Last month, Zynga alerted shareholders in a filing that it would be given a chance to start selling about $591 million in Class A shares, after the company waived the requirement that investors wait six months after its initial public offering to sell shares. Zynga went public in December.
“Not everybody has penny stock, and a lot got in fairly recently and are underwater now in their shares. The sheer number of shares that could come out over the course of the next year are in the hundreds of millions,” said McGowan, who raised his rating on the shares to “underperform” from “hold.”
Zynga’s recent secondary offering “was an orderly way of dealing with that [insider selling] but there’s a lot more to come,” the analyst said.
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McGowan does not own Zynga shares, but Needham provides research for and makes a market in Zynga.