Facebook Inc (NASDAQ:FB) and Zynga Inc (NASDAQ:ZNGA) are two names commonly mentioned in the same sentence on Wall Street today. This is not only because they are partners, but because they both seem to be sharing a fate of falling stock price, and horrible earnings. How are they fighting the battle with their issues? Lets take a look.
Many users on Facebook Inc (NASDAQ:FB) may have a noticed a change in the way ads appear on their pages now. In times past, Facebook Inc (NASDAQ:FB) ads displayed in small blocks to the side of the news feed, however, it seems that is changing, as Mark Zuckerberg faces pressure to increase Facebook's earnings.
Beginning in February of this year, Facebook Inc (NASDAQ:FB) rolled out a new type of ad, which it termed "Logged Out" ads. These ads are giant banners which fill the screen when a users logs of his or her Facebook account. Many of them are for such entities as Progressive Insurance, and they offer you a free rate quote for liking the page. Incidentally, liking a page such as this will insert ads in your news feed,
These ads are part of Facebook Inc (NASDAQ:FB)'s attempts to earn more money through their advertising program, and they hope that by increasing the size of the ad, they can increase the number of clicks it receives. The more interest and ad generates, the more revenue the advertiser is likely to earn from users, and this in turn will increase the amount of money paid to Facebook by advertisers.
The social networking giant needs a boost as its stock is trading near half of what it was initially offered for at its IPO in May. This, coupled with a loss of revenue from gaming partner, Zynga Inc (NASDAQ:ZNGA), has hurt the company severely. However, one can only lay the blame for Zynga Inc (NASDAQ:ZNGA)'s losses directly at the feet of Facebook, as they changed the way their gaming platform loads the games, and it pushed some of the more popular ones to the back of the list.
Zynga Inc (NASDAQ:ZNGA) has definitely felt the heat from this, as their stock is currently trading at less than half of the $10 per share price set at its IPO last year. The company has lost major ground due to Facebook's changes, and it seems that Facebook is to share a similar fate, as its own stock price has plunged.
JMP Securities has released a report which shows some hope for Zynga, though they do not believe it will climb back to its IPO price any time soon. They rate the company at a fair price of $4.50 per share, although it is currently trading at $3.24 per share at the time of this writing.
The company lists a benefit of Zynga Inc (NASDAQ:ZNGA) as being their "virtual goods" offerings in their games. They point out that though Zynga games are free to play, they offer the ability to purchase items which increase a player's functionality in the game. As of June, JMP estimates that 72% of Americans play Zynga games, which gives them a lion's share in the market. They note that Zynga Inc (NASDAQ:ZNGA) observes approximately 1,000,000 moves per second on their game servers. They point out that these virtual goods offerings may be just the ticket to Zynga's salvation as more and more Americans spend money on fuel and supplies for FarmVille, and other games on the platform.
JMP's analysts say that the ability to be socially involved with friends and family online in Zynga Inc (NASDAQ:ZNGA)'s platform has given the gaming giant an edge in the market, and they also point out that Zynga has ramped up its payment sector to keep up with the times. The company now accepts payments from credit cards, Pay Pal, iTunes accounts, and direct wire transfers. These payment options will be able to accept payments from most users who wish to access Zynga's virtual goods.
Facebook and Zynga are both struggling as investors seem to lose faith in the stocks. Facebook received a major blow when Peter Thiel, a board member, and Facebook's first outside investor, sold most of his stock in the company. This public display of mistrust in the company caused several other shareholders to liquidate their stocks as well.
All in all, it looks like a bleak future for these two companies, as they struggle to stay afloat. Could it be that Facebook's days are numbered? I don't know, but I can say for sure that its days are pretty dark at best. We will have to wait and see what they are able to do, in order to salvage what's left of their reputation with investors and users alike.