SAN FRANCISCO (MarketWatch) — If you’re wondering whether shares of Zynga Inc. might be ready for a bounce after their monthlong slide, a clue can be found in the recent trades of company insiders.
With its recently completed secondary offering, Zynga found an innovative way to allow its top executives, early investors and other insiders to sell off their stakes — despite IPO restrictions designed to prevent it.
As they sell, common shareholders unwise enough to have bought IPO shares in the company have watched their investments fall through the floor.
Since Zynga filed the registration statement for its secondary offering on March 14, the stock has shed more than 25% of its value. It’s now sitting at around $9, roughly 10% below its IPO price of $10 a share.
Between the registration date of the offering and the day it closed on April 3, Zynga’s IPO bankers, led by Goldman Sachs and Morgan Stanley, agreed to modify the lockup restrictions that previously had prevented the social-game maker’s insiders from selling their shares.
And sell they did.
By the time the cash register closed, Zynga Chief Executive Mark Pincus and other insiders unloaded more than 49 million shares at a price of $12 a share. The offering, which included more than 6 million shares bought by the company’s IPO underwriters, generated $593 million for the sellers, while providing nothing to Zynga or its common shareholders.
As the company said in its April 3 statement, “Zynga did not receive any proceeds from the sale of shares in the offering.”
While that statement also said a reason for the offering was “an orderly distribution of shares,” I’m not sure common shareholders would use that phrase to describe a near-30% drop in Zynga’s stock price since it was announced.
Zynga will report quarterly results on April 26.
Groupon’s turn
As I’ve been writing for more than a year, both Zynga and Groupon Inc. are among a group of young companies that have allowed insiders to cash out without waiting for an IPO. Read how Facebook, Twitter, Zynga bubbles are minting millionaires.
Since Groupon (US:GRPN) said on March 30 that it would restate results for the fourth quarter and all of 2011, its stock is down roughly 35%.
In case you missed it, the daily-deals company also said it was extending the expiration of its IPO lockup date to June 1. That’s when Groupon insiders will be able to dump even more shares than they have already.
Groupon will report quarterly results on May 14.
These tech IPOs have been great vehicles for executives, early investors and other insiders to cash out their stakes, courtesy of professional money managers who bought IPO shares with other people’s money. If you have retirement money in any tech-sector growth funds, some of that money is likely yours.
With Groupon’s market cap now around $7.1 billion and Zynga’s down to $6.5 billion, some investors might be tempted to wade into these stocks in hopes of a bounce. In fact, many traders predict that these new tech issues will get a ride on the coattails of Facebook Inc.’s (US:FB) IPO, expected next month.
No doubt the trading desks of Morgan and Goldman will be working the phones to find buyers of all those Zynga shares for which they just paid insiders $12 each. Once Groupon insiders can dump their shares, its IPO bankers will be shilling that stock as well.
Yet stock-market history suggests that insiders usually buy or sell shares of their companies at the right time.
So far, nearly all the insider activity in Zynga — as with Groupon — has been selling.
