Wall Street analysts downbeat their expectations on Facebook Inc (NASDAQ:FB), after Zynga Inc (NASDAQ:ZNGA) reduced its full-year outlook in its preliminary financial results last week.
The online gaming company slashed its full-year bookings to $1.08 billion-$1.10 billion, from its previous estimate of $1.15 to $1.22 billion. The company also expects to report a revenue of $300 million to $305 million, and a net loss of $90 million to $105 million for the third quarter ended September 30.
Mark Pincus, CEO and founder of Zynga said, “The third quarter of 2012 continued to be challenging, and, while many of our games performed to plan, as a whole we did not execute to our satisfaction.”
Zynga Inc (NASDAQ:ZNGA) released its outlook weeks ahead of its scheduled earnings report, which affected the expectations of analyst on Facebook. The online gaming company has a close business partnership with the social network giants. A significant number of Zynga users use the Facebook platform to play games. This means, the success or failure of Zynga has an impact on Facebook’s financial results.
Facebook Inc (NASDAQ:FB) generated 14 percent of its revenue from Zynga Inc (NASDAQ:ZNGA), based on its earnings report during the previous quarter. This is one of the reasons many analysts reduced their expectations on the social network giant, which is schedule to report its earnings on October 23.
One of the analysts, who immediately scaled down its expectations on Facebook Inc (NASDAQ:FB), was Scott Devitt, from Morgan Stanley (NYSE:MS). In a research note to investors, Devitt wrote, “”Just over half of Facebook’s Payments & Other (P&O) revenue was related to Zynga product in 2Q2012. We are unsure whether Zynga’s reduced outlook is due to more-vigorous competition within social gaming that may benefit Facebook, or instead, due to less interest in social gaming overall. We, therefore, prefer to take a more conservative approach and reduce our Facebook Inc (NASDAQ:FB) Payments & Other (P&O) revenue accordingly.”
Doug Anmuth, analyst at JPMorgan Chase & Co. (NYSE:JPM), also lowered his estimate on payment revenues for the social network giant by 28 percent, to $582 million for 2013. According to him, “The bottom line is that Zynga’s numbers — and likely the outlook for 2013 –are even worse than expected.”
Pivotal Research Group analyst, Brian Wieser, cut his 2013 price target on Facebook stock from $32 per share to $28 per share. He also indicated in his note to investors that Facebook “has been diversifying away from relying on Zynga for payments revenue.”
Another analyst, Richard Greenfield, of BTIG, downgraded his rating on Facebook stock from “neutral” to “sell”, and initiated a price target of $16 per share.
On the other hand, Brian Pitz, analysts at Jefferies & Company, delivered a different note and expressed increased optimism on Facebook’s long-term prospects, particularly on the company’s advertising plans, such as the Facebook Ad Exchange.
Shares of Facebook Inc (NASDAQ:FB) are trading around $19.72 per share, while Zynga’s stock is trading around $2.44 per share during the afternoon trading on Thursday.
