Zynga Inc, Groupon Inc Are Disasters In Big Internet IPOs

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Zynga stock plunged 74% in its first year, while Groupon plummeted 85%. Such a drop earns these two companies “the dubious distinction of being the worst-performing IPOs within an all-losing group,” says a report from USA Today by John Shinal.

Initial success no guarantee of long-term victory

In the cases of Zynga and Groupon, each was built for different purposes. Groupon was for daily coupon deals, and Zynga was for social games. Initially, both attracted tens of millions of users. Despite that, the services offered by the two companies could not become the basis of a “consistently-profitable public company,” reflecting the failure of Groupon founder and former CEO Andrew Mason and Zynga founder and CEO Mark Pincus, the report says.

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Groupon raised $700 million in its IPO and attained a valuation of $12.5 billion after its first day of public trading in November 2011. A month later, Zynga raised $1 billion in an offering, after which it was valued at $7 billion. At present, Groupon and Zynga are worth only $2.3 billion $2.2 billion, respectively.

It must be noted that the worst fall in market value in the first year of public trading was witnessed by Alibaba and Facebook among the five largest Internet IPOs of the tech boom. Facebook’s stock saw a decline of 31% in the 12 months after its IPO, while Alibaba declined 30%, and Twitter’s stock declined 9%.

Zynga insiders gained when retail investors were losing

Mason and Pincus were incapable of turning popular products into successful businesses, but this did not prevent the entrepreneurs from cashing in, the report says.

Despite the drop in the stock price in 2012, Zynga’s bankers sold a big secondary offering at $12 a share raising $515 million, further diluting the stakes of retail investors. All the proceeds from the offering went to Pincus and other Zynga insiders, says the report, which cites Zynga’s SEC filings. Since nothing was invested in the company’s operations, the game maker began closing its offices and laying off workers a year after its IPO.

Zacks downgraded Zynga to Hold from Buy in a report on Wednesday. At around 10:53 a.m. Eastern, Zynga shares were up 1.24% at $2.44. Year to date, the stock is down by almost 10%, while in the last year, shares are down by over 4%.