Zynga stock falls by 14 per cent after Facebook IPO closes flat

Zynga's dependency on social network becomes clear on Facebook's first day of trading

Zynga's financial dependency on Facebook was clearly illustrated on Friday, as the social network's first day of trading sent its stock price crashing by almost 14 per cent.

Zynga's stock started the day at $8.51, but dropped to $7.17 by noon. It then rose sharply to $7.80 less than two hours later, before steadily declining to close the day at an all-time low of $7.12.

According to a report on AllThingsD, the abrupt rises and falls were partially due to an internal procedure on the Nasdaq that briefly halts trading when a stock moves more than 10 per cent in either direction - Zynga's stock was briefly frozen after its initial, before shooting back up when trading resumed.

More importantly, Zynga's stock shadowed the movement of Facebook's first day of trading. The social network's highly anticipated IPO stayed at its opening price of $38 until around noon - influencing Zynga's decline - before rising ten per cent to almost $42 an hour later - prompting Zynga's spike.

Facebook's stock ultimately closed the day at $38, despite the widespread expectation that it outperform its own pricing.

Zynga accounted for 12 per cent of Facebook's revenue in 2011, but the relationship between the two companies is still heavily skewed in the social network's favour. Zynga recently launched its own network, Zynga Platform, in an effort to create a solid user-base away from Facebook.

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Latest comments (10)

Nicholas Lovell Founder, Gamesbrief5 years ago
I think it may have been more about asset allocation, and companies who were using Zynga as a proxy for Facebook sell stock to fund their investment in Facebook, once it was available to public market investors.
See Zynga’s share price collapses as status as "Facebook proxy" disappears
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Bruce Everiss Marketing Consultant 5 years ago
Zynga is aggressively using their wealth to create entirely new IP and to move onto different platforms, notably mobile, which is growing far faster than Facebook is.
To do this they are using all their social gaming and metrics skills, honed to near perfection.
So the business model and income stream for the company will be a lot different in 12 months time to what it is now.
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Chuan L Game Designer / Indie Developer 5 years ago
People are going to get real sick of the F2P model and the insistence to buy things. Much the same way that most folks nowadays don't read junk mail but put it straight in the recycling bin. Maybe good for now but ultimately as a consumer I would love to see good quality games that I feel are worth the asking price.

Earlier today I cleaned out my iPhone of all the F2P apps and it felt good. The games I still have on there such as "Deep Green" are fantastic and I know I can come back to them. The quality of experience is important and I think most people in the gold -rush are over looking this. In the end it'll just drive consumers to be extremely wary of F2P and it's already starting to be annoying.

-- Chuan
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Bruce Everiss Marketing Consultant 5 years ago
@Chuan L
There is absolutely no reason that the experience of an FTP game should be any less than the experience of a paid for game.
In fact IAPs give the publisher the incentive to use metrics to improve the game, an incentive that doesn't exist in paid for games.
FTP/IAP games are still in their infancy as a business model. We have had much discussion here about some of the potential and there really is a lot more to come.
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John Donnelly Quality Assurance 5 years ago
F2P is one thing, but most of the IAP games I have seen block progress unless you are willing to pay up.
I dont like that model.

Plus when it comes to facebook I really cant stand game spam, my list of blocked game apps is long and Zynga makes up a good percentage of that.
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Bruce Everiss Marketing Consultant 5 years ago

Like I said IAP is in its infancy. Certainly a currency can allow a seamless integration with the game and opens up all sorts of strategies.

As for spamming up player's Facebook walls, at Kwalee we deliberately don't do this. However with Gobang Social we do give the player the option to invite 50 friends in one go! But the option is very much theirs.
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John Donnelly Quality Assurance 5 years ago
True, time over money is one that MMO developers have faught with in regards to the gold farmers and the like so there are people with limited time who want to max out the game experience quickly and are wiling to pay for it.
But there is also dangers with how that time VS coin setup is done and there will be some people who will activly want to nickle and dime the customer.

All you have to do is look at how some of the console DLC is handled and the player reactions to it to see the dangers will the IAP models.

I hope over time people dont push the boat out too far but personally I like knowing I can pay X for a game and all the content is there.
I dont like getting 1/2 the game when paying to play even more so if the game is F2P with adds to support it.

However I am not the typical target market for some of these games, I only recently joined the 'smart phone' owning masses.
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I'd like my gaming pure and unadultereated by monkeys asking to put in pennies to enjoy the game experience. NO ifs or buts.
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Gary McHale Studying Computer Science and Artificial Intelligence, University of Sussex5 years ago
Strange the comment I posted yesterday is no longer there!

I was explaining how the new issues market works. Say you are the lead underwriter of a big IPO, but you can't place the shares with investors. What you have to do is to hedge your exposure, you can't sell the shares into the market yourself as you are lead underwriter. Similarly the co-underwriters cannot be seen to sell them as this will affect the likelihood of being invitited into other deals. What you do then is to sell a stock whose price is correlated with that of the IPO stock. In this case Zygna. This is pretty standard practice when a deal goes badly. If it goes really really badly, you let the price drop, and then you buy back all the shares in issuance, and all the shares that people have sold short. Then you wait. If you own more than 100% of the issue someone has to buy them back at some point (you make sure you don't lend the shares out), the price starts increasing quite signifcantly (known as a short-squeeze). Then you are in a position to distribute the shares to investors at a substantial discount to the current market price (yielding them an instant book profit). This is how new-issues are managed. Just in case you are interested...

Edited 2 times. Last edit by Gary McHale on 22nd May 2012 2:08am

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Unfortunately this thread is almost missing in the wall of posts.

@ Gary - that is some fascinating analysis there, and no doubt as FB shares float downwards even further there will be multiple strategies to milk this IPO even further. It all smells rotten somehow...
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