPO takes shape, values company at $7B

The social-gaming company prices its initial offering at the top of its range in advance of its market debut tomorrow.

Social-gaming pioneer Zynga priced its initial public offering at the top of its range--$10 a share--setting the stage for its market debut tomorrow as the next major technology IPO.

The $10 price means Zynga could raise up to $1.15 billion, depending on whether it also offers over-allotted shares, and values the company at roughly $7 billion. That gives Zynga a larger initial market capitalization than videogame giant Electronic Arts, currently valued at $6.9 billion. (Zynga's lead over EA, however, is a narrow one--and definitely not the $2 billion advantage reported elsewhere.)

Zynga announced plans to go public in July . At the time, the company hoped to start offering its shares in September, but after the SEC complained that it used "non-traditional" accounting methods, it was forced to recalculate earnings based on accepted principles. That, combined with a tumultuous IPO market, prompted the CityVille developer to wait until after Thanksgiving to sell its shares .

So tomorrow we'll finally see if Zynga can have as strong a showing as other prominent online companies that went public this year. LinkedIn was the best performer, going public in May at $45 per share, and ending its first trading day at $122.90 . Music-streaming service Pandora went public at $16 per share, and quickly saw its stock climb to $17.42 at the closing bell. More recently, Groupon went public at $20 per share. The daily-deals provider's shares climbed to $26.11 at the end of its first day.

Although Zynga and its investors think $10 is the right price for its shares, not everyone agrees. Last week, Morningstar analyst Rick Summer expressed concern over Zynga's future, and said that the stock is worth $6 per share. Sterne Agee analyst Arvind Bhatia echoed that sentiment earlier this year, saying that based on Zynga's performance thus far, the company's stock should be valued at $7 per share.

"While we believe in the potential for social games, we think Zynga's growth is slowing even faster than what is obvious at first, its margins are under pressure, and free cash flow has been declining recently," Bhatia wrote to investors. "Thus, we believe the implied valuation in the IPO is not justified."

At $10 per share, the company is pricing its shares at the top of its initially announced range $8.50 to $10 per share. It had hoped to raise as much as $1.15 billion, accounting for overallotment.

Update 2:26 p.m. PT to confirm Zynga's IPO price.

 

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