NASDAQ, Meet Zynga! The Social Gamer Looks at the Public To Fertilize its Future

Farmville crops aren't expected to eradicate hunger in the world anytime soon, but they may just make their creators a cool billion when Zynga's shares are available publicly later today. Zynga

becomes the latest merchant to hawk its wares on NASDAQ, under the ZNGA symbol. That billion is the value that 14 percent of the company will grab today as 100 million shares are offered at $10 a pop. That values the entire company at $7 billion, which, as respectful as it is, represents a relatively sober level compared to the $14 billion estimated by Zynga's outside consultants, according to a

report. Anyway you cut it, any number denominated in the billions is a whole lot of real money for virtual goods. And that is exactly what the company produces: virtual goods that its customers buy with real money to advance into their social games.

says more than 60 million people play Zynga's games every day. And at least a healthy portion of that crowd puts their money where their fingers are, as the company booked $597 million in 2010. It is well on its way to double it this year, having made $829 for the first nine months ending in September 30, 2011, according to company filings. The valuation is more muted as investors are coming off a round of turbulent Internet IPOs. Companies like Groupon

and LinkedIn

are cautionary tales of strong hype and ensuing reality for investors. Both companies surged significantly following their IPOs but currently trade well below those highs. Although Zynga's numbers are very solid compared to these companies, a look under the proverbial bonnet exposes a dose of cold reality. As revenues soared for Zynga in 2011, so did its expenses. As it produces admittedly high-margin digital products, it will have to compete for more highly skilled, high-priced engineers to continue to do so. It will have to compete for human resources not only with other unrelated Internet companies, but with an ever increasing number of social gaming competitors, which ironically will grow in numbers because of Zynga's own success. As if new entrants weren't enough of a problems, there are big names like Electronic Arts

and Disney

owned Playdom. Some of that effect is already showing. Net income contracted 31 percent during 2011 compared to the preceding year, according to Sterne Agee analyst Arvind Bhatia, who have already initiated ZNGA with an underperform rating and a price target of $7. We look forward to how the action at NASDAQ will shape up today. Multiple scenarios are possible. Bulls may win the day, as they may take on the stock to compensate for pangs of a Facebook IPO still months into the future. Equally likely, bears may stage a coup, either by heeding red flags on fundamendal factors, or by pure contrarian play to a hype that may be overinflated.