The expectation for "Internet IPOs" is usually pretty high for the first day and people are speculating that investors were either burned by previous IPOs (e.g. Groupon) or questioning Zynga's business model.
It's market BS. I wouldn't call it a failure and I'm sure the people at Zynga are pretty happy with the $1B they just raised.
First, there was no excitement generated by the stock. What I mean by this is, no one was willing to pony up and pay a premium to their offering price. This has to do less with the academic approach and more with what actually happens when you help a company do their IPO. Usually when an investment bank helps a 'hot' company do their IPO, they under price it a little bit on purpose. That way, when it goes to market, the stock jumps 20-50% and the company looks good, and everything thinks it's a bluechip company. If you come out flat or your stock depreciates on the first day, it's usually a sign that the market isn't bullish on your company.
This is especially true for tech stocks because they're supposed to be new and sexy. If an industrial company does their IPO and their stock is about even for the day, it doesn't raise many eyebrows. But if a stock that's supposed to jump 20% stays flat, you can see what the market is feeling about the stock.
The second reason why its considered a failure is due to how fast the valuation of the company fell. I think a few months or half a year ago, when Zygna first started talking about their IPO, people were really excited about it. Initial valuations were something like $15 Billion. In the past few weeks, they've had to continually lower what their offer price was going to be because they realized that people were a bit bearish on their stock. So instead of a $15B valuation, their company is now worth about $7B. Or rather, Wall Street thinks their company is worth $7B.
Finally, I think the timing was off for them. I think people are pretty cautious about whether or not this whole internet company thing is going to be another bubble. People started talking about the bubble when Facebook had their $50B valuation from Goldman, but nothing really changed until LinkedIn's stock plummeted recently. This made investors even more wary. Then came the news that Zynga lost a ridiculous number of users in a month (can't remember the number but it was something like 200k I think).
All those things combined made this IPO a failure by MARKET standards.
I still think this is a win for the owners. If they could cash out right now, I bet they would.
Apparently the CEO Mark Pincus sold some of his stock at $14/share in March and made $100m from it. Why in the world would a CEO sell stock of his own company before its IPO? Maybe because he needed the money, maybe he wanted to diversify. It seems a little odd to me that he would do that though.
http://finance.yahoo.com/news/for-zynga-ceo--cash-came-early...