Zynga, the largest maker of games for Facebook, declined in its first day of trading after raising $1 billion in an initial public offering that gave it a greater valuation than rival Electronic Arts.
The shares, listed on the Nasdaq under the symbol ZNGA, fell 5 percent to $9.50. The developer of games such as CityVille, FarmVille and Mafia Wars sold 100 million shares for $10 each, the top end of a proposed range.
Zynga gets more than 90 percent of its revenue from Palo Alto, Calif.-based Facebook and faces increasing competition for mobile devices from Electronic Arts, maker of The Sims and the digital version of Scrabble. EA bolstered its own online services by purchasing PopCap Games this year.
Nexon, a Tokyo-based maker of games for Facebook including Zombie Misfits, slumped 15 percent this week after raising $1.2 billion in an IPO, Japan’s biggest this year.
“Zynga was offered at a pretty aggressive price relative to other gamemakers in the marketplace,” said Jack Ablin, chief investment officer for Chicago-based Harris Private Bank. “Anyone that has any affiliation with social media is getting bought up by an investing public that wants to be involved — and then reality hits.”
Zynga’s IPO is the biggest by a U.S. Internet company since Google raised $1.9 billion in its 2004 offering, data compiled by Bloomberg show.
Founded by chief executive Mark Pincus in 2007, Zynga doubled sales to $829 million in the first nine months of 2011. The IPO valued Zynga at as much as $7 billion, or 6.8 times revenue in the year through Sept. 30.
Zynga sold all of the shares offered in the IPO and plans to use net proceeds for game development, marketing and general corporate purposes, according to its filing.
Sixty percent of the Internet or social-media companies that completed U.S. IPOs since 2010 are trading below offer price, Kevin Pleines, an analyst at Birinyi Associates in Westport, Conn., said Tuesday in a research note. Buyers of the shares at their opening trade in the public market have lost an average of 32 percent, Pleines said.
Zynga “shouldn’t be valued at three times what other companies in that space are valued at,” said Jeffrey Sica, chief investment officer at Morristown, N.J.-based Sica Wealth Management. “That’s why people looked at it as having a potential downside. Investors found it too rich.”