Zynga Inc (NASDAQ:ZNGA) and Facebook Inc (NASDAQ:FB) have been partners in losses for a while now. Both companies reported losses in their quarterly earnings, Zynga is now trading at $3 which is less than a third of its original issue price of $9.50, back in 2011. The social-games company lost $22.8 million in this quarter.
Following a similar trail, Facebook has gone down from the $38.0 IPO price to a mere $23 now. Facebook Inc (NASDAQ:FB) provides over 90 percent of Zynga’s revenues, while Zynga Inc (NASDAQ:ZNGA) accounts for 12-15 percent of Facebook’s. This division of profits implies that any change in Facebook’s policy on games could have fatal effects on Zynga. During the June quarter, Facebook Inc (NASDAQ:FB) changed the way games appear, giving priority to new games, and pushing down the classics by Zynga. These modifications in the gaming platform made it harder for users to find the good old games like ‘FarmVille’ and ‘CityVille’, and resulted in a drop in its share price. Facebook is Zynga’s lifeline, hence this modified appearence only brought bad news for the company.
Welcome to our latest issue of issue of ValueWalk’s hedge fund update. Below subscribers can find an excerpt in text and the full issue in PDF format. Please send us your feedback! Featuring hedge fund assets near $4 trillion, hedge funds slash their exposure to the big five tech companies, and Rokos Capital's worst-ever loss. Read More
Analysts have been proposing that Facebook Inc (NASDAQ:FB) should buy Zynga Inc (NASDAQ:ZNGA) since before Facebook’s IPO in May of this year, Stakes are even more in favor of Facebook, for this supposed buy, than ever as Zynga shares are rolling down consistently and as yet there is no stopping it. Although the changed profile of games at Facebook might not be a deliberate attempt to bring down Zynga’s shares, as suggested by analysts at Seeking Alpha, it will hurt the company that relies on Facebook for most of its earnings. Facebook can benefit from buying Zynga in many ways. First of all at such a low share price ($3.0), Zynga will come as a very low-cost acquisition for Facebook. Analysts believe that $1 billion would cover the deal. Moreover it is rumored that Zynga has 238 million monthly active users, if Facebook makes the deal it could retain these many users to its platform for the long run and as gaming-addicts will visit the website multiple times a day, it will boost profits for Facebook. On the other hand if Zynga goes under, the only significant social-games company would be wiped, thus bringing further bad news for Facebook. Zynga accounts for 12-15% of Facebook’s revenue, in rough times like this, Facebook can’t afford to lose this source of income, which seems likely if Zynga continues the downward trend. If Facebook acquires Zynga, it will give the gaming company a chance to survive and perhaps a better and more innovative social gaming platform will evolve.