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Two Stocks That I thought would be doing Better - Zynga and Facebook

Updated on July 28, 2012

As a formerly addicted Mafia Wars player, I saw the value of Zynga early on. When I was a player, I noticed that there were always, literally, millions of MW players online at a time. And the structure of the game was so simple, yet so brilliant. You get to a level, only to get to more challenges and get to that higher level. And one of the biggest factors in reaching that next level? Time. Time spent in the game, which also meant time spent in Facebook. Everything is integrated within Facebook, so that users constantly jump in and out of Mafia Wars, while staying inside Facebook… Game updates for example: “Someone has given you a free gift”, “Someone needs your help on a challenge” , or “Someone needs your help in a War” would stream on your Facebook Homepage, and you would click the link and reenter Mafia Wars. Then within Mafia Wars, there would be similar reasons to leave the game and go back to Facebook.

One of Zynga's Most popular and addictive games -- FarmVille
One of Zynga's Most popular and addictive games -- FarmVille | Source

Zynga Keeps People in Facebook for Hours

There are other ways Zynga benefits Facebook. For starters, you immediately need at least 501 people in your mafia or you will get your butt kicked. This means players have to recruit friends, and those friends would also be spending hours in Mafia Wars, which means spending hours in Facebook….and those friends would be recruiting other friends for there first 501 mafia family, and the cycle goes on. Mafia Wars is free, but of course, for a few bucks you could buy some necessary items to help advance your mafia to the next level. So revenue comes from Ads and the game itself.

And this is just one of the very addictive Facebook games that Zynga has produced. They also have FarmVille, Zynga Poker, CityVille and PetVille to name just a few more. All of which are extremely popular and probably just as addictive (I only let myself get addicted to MW). To me Zynga seems like a money making machine with endless possibilities….


Zynga's Stock Woes

That is why I was so surprised when I read about Zynga's recent stock troubles. Last Wednesday, not only did Zynga stock plummet 40 % (Stock Symbol ZNGA), but now the company is being investigated by at least 6 different Law Firms after company insiders (including CEO Marc Pincus) had allegedly dumped 500 Million in stock prior to Wednesday’s earnings report.

ZNGA, which started trading on the NASDAQ Mid December of last year and reached a high of nearly $15 in Mid March, is now trading just over $3. Zynga Blames a more challenging environment in Facebook (not as easy to broadcast posts is it? The need for 501 friends in Mafia Wars, etc… Mafia Wars and similar Zynga games thrived when Facebook was more open and "friend friendly").

The statement. “A more challenging environment” from Zynga about Facebook doesn’t surprise me. Zynga and Facebook have not always gotten along. A few years ago (2010),there was speculation that Zynga might leave Facebook, due to the fact Facebook was making it harder for players to interact. Back then, Zynga was boasting 244 million active players monthly, but were dropping millions of players due to Facebook’s policy changes and renovations. Zynga stayed of course, but it’s only gotten tougher.

Where's the Love?

While the statement from Zynga about the tougher environment doesn’t surprise me, Facebook’s rocky relationship with Zynga does surprise me. Why would Facebook make things so much tougher on one of its best revenue sources? Zynga puts out some of the best (and most addictive) social games on the internet. Games that keep millions of players inside of Facebook,… FOR HOURS. …..and while Zynga announced they will not be leaving Facebook, they are opening up “other distribution channels” including their own, which as I just checked now, has over 1.2 million people currently online. Which now leads me to my next current stock disappointment..

FB stock, notice the sharp decline after the opening.
FB stock, notice the sharp decline after the opening. | Source


Despite the fact Facebook, Stock symbol FB, reported last week that Q2 revenue rose over 30%, the stock continues to slide downward. Concerns about their mobile application, sour IPO investors, and revenue that was “good, but not good enough” are to blame for the current stock tumble, which fell over 11% on Friday.

Some IPO investors are angry at Facebook over the speculation that instead of getting the normal 10-20 percent discount normally rewarded for getting in early, Facebook valued the stock as high as it could. This high valuation caused the IPO to plummet almost immediately when it went public. And in today's market, when a stock is valued at approx. 48X projected earnings, even Q2 revenue growth of 30% can’t thwart of a stock sell off, because revenue growth for Q2 wasn’t as good as Q1. It’s reported that Mark Zuckerberg lost 3 billion Wednesday through Friday last week, (while the DOW and NASDAQ finished up the best 3 Day Rally in 2012). And Facebook stock will not be going back up any time soon….

Facebook will be Freeing up 1.7 billion shares over the next few months starting in August as company employees and insiders will be able to legally sell their holdings after the SEC required “IPO lockup” period has expired. You can expect the shares to sell off sharply as company employees and insiders will certainly not want to hold all of their new wealth “in one basket”,.. especially a basket that has already slipped 40 %.

Do you like the changes Facebook has made over the last few years?

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"Let's get the Band back Together"

Bottom line, Facebook will have to aggressively look to beat investor expectations each quarter or will suffer more decline. One way not to do that? Get rid of one of your best symbiotic partners – Zynga.

My opinion? Facebook and Zynga need get into cooperation mode quickly, before they both split up like angry rock stars and stomp off to do “their own thing”….. only to find out years later that they only sold Gold Records when they were together…….


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    • howlermunkey profile imageAUTHOR

      Jeff Boettner 

      6 years ago from Tampa, FL

      @internpete - yep, the stock market doesn't discriminate or favor, strictly by the numbers. I was hooked on MW for about a year, and had to walk away, but saw the value that Zynga brought to Facebook. Hours per day by Zynga players inside Facebook. Thanks for commenting :)

      @MarleneB -- I never played Farmville, but I heard it was even more addictive then Mafia Wars. Friends and Family is exactly how I got pulled into MW. Thanks for your comments :)

    • MarleneB profile image

      Marlene Bertrand 

      6 years ago from USA

      I never played Mafia Wars, but Farmville caught my attention. I had to quit, because I became addicted quickly and had a difficult time pulling away from it. All my family and friends were playing it, so it was fun online interaction with them. Anyway, I really enjoyed your report. Your point of view is spot on the market!

    • internpete profile image

      Peter V 

      6 years ago from At the Beach in Florida

      Yeah, it is very interesting that two popular companies would do poorly in the stock market. I used to play mafia wars quite a bit, but eventually got tired of it. I wonder if the changes to both facebook and mafia wars in the last few years have hurt them in the stock market?

    • tobint44 profile image

      Tyler Tobin 

      6 years ago from North Carolina

      Krispy Kreme has a monopoly on North Carolina. The lone Dunkin Donuts in my area does good, but nothing compared to the "Hot Now" light.

    • howlermunkey profile imageAUTHOR

      Jeff Boettner 

      6 years ago from Tampa, FL

      Thanks tobint44! Funny you should mention Krispy Kreme, spent some time in Tallahassee and used to live off of those yummy donuts. Now I'm in New England and there's a Dunkin donuts every 100 yards... Thanks for reading my hub :)

    • tobint44 profile image

      Tyler Tobin 

      6 years ago from North Carolina

      I definitely thought that both stocks would be high performers and was going to purchase stock in both of them. The issue was that I had a similar stock "fail" on me in the past and have decided not to purchase stock in which I have a vested interest (Krispy Kreme, just because the doughnuts are good doesn't mean the money is.) Great hub! Excellent information for people interested in both stocks.

    • nighthag profile image

      K.A.E Grove 

      6 years ago from Australia

      A great informative read, It certainly highlights the need for cooperation between business's, which could only be a good thing for them and consumers alike. but Selfishness and Ego often gets in the way of such things

      A great read thanks for sharing such solid information :)

    • howlermunkey profile imageAUTHOR

      Jeff Boettner 

      6 years ago from Tampa, FL

      @Cogerson: I became very familiar with Zynga when my friend introduced me to "Mafia Wars". That game kept me in Facebook hours at a time, until I just had to walk away hahaha. That's when I saw the value Zynga could provide for Facebook. I'm still a Facebook believer as they are integrated everywhere, just don't understand the rocky relationship with Zynga. Thanks for your comment.

    • Cogerson profile image


      6 years ago from Virginia

      A very interesting look at both Facebook and Zynga....I have never used Zynga so I was completely educated by your hub on Zynga.....Facebook I use and followed closely the stock prices. Since you have written this hub five weeks ago....thinks have gotten even worse for Facebook. Interesting and informative...a nice combo for a hub. Voted up and useful.

    • howlermunkey profile imageAUTHOR

      Jeff Boettner 

      6 years ago from Tampa, FL

      Thanks Brett! I completely agree. The "timeline" was one of those changes that most users didn't like (including myself). I loved facebook when it was simple.

    • Brett.Tesol profile image

      Brett Caulton 

      6 years ago from Asia

      Although I have avoided both of these, for the reasons you say 'spending hours on Facebook', I have to admit I expected the stock of these companies to be very successful. However, updates (especially timeline) have upset many users. I always feel that users should have a choice to take on the new style ... like a theme option.

      Up, interesting and sharing.

    • howlermunkey profile imageAUTHOR

      Jeff Boettner 

      6 years ago from Tampa, FL

      Thanks Steven Govoni! I can see Zynga getting bought up, wasn't aware of Amazon's social gaming service, I'll read up on that one, thanks for the tip, and thanks for the comments!

    • Stephen Govoni profile image

      Stephen Govoni 

      6 years ago from Coastal Massachusetts

      Awesome hub. Don't get me started on ZNGA, sadly I do have some shares. Granted, I thought $5 was the floor!

      There is a good chance Zynga will get bought up. Amazon recently launched it's own social gaming service. It's an arena the big dogs want to get in on. Facebook might need to do it if it wants to protect a big revenue source. Again, great hub!

    • howlermunkey profile imageAUTHOR

      Jeff Boettner 

      6 years ago from Tampa, FL

      Great Comment MakinBacon. They may have waited a bit too long to go public, and their current P/E is 48X, in a sector that averages 30X. So right off the bat they are heading downhill unless they can "wow" Quarterly expectations. And I'm not so sure short term they will.

      I think they are not going anywhere, as they are fully integrated with everything I still believe they are a solid long term investment, but I'm not putting any money in yet.

      On a personal side note -- I miss the "Old" , simple facebook. The timeline, forcing everyone into "groups".. I don't know, seems overly complicated. And for Zynga, moves like this have been killing them for years. I don't think they want to leave Facebook, it's more like they are being pushed out, which, is mind boggling to me.

    • MakinBacon profile image


      6 years ago from Louisville Area

      As for Facebook, they seem to be a couple of years late to the IPO game. They may have waited too long before the offering, as the growth in the Western nations has pretty much reached saturation point before the offering, leaving mostly third world countries as the source of growth, which is not the most popular demographic with advertisers.

      And the idea that you can simply scale a business and later figure out how to monetize it is getting a little old as far as investors go.

      I'm not excited at all about Facebook, and even over time it's going to be very challenging for them to grow earnings at levels that will boost the stock to levels that will attract shareholders.


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