Zynga, the maker of social gaming hits like FarmVille and CityVille, is set to start trading on the Nasdaq today at a price of $10 per share, valuing the company at $8.9 billion.
The offering comes at the end of a big year for tech IPOs, with companies continually claiming the title of "biggest Internet IPO since Google," starting with LinkedIn in May, which was topped by Groupon last month. Now Zynga is claiming the title—at the current pricing, the company will raise at least $1 billion (the amount could be as high as $1.15 billion, depending on whether the underwriters choose to sell additional shares).
In recent months, the public markets have shown a pattern of embracing Internet companies, then cooling over time. Pandora and Demand Media, for example, are trading well below their opening day prices, and although that's not true for Groupon and LinkedIn, even they have seen prices fall after the early excitement. Zynga's path to an IPO hasn't been smooth either, with the offering delayed after it was first announced in July.
On Thursday, Dun & Bradstreet tech specialist Lee Simmons told Adweek that Zynga has some key differences from the other tech companies that went public this year: "For one thing, it's profitable." Zynga, he argued, has shown that free-to-play games, with users paying for virtual goods, are "a sustainable business model." (In its IPO filing, Zynga said it brought in $828 million in revenue and profits of $31 million during the first nine months of 2011—so revenue was up and profits were down from the same period last year.)
Zynga will be the first American social gaming company to go public (competitors like Playdom and Playfish have been acquired for hundreds of millions of dollars) and also the first public firm built primarily on Facebook's application platform.
Not everyone shares Simmons' optimism. Earlier this week, Sterne Agee analyst Arvind Bhatia gave Zynga an "underperform" rating, saying that the company's growth seems to be slowing.
Even Simmons said Zynga has an Achilles heel: "It really needs to loosen its dependence on Facebook." By tapping into Facebook's social capabilities, Zynga has built an audience of hundreds of millions of monthly users (it was averaging 227 million at the end of September), but that also makes the company vulnerable if its relationship with Facebook deteriorates. Even Zynga acknowledged the risk in its IPO filing, and it's trying to address the issue with initiatives like an upcoming, stand-alone gaming site.