Zynga Disappointing 2nd Quarter Result Could Prove Fatal For Facebook: Facebook Shares Down Drastically!

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Zynga with over 292 million active users, is one of the top revenue providing source for Facebook. Facebook scooped up 15% revenue in the first quarter of this year, which was the contribution by Zynga alone.

But the second quarter result of Zynga was below the expected range which led to the disappointment to the analysts (Wallstreetjournal). Its stock value went down to nearly 40% at the early after-hour trade. Just imagine its direct impact on Facebook’s revenue, especially with the “not so impressive” Facebook IPO. Is this going to be a problem for Facebook too?

Zynga’s revenue drop:

As per the released report of Zynga, the firm incurred a loss of $22.8 million or 3 cents a share. Zynga earned a revenue of $332.5 million for the second quarter of 2012 which is below the expected range of $344.12 million by the analysts ( as per Thomson Reuters I/B/E/S).

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It’s almost 11% decrease in the expected revenue by Zynga. Also the bookings fell down to  8% compared to the first quarter of 2012. A decrease of 90% compared to the first quarter of 2012 was seen for Non-GAAP net income.

It is mentioned in the report:

“We are lowering our outlook to reflect delays in launching new games, a faster decline in existing web games due in part to a more challenging environment on the Facebook web platform, and reduced expectations for Draw Something.”

Reasons behind Zynga’s slashed Q2 results:

One of the reasons for Zynga’s slashed results is that some of its games did not go well, including draw something and moreover Zynga also held Facebook responsible for its decrease in revenue, partially. Facebook changed its algorithm, leading users to play new games (like the villi type games) online other than the existing Zynga games.

John Schappert – chief operating officer of Zynga said “Our users did not remain as engaged and did not come back as often. Instead new games were promoted.”

Facebook’s IPO drop:

This month Facebook’s stock value dropped to 7%, eventually leading to the removal of Mark’s name from the top 40 billionaires in the world, as per bloomberg. Facebook’s IPO value is currently fluctuating between $28 -$29, which is way lower than its initial pricing of $38. Facebook’s stock has already stirred dissatisfaction amongst most of its shareholders.

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As Zynga is a contributor for Facebook’s revenue and due to the revenue decline of Zynga, eventually Facebook might have to face difficulties pertaining to its revenue growth. Moreover, problems related to Facebook’s IPO also might add up, resulting in overall revenue decrease. Facebook seriously need to understand the pulse of the online gamers and their interests and try to change its algorithm.

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