Online gaming firm Nexon Co, an Asian rival to U.S.-based Zynga, slipped lower on its first morning of trading on Wednesday, following its $1.2 billion IPO, Japan's biggest this year.
Nexon, founded in South Korea almost two decades ago, offers PC-based games for free, while charging users small fees for in-game virtual items such as clothing for avatars -- a so-called freemium model that analysts see as relatively recession-proof.
Part of the problem is that they priced it at fair value, hence it wasn't going to come on at a huge premium, said David Gibson, an analyst at Macquarie Capital Securities in Tokyo.
He also noted that not all shareholders were restricted from offloading their holdings right away.
By mid-morning, Nexon was trading at 1,288 yen versus its IPO price of 1,300 yen.
The broader market was down 0.2 percent, while domestic rivals Gree and DeNA dropped 1.6 percent and 3.5 percent respectively.
Zynga, known for its success in developing games for Facebook, was forced earlier this month to trim its planned near-$1 billion IPO -- still the largest from a U.S. Internet company since Google Inc raised $1.7 billion in 2004 -- due to weak financial markets. Zynga's first day of trading will be Friday.
Nexon, whose most successful offerings include MapleStory and KartRider, has more than 77 million active monthly users, compared with Zynga's 260 million.
Between 2008 and 2010, Nexon's operating profit tripled to 30 billion yen ($385 million)and sales increased more than 70 percent to 70 billion yen. The company employs 3,240 people, mostly in South Korea, and derives most of its business from Asia. China and South Korea accounted for two-thirds of revenue last year.
The company said on Wednesday it expected operating profit to rise 23 percent in the year to December 2011, indicating a slowdown in its breakneck growth.
A cyber attack in which hackers gained access to personal data, but no financial information, on more than 13 million subscribers to its MapleStory role playing game in South Korea probably took some of the shine off the IPO, analysts have said.
Nexon has said it will use the IPO proceeds to pay off debt, build a new home for its Nexon Korea Corp unit, upgrade games systems and invest in third-party games developers.
It was the biggest initial public offering in Japan since drugmaker Otsuka Holdings took in 160 billion yen a year ago, and came despite weak market conditions, with the benchmark Nikkei average down about 17 percent this year.
Japan's IPO market has been in the doldrums in the wake of the March earthquake and given the sluggish prospects for the domestic economy. So far this year firms have raised just 160 billion yen through initial public offerings in Japan, down from 1 trillion yen last year and one sixth the average over the past decade.
Early this month, Nikko Asset Management cancelled its planned $586 million IPO, citing weak markets and the uncertainty sown by Europe's debt crisis.
At around 1,250 yen, Nexon is trading at 17 times the company's projected earnings for the year ending this month, slightly higher than Gree at 15 times consensus forecasts for the year to June 2012.
Global games industry revenue was $60.4 billion in 2009 and expected to rise to $70 billion in 2015, according to research company DFC Intelligence.
Nomura Securities, Morgan Stanley and Goldman Sachs were joint global coordinators for the IPO, while Barclays Capital was bookrunner on the international tranche.
($1 = 77.8450 Japanese yen)
(Editing by Joseph Radford and Edwina Gibbs)