December IPO Will Value Zynga as Larger than Electronic Arts

According to news from Wednesday morning, the world’s gaming stock enthusiasts can stop the guesswork — Zynga is going to IPO in mid-December.  Zynga plans to release 10% of it’s oustanding stock to the public at a price between $8 and $10, and it would bring Zynga around $900 million to make new FarmVilles, CastleVilles and probably something along the lines of ZyngaVille.  For those of you interested in getting into the stock, you may be worried Zynga might do something crazy and try to start a theme park, but then again, maybe they’re smarter than that.  Also, their initial stock price has some interesting quirks.

Based on their issued stock and the price they’re issuing it at, Zynga is putting their entire company’s market value at around $10 Billion.  This would make it larger than on-the-comeback trail Electronic Arts (ERTS), but smaller than Call of Duty and World of Warcraft owners Activision Blizzard (ATVI), who’s market valuse sit at $7.69 billion and $14.21 billion respectively.  This also means that the stock price of $10 means that their market value to 12-month trailing sales ratio is close to 10x, whereas companies like ERTS have a ratio of 2x and ATVI has a ratio of 3x.  This means the stock is more expensive than those stocks out of the gate, but this is typically the case with new IPOs.

Not to mention, the first few days, if not weeks, if not months will be volatile.  Traders will be diving in, then as the price increases, they’ll get cold feet and jump out, and the stock could drop.  To make money on the Zynga IPO, you’ll need to have a clear strategy — are you looking for short term gains or taking a long term view that the company will grow.  If you’re looking long term, again, you have to believe that the company is going to beat expectations in the future, because the stock is currently priced as “this is a great company who will grow to several times its current level of earnings”, with that 10x ratio.

For some great analysis of the news, check out this article at Bloomberg and the original source at Reuters.