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Zynga, Jive set to close 2011 IPO season

by Olaf de Senerpont Domis | Published December 13, 2011 at 12:08 PM

The two major technology IPOs set to launch this week could benefit from a wealth of dealmaking in their sectors this year but also face a host of potential stumbling blocks.

Social media game maker Zynga Inc. and enterprise social networking software vendor Jive Software Inc. are waiting in the wings to make debuts, with Palo Alto, Calif.-based Jive's shares set to begin trading Tuesday, Dec. 13.

Zynga and Jive are part of a final rush of 2012 IPOs, as the holiday season tends to be very quiet for new offerings. If all 12 offerings on deck as of this writing price and begin trading this week, it will be the busiest week for IPOs in four years, according to IPO market analysis firm Renaissance Capital.

Of course, the week's IPO prospects could be diminished by the consistent volatility of the equity markets. The week kicked off with a good dose of it, with the Nasdaq and Dow each sliding 2% in early afternoon trading Monday before going on to make small recoveries by the end of the session.

Tech issues weren't helped any by news from the largest chipmaker, Intel Corp., which Monday said it has dropped its fourth-quarter revenue guidance due to shortages in hard-disk drive supplies. Other major chipmakers, including Texas Instruments Inc., recently reduced their guidances, too. Intel shares slid 5.4%, to $23.66, on the news.

The up-and-down market last week pushed five companies to withdraw or postpone their IPOs, according to Renaissance Capital.

Zynga, which set its expected price range of $8.50 to $10 per share on Dec. 2, has the benefit of other social media IPO deals that have launched this year, including the first, LinkedIn Corp. LinkedIn, which like Zynga is growing and profitable, debuted back in May at $45 apiece. The company's shares are well below its first day closing price of $94.25 apiece but still trading at a healthy premium to their IPO price; LinkedIn shares traded recently at $68.47.

Yet Zynga has several crosscurrents to contend with. For one, the company, which is trying to raise as much as $1 billion, is facing increasing competition from Asian rivals including Nexon Co. Ltd. and Gree International Inc., as well as Electronic Arts Inc. of Redwood City, Calif. It also has not had a hit game in some time, and is led by a founder and CEO, Mark Pincus, who has been criticized as a ruthless and zealous leader, said independent IPO analyst Tom Taulli.

"After everyone gets rich on the IPO, the smart and creative people might take their money and run," he said. "Zynga is growing now, but the question is: where will they be in a year?"

Zynga investors include Avalon Ventures, Foundry Group, Institutional Venture Partners, Union Square Ventures, Kleiner Perkins Caufield & Byers, Google Inc. and Silver Lake.

Jive Software is squarely in the center of another burgeoning growth market for social media -- the enterprise. The company offers software that helps businesses monitor and manage their reputations across social networks, both within and outside the company firewall. It's a sector with dozens of startups toiling to make a mark; Jive is one of the handful that has grabbed the opportunity to provide an investment exit for its investors, which include venture firms Sequoia Capital, which will own 29% of Jive after the IPO, and Kleiner Perkins, which will own 11.5% post-offering. At the high end of the proposed price range of $8 to $10 per share, Sequoia's stake would be worth nearly $170 million, while Kleiner Perkins' would be worth about $67 million.

The big deal in the space occurred this spring, when Salesforce.com Inc., the leading provider of on-demand customer relationship management software, agreed to pay $340 million to buy Radian6 Technologies Inc., a top company in the nascent market.

It was San Francisco-based Salesforce's priciest acquisition in its 12-year history, and was viewed as a major validation of the business social networking/monitoring market.

Of course, it also creates a whole new level of competition for Jive Software, as Salesforce.com already has a long list of blue-chip customers to which it can offer its social enterprise software.

Unlike Zynga, Jive Software's success has not translated into profits. The company has been losing money since it was founded in 2001; in the nine months that ended Sept. 30, it posted a net loss of $38 million on revenue of $46 million.

The other high-profile IPO set to this week is high-end clothing maker Michael Kors Holdings Ltd., which would be the first U.S. designer to go public since Polo Ralph Lauren Corp. in 1997. The company has been growing handsomely. It generated $803 million in total revenue and $73 million in net income for the year ending April 2, 2011, compared to $508 million in revenue and $39 million in net income for the same period a year earlier. In 2009, Michael Kors had total revenue of $297 million and $13 million in net income.

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Zynga, Jive set to close 2011 IPO season

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Olaf de Senerpont Domis

Bureau chief, West Coast; Editor, venture capital

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