Zynga's imminent IPO; Could it 'do a Groupon'?

Summary:Zynga is set to go public this morning. But turbulent times could spell disaster for the gaming giant. Or not. It's all but impossible to tell.

Zynga is set to raise at least $1 billion on its U.S. stock market debut this morning.

Set to price its initial public offering of 100 million shares at $10 a share, this puts the online games maker as one of the highest flotations seen this year.

The company is valued at around $9 billion, putting Zynga in line with other publicly held companies like Electronic Arts.

Comparatively, Google's offering in 2004 raised nearly $2 billion after it went public. Google is now worth more than $200 billion as it stands.

Though analysts predict Zynga's shared price could rise over 20 percent before settling out at an above-IPO price, other recent flotations still mark out a path for rough times ahead.

Both Groupon and LinkedIn spectacularly dropped below their IPO price, despite surging shortly after their floatation. Pandora and Zillow also suffered huge losses for November, though many have clawed back most of their losses in December trading.

Groupon's shares went through the roof on its first day of trading. By the end of the day, its shares had dropped from its post-IPO $30 a share to just $10 a share.

But Zynga is sitting on a cash-cow of potential advertising it has yet to tap into.

While the company only generates revenue from 3 percent of the online population it reaches, one analyst speaking to the BBC said the potential advertising revenue could be in the region of $1.5 billion.

The timing for Zynga's IPO makes little sense. It's coming up to the end of the year, other companies like Research in Motion struggles to stay afloat -- excuse the pun -- and other companies are trading below their own book value.

Facebook will be the killer public offering to watch. The timing will be crucial. Considering that Zynga currently relies on the world's largest social network to reach its customers, the games giant has to rely on Facebook for most of its users.

Zynga has branched out to standalone applications for Apple and Android devices, as well as taking on Gogle+ and MySpace amongst others.

But Facebook undoubtedly remains the linchpin for the company's future revenue intake.

Considering the social network still takes 30 percent of the revenue from payments through Facebook Credits, the company arguably is in a Catch-22 position. Stick with Facebook and retain its vast 850 million users, or breakaway and take all the profits for itself.

Should all go to plan, Zynga, based in San Francisco, is set to rake in $1 billion in revenue this year, after posting $12 million in profits during the third-quarter.

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Topics: Social Enterprise, Banking, Legal

About

Zack Whittaker writes for ZDNet, CNET, and CBS News. He is based in New York City.

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