Zynga shares plummet as Facebook game craze wanes

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.

> 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

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.

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.

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

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.

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>"

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

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

Basically, they make some shit up.

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.

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.

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.

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

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.

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'.

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.

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...

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.

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

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.