Introduction to initial public offerings:

Usually, a company’s IPO is an inflation of the true value of the company. This inflation is able to occur through a multiple step process, beginning with creating excitement and buzz about the company before it becomes public. Once the company has been hyped up and gotten the attention of the media, only a small amount of shares are offered, which creates a false sense of scarcity. When there is a scarce supply with a high demand, the price of these shares skyrockets, which accounts for the inflation of the company’s legitimate value.

Zynga’s IPO:

Even though this entertainment/tech company followed the steps outlined above, its shares suffered a decrease in price once it went public. Opening around $10 a share, there was a decrease of around 30 cents by the end of that day. Why did this happen? Critics believe it is because of the extremely competitive sector this company is in. If it fails to continue to create and innovate, there is no future for Zynga Inc.

Zynga’s current predicament:

Nearly a year after going public, Zynga has continued to lose shares, suffering a decrease of 70% in price. This significant decline in value can be linked to Facebook’s success because Zynga Inc. is co-dependent on it. When the social-media giant becomes less popular, then so will Zynga as well.

Zynga’s IPO