Facebook fall prompts lawsuits, Zynga stock drops

The Facebook IPO generates 3 lawsuits, Zynga stock hovers near new lows

The Facebook IPO has been a hot mess, with the stock dropping sharply earlier this week as investors learned that crucial information was withheld from smaller investors in the period before the IPO. So far three lawsuits have been filed, and more are expected. Other social media stocks have also taken a hit because of this, and Zynga's stock is hovering near its historic low. Facebook's woes clearly impact Zynga, since over 90 percent of their revenue comes from Facebook currently.

Facebook said it would defend itself "vigorously" as it rejected the accusations that any of its actions were illegal. One of the lawsuits claims that Facebook, Morgan Stanley and other underwriters "failed to disclose that during the IPO roadshow, the lead underwriters... cut their earnings forecasts and that news of the estimate cut was passed on only to a handful of large investor clients, not to the public," said law firm Glancy Binkow & Goldberg.

Meanwhile, investors drove Zynga stock down below $7, less than half the high point it reached two months ago. Investors have been questioning the value of the Draw Something maker OMGPOP, as the game has dropped from 33.7 million users to 29.3 million, and other Zynga games have been losing users this week. Other popular Facebook games have dipped as well; Angry Birds dropped from 23.2 million to 20.9 million, for instance. Zynga has in the last 30 days slid from 281 million monthly average users (MAU) to 248 million MAU.

Facebook's stock seems to be recovering a bit today, though some analysts still feel it is significantly overvalued. Richard Greenfield, an analyst at BTIG, wrote: "Facebook's IPO priced at a level well above where we foresaw compelling 12-month returns. With revenue and earnings growth decelerating this fiscal year, we find Facebook's current valuation unappealing."

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Latest comments (6)

Wayne Gibson UK Marketing Manager for 5 years ago
Sounds like another over inflated balloon about to burst.
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Preet Basson Train2Game Developer 5 years ago
Is anybody even surprised at this? I mean come on, Facebook stock was way over priced to begin with, for anyone in stocks that didnt know that this was going to happens need to leave now. Im no stock analyst or expert, but I knew this was going to happen.
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Sounds like a get rich scheme a happening. maybe someone knew the IPO would suck and bet against it...
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John Donnelly Quality Assurance 5 years ago
One of the issues is that the big investment banks where given word that Facebook expect the Q2 revenu to be lower than predicted, this reduced their want to buy the stock.
Small investors who though they would like a peice of facebook went in at $38 a share but the stock was only worth $32, this is why it dropped to 31 and recovered to $33 over the last few days.

Second, you had the problems with the Nasdaq reporting of corrections/cancles which impeded investors futher impacting on the day 1 prices as people did not know if it was safe to invest or not. This is another problem with the IPO that was not expected and it made for chaos last Friday.
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Leon Charles Studying Computer Games Development, University of Westminster5 years ago
Casual market are not reliable, they follow trends, once something new comes along they jump on it and the last thing becomes old fashion. Simple social intelligence, you don't need to make science out of it.
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Andrew Ihegbu / 5 years ago
Its a bubble and it HAS burst. The peak point for Zynga was 2 years ago, when speculation from people that hadn't got a clue about the games industry drove share prices up.

Now Zynga will keep falling. Facebook will fall then level out, unless there's some mass exodus towards another social network from the users, but if the lawsuit succeed, it will fall a lot more.
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