What's Important in the Financial World (12/16/2011) RIM's Best Chance, Zynga IPO

International Monetary Fund chief Christine Lagarde said that if the eurozone crisis in not solved, the global economy could be damaged nearly beyond belief. She reasons that the sovereign debt crisis cannot be contained. This means that the GDP of most nations around the world would be badly hurt. The markets had no reaction to her comments, which suggests that traders and economists believe that they are too extreme.

Zynga’s IPO

Online game company Zynga will go public today with a valuation of $7 billion. The transaction will raise $1 billion and will make many of the firm’s employees multimillionaires. Whether investors will fare as well is a substantial question. Zynga relies on Facebook as the platform to market its games. That means it is barely a standalone company. Zynga’s sales doubled in the first nine months of 2011 to $829 million. But, as is true with the recent IPOs of Groupon (NASDAQ: GRPN) and LinkedIn (NYSE: LNKD), Wall St. worries whether these firms can continue to scale their revenue in a market where there is a great deal of competition and relatively low barriers to entry.

Bank Profits

Morgan Stanley (NYSE: MS) reported it would fire 1,600 people. It joins most other large U.S. financial firms, which signals that 2012 will be a poor year for earnings. Another sign is that ratings agency Fitch cut its outlook on several big banks. Almost all of these financial firms have suffered drops in the profits they make trading for their own accounts. Their investment banking businesses have been hurt by the economy. And their portfolios of real estate assets have not gained much value since the recession.

RIM Earnings

Research In Motion (NASDAQ: RIMM) released another quarter of poor earnings. Its forecast for the next year was weak as well. RIM has barely sold 200,000 of its Playbook tablet PCs. In the meantime, Apple (NASDAQ: AAPL) can hardly keep its iPad 2 in stock. And Samsung has begun to sell its popular Galaxy II into the U.S. market. Perhaps RIM’s best hope to gain market share is its new QNX-based smartphones, which have been delayed until next year. Lost among all the pessimism about the company is that it still has 75 million subscribers worldwide. That is a huge population of customers, if RIM can launch an attractive new product.

Douglas A. McIntyre