Zynga Inc. (NASDAQ: ZNGA) was supposed to be attractively priced as far as how the company was given a $7 billion valuation at its IPO price.  Some talk was that the IPO could have been valued at $10 billion.  So, after a $10.00 pricing and an opening price listed at $11.00, shares hit a high of $11.50 before falling back under $10.00 to become a busted IPO for a bit. (Story updated throughout the day)

To qualify as a busted IPO all that has to happen is that the stock has to trade under the formal initial public offering price.  The reasons don’t matter. The logic does not matter. The tale of the ticker tape on any given days does not matter. All that matters is the share price versus the IPO price.  In the case of Zynga, the IPO is currently hovering about two-cents above the $10.00 pricing at 11:36 AM EST with some 72.5 million shares traded.  Shares were trading down as low as $9.50 earlier.

• UPDATE 1:17 PM EST: A boutique firm named BTIG has reportedly issued a “Buy” rating on Zynga but shares are still down around $9.47 on more than 95 million shares traded.
• UPDATE 12:54 PM EST: Shares are at $9.60 on just over 91 million shares… Busted!
• UPDATE 11:55 AM EST: Underwriters appear to have been holding this up at $10.00 after having been in the red earlier.have been

As far as some fundamental data, Cowen & Co. initiated coverage with a “Neutral” rating due to its valuation.  Earlier than today, Stern Agee started coverage with a rare “Sell” rating before the IPO even was priced.

The real question boils down to whether or not this valuation can be maintained due to justified growth.  Zynga has a huge dependence upon Facebook for its games.  It is trying to diversify away from that Facebook dependence, but nothing ever happens overnight (even at software companies).

Another big question is just how much time people can and will spend playing each one of these social network games.  Empires & Allies, Farmville, CityVille, CastleVille, Mafia Wars, and Adventure World… Is it fair to ask just what percentage of the people who are actively playing these games are employed?  It is hard to imagine that entrepreneurs and busy-bee workers have endless time to play all of these games.

Still, video games are larger than movies. Social networking is larger than life itself if you ask the younger generation.  LinkedIn Corporation (NASDAQ: LNKD) is down 2.5% at $64.70 today and that is down almost 50% from its post-IPO high.  Groupon, Inc. (NASDAQ: GRPN) is down over 5% at $21.80 today.  Even Sina Corporation (NASDAQ: SINA) is down 5% at $50.13 on news that Beijing is telling Sina that the site has to know the real identities before users can start or post to microblogs.  Is it any surprise that the Global X Social Media Index ETF (NASDAQ: SOCL) has not even traded today?

Sadly, the investors who bought $1 billion worth of the Zynga stock at the IPO price this morning only have a combined 1.8% voting power if you look through the prospectus because of the larger voting B Shares and the super-voting B Shares.

Whether or not Zynga remains a busted IPO will be known at the end of the day and in the coming days.  If it falls too much ahead then perhaps the investment community will not allow companies coming public in 2012 to dictate such terms where the new shareholders who are coming in far later at a far higher price can have such little power over a company.

JON C. OGG

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