For technology companies, this year has been a return to the glory days of "rocket shot" IPOs, but it looks like the comeback tour is just about over.
Online game maker Zynga fell flat in its stock debut last week, falling from its offering price of $10 a share to just a bit over $9 by the close of trading Monday. (Click here for the latest price.)
Sam Hamadeh, CEO of financial data provider PrivCo, said Zynga shares fell in part because the company sold a higher percentage of its shares than other recent tech IPOs. What's more, buyers are concerned about the company's reliance on Facebook and a plateauing of its once-meteoric growth.
But the failure of the stock to achieve even a first-day spike is indicative of what analysts say is a changing sentiment toward tech companies. "I think certainly you've seen investors becoming more skeptical," Hamadeh said.
After LinkedIn's May IPO that saw the stock price quickly double, market observers inevitably began making comparisons with the gogo tech bubble years of the late 1990s. Tech companies were hotter than they had been for years.
Pandora's IPO was also a hit, debuting at $16 after targeting the $10 to $12 range. But neither company's shares held onto those highs, and other buzzed-about tech IPOs in recent weeks also failed to live up to their initial hype. Angie's List and Groupon both struggled to maintain early momentum. Jim Krapfel, equity analyst at Morningstar, said investors viewed these as cautionary tales when evaluating Zynga.
"With Groupon and Angie's List, both sold off 30, 40 percent in the weeks subsequent to their offerings," he said. "It's just a lot of uncertainty with these names." The promise of huge future revenues is tempered by largely unproven business models, Krapfel said.
When market sentiment turned negative in August, this let more air out of the IPO balloon. "Until that improves meaningfully, that kind of trend will likely continue into 2012," Krapfel said.
More down-to-earth public offerings for tech companies could even affect Facebook, whose own IPO is expected in 2012. Krapfel says the social networking giant is in a better position than its peers due to its size and clout, but it wouldn't be immune to widespread market malaise created by a deepening European debt crisis or the U.S. economy slipping back into recession. Hamadeh said Facebook would benefit if it viewed as a caveat Zynga's fixation on raising $1 billion regardless of the strain that placed on its share price.
Another reason Zynga failed to pop, according to Hamadeh, was an uncharacteristic lack of interest from retail investors. This lack of enthusiasm could be contagious and drag down future offerings.
"For new IPOs coming online, I think that would certainly give investors pause," he said.
Amateur buyers usually gravitate toward names they recognize and companies with a lot of buzz. This time, retail investors stayed away. Maybe they were too busy playing Farmville.