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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