Zynga shares plummet as Facebook game craze wanes

http://www.reuters.com/article/2012/06/12/us-zynga-stock-idUSBRE85B0TM20120612

by acak • 14 years ago

101 58 14 years ago

ahelwer• 14 years ago

One thing I've always wondered with these headlines: how do they establish causality? Do they ask some pundit why shares dropped 10% in a day and run with that?

slug• 14 years ago

Probably they are having fun looking at this and extrapolating from there:

https://www.google.com/finance?chdnp=1&chdd=1&chds=1...

joshu• 14 years ago

Basically, they make some shit up.

ahi2• 14 years ago

A family member is in the biz press. joshu has it right. Although, in this particular case the attribution is probably correct.

jswinghammer• 14 years ago

Typically you buy a tech stock for growth since they rarely pay dividends. When you see that the growth is negative and potentially accelerating there is probably little reason to hold the stock-particularly when they have no earnings.

koeselitz• 14 years ago

Yes, but that doesn't answer the question. Sure, it makes sense that there's not much reason to hold stock when the growth is negative. The question was: how do you decide why the growth is negative? This is an important, because sometimes stocks dip for a day, and sometimes they dip for a decade. Knowing why would seem to be the best basis for investing.

Retric• 14 years ago

http://xkcd.com/904/

its_so_on• 14 years ago

Disagree that headline argues causality.

the same formula can be used with not correlation but simply timing:

"As Rome burns, Nero fiddles away."

"Detroit housing prices at record prices, even as millions leave the city."

"As the average salary in the City approaches six figures, those without a job are having trouble finding any job at all."

Does it make sense to set this backdrop, even without correlation? Of course - it's interesting.

however, in this case the author does a good job by setting this backdrop:

if the craze of playing games on Facebook has waned -- something the article hopefully establishes or reports on, then it is an interesting backdrop to news that Zynga's share price is falling - wouldn't you say?

(If fewer people are playing Zynga's games on Facebook, which is where most of Zynga's games are played.)

Whether this is just a backdrop or a causal relationship with Zynga's profit and share price is for you to decide however you want. The headline doesn't force it on you, but simply set a backdrop of a macro-trend.

I think it's a very interesting and well-written headline. It's better than most of them.

brown9-2• 14 years ago

The headline might not argue causality but I think it certainly is written in a way to imply it. This is a common structure for headlines about stock prices moving large amounts in either direction. The average reader does not like to think that finding a singular reason for something like this is impossible.

gruseom• 14 years ago

I remember reading an interview (probably in one of Jack Schwager's Market Wizards books) with a guy who had been a Wall Street analyst. He kept the news reports of the day sorted into "good news" and "bad news" piles on his desk. When a journalist called to ask why something had gone up that day, he'd cite whatever was on top of the good news pile. When asked why something had gone down, he'd cite whatever was on top of the bad news pile.

brc• 14 years ago

Yes, I think you're right on your source.

In short, markets move around for a whole host of random reasons.

The nightly news 'the market moved lower on profit taking' or 'the market moved higher on positive news X' is just rubbish.

Occasionally, there is a cause-and-effect like an unexpected interest rate change, or a better-than-expected sales figure in a key industry, but for the rest of the time, it's just random movement.

The worst thing is the need to commentate on it confuses the correlation in the general publics mind, so people believe you can talk the economy up or down, which is an assertion I don't agree with.

veyron2• 14 years ago

The reality is a bit murkier. Usually a hedge fund "leaks" info to the journalists (someone familiar with the matter is the standard euphemism) which is sufficiently plausible so as to become the reality

smoyer• 14 years ago

Zynga is said to be moving games into the mobile market, but you also have to figure that being a gaming company is hard. You're top-rated game will be supplanted by something else in short order and you have to constantly be updating.

I think that the way Zynga acquired its customers/users is exacerbating the situation. If your friends are all there you feel compelled to join too, but if some leave it's socially acceptable to follow them elsewhere.

Since we're talking about "social" gaming, I also have to wonder whether part of the drop isn't seasonal ... at least where I live, it's now nice enough to spend a lot of time outside socializing (picnics, frisbee, t-ball, etc) so perhaps there's just not the boredom to drive as much traffic?

yvdriess2• 14 years ago

They're not so much social games as they are games on a social platform. Some wouldn't even call them games, nor social.

No idea about the seasonal aspects though. Summer vacations typically boost online games.

zerostar07• 14 years ago

The lack of inspiration, willingness or innovation on Zynga's part is still baffling.

steve89182• 14 years ago

I stepped in and bought some shares at $5.00.

ZNGA's current market cap is $3.5B. But it has about $1.2B in cash, and little debt. Regardless of how you feel the games, they do have a real business, so if Instagram is worth $1B to Facebook, ZNGA must be worth somewhere north of $2.5B, its current enterprise value.

joejohnson• 14 years ago

I'm not sure why you're getting the downvotes. Everything you say is true. Clearly Zynga has real value; they are a profitable company. Perhaps they were overvalued at IPO and (maybe Facebook was too) and that could explain their stock-price drop in the last month.

Often on HN, any non-negative mention of Zynga will be downvoted.

Florin_Andrei• 14 years ago

Many people find the incessant game posts on Facebook annoying. Perhaps that explains some downvotes.

But I do agree with everyone. :) Yes, it's annoying. Yes, it was a fad, initially. But yes, there must be some enduring value in the business model, after the bubble bursts and people start thinking more rationally about it.

runako• 14 years ago

>> they are a profitable company

Citation? SEC filings say they are losing money at a rapid clip.

joering2• 14 years ago

> so if Instagram is worth $1B to Facebook, ZNGA must be worth somewhere north of $2.5B, its current enterprise value.

This doesn't make sense. Facebook does not own stock market, neither they are some sort of a measurement for other transactions.

Zuck bought it because it was last moment to spend money they didnt have and clearly it was a threat to FB userbase (but sooner or later another Instagram will come up that FB cannot afford). Further Instagram deal was a scam [1] that hopefully will get investigated by Sec (?), for all FB shareholders' sake.

[1] http://www.donnaklinenow.com/investigation/instagram-scam

steve89182• 14 years ago

I was a bit tongue-in-cheek. I don't think Instagram is worth anywhere near even $100M. They have $0 in revenues. I think if they were to try to self-sustain themselves from their own revenues, they would have gone under, but what do I know.

That being said, ZNGA makes roughly $1B in revenues, which gives them 2-3x current revenues. I perceive that as being cheap, but I could very well be wrong. I'm just placing my bets, and if they don't turn out, then I'll sell at a loss.

hristov• 14 years ago

They have 0.60 cash and investments (both short term and long term) per share. Last quarter they lost 0.12 per share.

You may call their business a real business but fact of the matter is that "real business" is handing them huge losses every quarter, so if they do not improve things drastically soon, that cash will not last them long.

ayu• 14 years ago

Last quarter they made a profit, but it was a net loss after adjusting for stock-related expenses. [1]

Also, bookings were up. I think it's important to note that after FB's updated S1 everyone had worried since Zynga comprised less of Facebook's Q1 revenue. What all news outlets failed to note is that FB credit associated purchases didn't go down but actually ad impressions on Facebook's part. It's possible Zynga is trying to drive pageviews of their own network rather than Facebook. (Check the S1) [2]

[1] http://venturebeat.com/2012/04/26/zynga-beats-q1-earnings-es...

[2] http://sec.gov/Archives/edgar/data/1326801/00011931251217567...

wavephorm• 14 years ago

Just be prepared for the scenario where both Zynga and Instagram were substantially overvalued.

Just because Mark Zuckerburg acquired a company for a Billion dollars that had NO revenue, NO customers, and NO business, doesn't mean the rest of the investment world is smoking the Social Network crack pipe.

moron• 14 years ago

Well, I wish you luck. But I think you've made a mistake (unless you only plan to hold it for a short time).

tomkarlo• 14 years ago

Basing any valuation rationale off the Instagram purchase makes me wonder if you meant to be sarcastic. Given that it had essentially zero revenue, it's almost impossible to do any kind of comparison, anyway.

paulhodge• 14 years ago

That sounds like a modern version of the Chewbacca Defense. "If Instagram is worth $1B, then <insert any crazy logical conclusion you want to make here>"

mxttr02• 14 years ago

Rumor has it that the insider lock-up is tomorrow, which doesn't help as it's being discounted.

http://www.nasdaq.com/markets/ipos/company/zynga-inc-782377-...

mxttr02• 14 years ago

if anyone cares:

- apparently 6/13 is not the actual lock-up expiry: http://techcrunch.com/2012/03/14/zynga-lockup-secondary-offe...

- this seems to be behind today's sell-off: http://blogs.sacbee.com/capitolalertlatest/2012/06/californi...

Aethaeryn2• 14 years ago

Please do not be a contrarian who buys ZNGA. You will probably lose money.

They have 3,000 employees,[1] even though their business model revolves largely around cloning[a] games that are simple enough for very small teams to create.[2] They're losing money; their EPS is -1.30.[3][4] Just because they have cash from investors doesn't mean that the business model will make significant money in the long run and it's made more complicated by the fact that they have a very heavy dependence on Facebook.[5]

They're also dependent on casual gamers (who don't have much loyalty or will to pay) and current trends.[b] Apparently, only 2% of their customers pay for their games.[5] Their stock market valuation seems largely mapped to their active user count[6] (and also Facebook's share prices[5]) rather than their financials.[c] In fact, I can't even say that they're overvalued because that involves looking at the P/E and with a negative EPS, I can't really do an apples-to-apples P/E comparison of Zynga against companies that are actually listed as profitable. Is a -3.8 P/E overvalued?[4] It certainly is risky!

-----

[a] They also buy some companies behind popular games too, like OMGPOP. This isn't necessarily a good idea.[7]

[b] The use of the term "game craze" in the title of the parent article implies that part of the reason ZNGA has a valuation in the billions is because of the current trendiness of Facebook games. The problem with relying on trendiness for investments is that when there's something even trendier (i.e. mobile apps), all the investor money that chases trendy stuff could simply go there instead.

[c] It was a popular dot-com bubble plan to focus on market share with a free product at a sustained financial loss.[8] Of course, it's too early to tell if ZNGA will sustain its losses in the long run because its stock is too young. Still, it's very risky.

-----

[1] https://en.wikipedia.org/wiki/Zynga

[2] https://s3.amazonaws.com/nbpromo/dearzynga.jpg

[3] http://www.google.com/finance?q=NASDAQ:ZNGA

[4] http://data.cnbc.com/quotes/ZNGA

[5] http://beta.fool.com/buffettbeater/2012/06/11/dont-get-zynge...

[6] http://www.marketwatch.com/story/zynga-falls-on-ugly-faceboo...

[7] http://www.forbes.com/sites/insertcoin/2012/05/04/draw-somet...

[8] https://en.wikipedia.org/wiki/Dot-com_bubble#Bubble_growth

ChuckMcM2• 14 years ago

Well their 180 day lockup is about to expire as well. I would fully expect some folks to liquidate next week, perhaps this is in anticipation of that.

One of the weird things about World of Warcraft was that there are (or were) folks who would sort of hang out in that world just to socialize and sometimes, perhaps, go out and kill some stuff. The 'hanging out' part was key, and I am convinced that if Blizzard could figure out a way for folks to sit down and play cards or checkers or something it would be popular.

People like to sit around and socialize, and if they can do it with an 'excuse' like a game of cards or a table top game, well that is just icing on the cake. I don't think Zynga has quite got the formula down yet but when they do, or someone does, you will see the rise of the 'Grandma chat rooms'.

fjarlq• 14 years ago

Looks like ZNGA's lockup period has already expired:

http://www.ifre.com/equities-zynga-insiders-race-to-cash-in-...

"IPO underwriters controversially agreed to early waiver of a lock-up agreement preventing insider selling within 165 days of going public"

So lock-up expired May 28.

Aethaeryn2• 14 years ago

  > The 'hanging out' part was key, and I am convinced that if
  > Blizzard could figure out a way for folks to sit down and play
  > cards or checkers or something it would be popular.

The problem with Zynga is that they built up casual games around a general purpose social network. I agree that social-oriented minigames would provide a much better user experience if they were built around a larger game environment, like a high-quality MMO. People who form groups in games want to be able to socialize, so social mini-games built around such a game is a good idea.

Another advantage, of course, is that you don't necessarily have to tie your full real life identity to your social identity. This allows people to be freer about what they can say or do, and might be more appealing.[a]

-----

[a] Yes, an argument can be made that attaching one's RL name to a post makes abuse less likely, but I believe that effective moderation of a community is a much stronger factor in having a quality community than simply requiring real names. I've seen places on the Internet where people were happy to flame using their full name and identity because of no moderators. On the other hand, HN is a good example of a civil online environment where real names are not required.

cube13• 14 years ago

>One of the weird things about World of Warcraft was that there are (or were) folks who would sort of hang out in that world just to socialize and sometimes, perhaps, go out and kill some stuff. The 'hanging out' part was key, and I am convinced that if Blizzard could figure out a way for folks to sit down and play cards or checkers or something it would be popular.

Some of the most popular WoW UI mods were popcap-developed versions of Peggle and Bejeweled. Poker mods also were fairly popular.

Not sure if any of them still work, though.

physcab• 14 years ago

2% of customers paying is pretty average for a free-to-play model. If Zynga has 60 million daily active users, thats 1.2M payers per day, more than enough to be profitable you'd think.

The real question is the value of their users, and whether Zynga can increase that value. Zynga's largest expense is probably marketing and CPI costs have more than likely doubled (I don't know the exact numbers) on Facebook over the past couple years. If Zynga hasn't increased the value of their users, that means they can acquire less, thus the drop in DAU.

The key equation for a free-to-play business is LTV > Acquisition. Unfortunately, CPI for FB probably somewhere around $1 and on iOS it can be $1-$5 depending on who's buying the traffic that day. This is why the social game market is difficult to survive in, because most small companies don't have the marketing spend to acquire customers at that cost. For Zynga, these costs are starting to show in reduced DAU, due to a combination of natural declining retention and an increase in acquisition costs.

rhizome• 14 years ago

In other news, it's summertime in the US and school just let out. People are using their casual time differently at this time of year.

podperson• 14 years ago

My reaction to this:

Good.

uvTwitch• 14 years ago

My thoughts exactly; I hope this trend towards quality continues.

Karunamon• 14 years ago

Very much seconded. Companies like Zynga contribute nothing to the gaming community, poach IP like crazy, and are, to borrow a highly technical term from Yahtzee, a bunch of hooting d*ckholes.

bond• 14 years ago

http://www.wolframalpha.com/input/?i=znga+vs+fb

Some nice charts...

jerf2• 14 years ago

The performance of all these stocks would seem to be a huge argument against the idea that we're in a bubble, a favorite topic around these parts. Bubbles don't look like this.

georgemcbay• 14 years ago

All of the sane discussion of recent bubbles that I've seen here and elsewhere has been careful to narrowly pinpoint the bubble activity to company valuations as defined by VC and other early-stage funding, not the market cap of public companies or the overall economy.

jerf2• 14 years ago

"Company valuations as defined by VC" won't float free of stock market performance for very long. I'm specifically referring to the last few big-name tech IPOs, none of which have been even remotely performing like a bubble surfer.

btbuilder• 14 years ago

Any inclination to play Draw Something was removed when it started asking me for extra Facebook permissions.

ahi2• 14 years ago

So major FB source of revenue is collapsing, but FB shares go up? Too much coke on Wall St.

yvdriess2• 14 years ago

Can we have Brian Reynolds back now, please?

http://en.wikipedia.org/wiki/Brian_Reynolds_(game_designer)

Zynga shares plummet as Facebook game craze wanes

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