Zynga (ZNGA) IPO'd today at a $10 per share valuation. It opened at $11.50 and is currently down at $9.31. A close to 7% decline in today's performance. Granted it might have been victimized by the poor market performance due to the Euro crisis but this drop shows an interesting fact about IPOs:
The people who make bank on IPOs are the early investors, underwriters and those who are extremely lucky.
As shares of LNKD, GRPN and ZNGA drop, we are witnessing how volatile the IPO market is. Up until recently, these companies have not shared their earnings and balance sheets to the public so there are no easy (and legal) way to know if these companies are solid investments. Most of these valuations are fueled by early investor valuation statements/estimates, analyst speculation and plain good old rumors and media coverage.
Out of these three new IPOs, one is currently losing money (GRPN) and LNKD seemed to have a solid business model. Zynga on the other hand, is rumored to make millions of dollars through in-game purchases for their popular Facaebook games such as Farmville. However, I do not play Farmville and perhaps, Zynga's popularity at least with the tech media is waning due to the annoying Farmville invites and lack of originality in gaming IPs.
Unfortunately, with the lack of the 10-k and 10-q filings from these companies, small investors are trading/investing blind when considering putting money in these companies. We do not know the cash flow, debt, operating expenses, net income and growth estimates from these companies.
I have heard people get excited with the new batch of IPOs especially the impending IPO of Facebook. However, investors must also learn if they can manage the risk of investing with almost zero info about the companies financials and business prospects.
My best bet is to avoid IPOs in general because of the reasons I gave above. I like to have my info on the table and make my decision based on the numbers not by speculation, rumors and estimates.
Unless of course someone is willing to sell their Facbook shares to me at a pre-IPO price... lol
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