Zynga, the social gaming company behind Farmville, Words With Friends and other online games, is preparing to go public on Friday in what could be the biggest initial public offering of a tech firm since Google’s debut.
More than 60 million people a day play Zynga’s games. The firm is hoping to raise at least $1 billion (£650 million) and was expected to set a price for shares on Thursday night.
Zynga would be valued at $9 billion, less than half the $20 billion it anticipated in July before stock markets started to slide. Nevertheless the sale would make it the largest internet listing by a US company since the $1.9 billion IPO of Google (NSDQ: GOOG) in 2004, according to Dealogic. The flotation precedes an expected share sale by Facebook next year, in what is likely to be the largest ever social media IPO.
Zynga, based in San Francisco, is profitable. In the first nine months of the year, its revenue doubled to $829 million from a year earlier, but its net income declined 35 percent to $31 million.
It plans to sell 100 million shares for $8.50 to $10, equal to 10 percent of the company. The demand for social media shares, combined with their scarcity, has led other firms who have followed this path to enjoy spectacular first-day “pops” in their valuations.
Daily deal site Groupon (NSDQ: GRPN) surged 31 percent on its debut as a public company. LinkedIn (NYSE: LNKD) jumped 84 percent. Both are now trading well below those prices.
Zynga faces risks. Analyst Arvind Bhatia, of Sterne Agee Group, issued a report on the company this week predicting it would “underperform” and set a price target of $7. He said Zynga’s growth was slowing and its margins under pressure.
Whatever the outcome, the IPO is likely to catapult founder Mark Pincus into the league of the super-rich. Pincus owns more than 105m shares with another 7.2 million “issuable pursuant to stock options”. At $10 a share, his Zynga stake is worth $1.05 billion.
And this isn’t Pincus’s only shot at social media billions. The 45-year-old also has a stake in Facebook that he bought for $40,000 back in 2004. According to Forbes magazine, that is now worth about $140 million.
This article originally appeared in The Observer.