Post-mortem: Why We Weren’t In Love With the Zynga IPO
Back in December we did something a little less careful than usual around here. We made a pretty direct recommendation: stay away from the Facebook and Zynga IPOs.
Although we’ve been proven right over the short term, OG and I weren’t working with any information on the companies and only with a cursory knowledge of the particular situations at these firms. Instead, we were using some time-tested ideas:
1) IPOs are about the insiders. Sure, there’s tons of fanfare, but for every IPO that rocks there are 30 that tank while the people who work at the firm cash out. Guess who’s left holding the empty shares? You are.
That’s what appears to have happened at Zynga. According to tech guru Henry Blodget, lawsuits are out against Zynga because executives (gasp!) cashed in right after the IPO. At. Exactly. The. Right. Time.
Zynga going public was never about you. Why do people always think IPOs are a huge opportunity?
2) You have limited funds. Assuming that you fit the target audience of our little website (people with lots of brains but a finite amount of cash), it doesn’t make sense for you to invest in something as casino-like as an IPO. Plus, you can’t buy it BEFORE the open unless you know someone, so why take the risk of purchasing on day one, when (often) the price is high only on hype? Don’t buy on hype. Don’t sell on panic.
3) There is limited information on IPOs. Further, you don’t know how a company that’s always been private will react to public scrutiny? Zynga seems to be in full-fledged panic mode now. Facebook shares aren’t recovering. There’s plenty to worry about AND now impatient investors are clamoring at the door. Even worse, the media loves the hype because it sells. We’ll leave that last bit for another blog post….
The Zynga IPO was all about candy and babies, and we know what happens there, don’t we? To invest successfully you’ll need access to information and a track record to analyze. When there’s an IPO, you have neither of these important factors.
I promise I’m not gloating when I say….I told you so. 
Photo: Zynga latte: yukop
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I don’t think you were gloating. I think you pointed on that you need to stop and think before you invest in a company you don’t know much about. IPOs provide very little information about a company. Although FACEBOOK is popular it’s hard to say how well they will do as a public company. They sell advertisements, no products or services. I, too, was skeptical about FACEBOOK and Zynga. There is no need to rush…IPOs have a lot of hype. Plus, there are other technology companies that are solid for people to invest their money or tech funds.
Ornella @ Moneylicious recently posted..Implement one of these 5 Tips to Reduce Your Auto Insurance Premium
Amen, Ornella! Why not pick another public company with a track record? Great point.
Considering that I’m fairly young and have just been getting into the finance thing over the last few years, I haven’t really tracked many IPOs. I’ve always thought they were a cool idea and the hype is fun but obviously these two situations prove just how risky they are.
Jason recently posted..Being Cheap or Frugal – 12 Signs You’ve Gone Too Far
The hype is WAY fun, but getting smoked on your investments hurts! They are definitely a cool idea for insiders.
Wait, what happens with candy and babies!?
funancials recently posted..How Should Couples Merge Their Accounts?
You’re too young to know.
Actually…I feel good about saying that. They said that in 6th grade when I asked the older kids what the “Booster the Rooster” joke was all about.
I haven’t been around the blogoshpere very long so I didn’t see your original article on staying away from ZNGA and FB. For the most part I invest in stuff that I can understand.
When I was looking at ZNGA before the IPO I was thinking about how I use it and how they make money. I’ve played the games on FB before, some were kind of enjoyable but I would never pay to play them. I couldn’t figure out why anybody would. That right there was the exact reason I didn’t buy into it. Although I did buy put options at one point and made a little money.
The same goes for FB. I use it, but I have never clicked on an ad. If that is their main source of income I can’t see them as being a successful company in the future.
DebtsnTaxes recently posted..July Goals Review & August Goals
I stay away from all individual stocks in general but I’m definitely glad I didn’t decide to jump in on the hype on these… just goes to show slow and steady wins the race (hopefully)
Lance @ Money Life and More recently posted..August 2012 Monthly Goal Update
I’m sure at some point when I have extra fun money I’ll throw it (away) at an IPO just to say I did, but that will be money I’d have spent on funzies anyway.
Brent Pittman recently posted..Payoff.com Review: An Alternative to Mint
With the exception of my 403(b), I don’t invest in the market. We invest over at Prosper. C “invests” via Kickstarter, and once regular people are able to actually invest in start ups, we’ll probably do that. But I really prefer the smaller, more personal side of micro-investing/lending. Maybe it’s an illusion, but I feel more in control of those decisions.
shanendoah@The Dog Ate My Wallet recently posted..The State of My Blogging
The lack of information thing is the biggest issue I’ve seen with IPOs. There always seems to be something you find out afterwards; like GE’s relaunched IPO, it came out that they heavily channel stuffed their dealerships to boost sales or Facebooks poor click response for ads. You are better off finding a diamond stock in the ruff.
JP @ My Family Finances recently posted..How to Make Your Recipes Cheaper and Healthier Too
I also stayed away from those IPOs, even though a friend of mine (who works for Facebook) Was really up on both stocks.
Simple Finance recently posted..My Dirty Mortgage Qualification Secret
I’d be up for it too, if I were your friend. It’s designed to make them a bunch of money.
Isn’t anyone wising up to IPO’s lately? There is usually only one kind of person that gets rich, and it isn’t us! How’s that Facebook stock doing?
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I felt like I was the CRAZY one as I watched the Facbook IPO garner all headlines and all I could think is “their P/E is 100+”
Evan recently posted..Taking Your Income for Granted
I know, Evan! Everyone’s talking up the stock and I’m just shaking my head because I didn’t get it. I thought there might have been something I was missing. Appears not to have been the case.