Recently public companies Groupon Inc. (NASDAQ: GRPN) and Zynga Inc. (NASDAQ: ZNGA) rose sharply following their IPOs, but have taken a turn south that has taken shares off post-IPO highs by more than -70% at Groupon and nearly -50% at Znyga. Social networking giant Facebook Inc. (NASDAQ: FB) is down nearly -19% from its IPO price, but that’s an improvement from Facebook’s post-IPO low that had the stock down by nearly a third from the initial pricing.
Groupon is struggling with an issue that most analysts anticipated: a non-existent barrier to entry. Google Inc. (NASDAQ: GOOG), Amazon.com Inc. (NASDAQ: AMZN), and Yelp Inc. (NYSE: YELP) all make daily deal offers that cut into Groupon’s revenues. And so far at least Groupon has been unable to come back with a compelling offer to users.
Zynga has depended heavily on its close ties with Facebook to generate revenue, and the thinking is that as goes Facebook so goes Zynga. Zynga’s ace in the hole — so to speak — remains a return of legalized Internet gambling in the US. The company’s casino games on Facebook attract millions of daily players who now are permitted to play only for fun.
Internet gambling, which is prohibited in the US, but can be legalized state by state, is already legal in Nevada and some 20 other states have laws under consideration. In these tough financial times, most analysts expects many states to approve Internet gambling with an eye toward taking their own cut of the revenues to help shore up state budgets.
The difference between Groupon and Zynga appears to be that the latter may have a way out of the doldrums while the former does not. Or at least Groupon has shown little sign of a plan to bolster its position.
Zynga’s problem is that competition in the Internet gambling sector will include casinos, gaming machine makers, and other game developers. The stakes are high — expected revenues from Internet gambling exceed $13 billion in four years — and the competitors play to win.
Groupon’s shares posted a new post-IPO low of $7.25 this morning and now trades at $7.64, down -5.7%. The previous range was $7.72-$31.14.
Zynga trades down -6% today at $4.83 after touching its post-IPO low of $4.78 earlier today. The 52-week high is $15.91.
Paul Ausick
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