8 ms·

Zynga shares plummet as Facebook game craze wanes

101 points by acak 14y ago

ahelwer 14y ago
One thing I've always wondered with these headlines: how do they establish causality? Do they ask some pundit why shares dropped 10% in a day and run with that?
- slug 14y ago
  Probably they are having fun looking at this and extrapolating from there: https://www.google.com/finance?chdnp=1&chdd=1&chds=1&chdv=1&chvs=maximized&chdeh=1&chfdeh=0&chdet=1339531200000&chddm=6647&chls=IntervalBasedLine&cmpto=NASDAQ:ZNGA&cmptdms=0&q=NASDAQ:FB&ntsp=0 https://www.google.com/finance?chdnp=1&chdd=1&chds=1...
- joshu 14y ago
  Basically, they make some shit up.
  - ahi 14y ago
    A family member is in the biz press. joshu has it right. Although, in this particular case the attribution is probably correct.
- jswinghammer 14y ago
  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.
  - koeselitz 14y ago
    Yes, but that doesn't answer the question. Sure, it makes sense that there's not much reason to hold stock when the growth is negative. The question was: how do you decide why the growth is negative? This is an important, because sometimes stocks dip for a day, and sometimes they dip for a decade. Knowing why would seem to be the best basis for investing.
- Retric 14y ago
  http://xkcd.com/904/ http://xkcd.com/904/
- its_so_on 14y ago
  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.
  - brown9-2 14y ago
    The headline might not argue causality but I think it certainly is written in a way to imply it. This is a common structure for headlines about stock prices moving large amounts in either direction. The average reader does not like to think that finding a singular reason for something like this is impossible.
- gruseom 14y ago
  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.
  - brc 14y ago
    Yes, I think you're right on your source. In short, markets move around for a whole host of random reasons. The nightly news 'the market moved lower on profit taking' or 'the market moved higher on positive news X' is just rubbish. Occasionally, there is a cause-and-effect like an unexpected interest rate change, or a better-than-expected sales figure in a key industry, but for the rest of the time, it's just random movement. The worst thing is the need to commentate on it confuses the correlation in the general publics mind, so people believe you can talk the economy up or down, which is an assertion I don't agree with.
- veyron 14y ago
  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
deleted 14y ago
[deleted]
smoyer 14y ago
Zynga is said to be moving games into the mobile market, but you also have to figure that being a gaming company is hard. You're top-rated game will be supplanted by something else in short order and you have to constantly be updating. I think that the way Zynga acquired its customers/users is exacerbating the situation. If your friends are all there you feel compelled to join too, but if some leave it's socially acceptable to follow them elsewhere. Since we're talking about "social" gaming, I also have to wonder whether part of the drop isn't seasonal ... at least where I live, it's now nice enough to spend a lot of time outside socializing (picnics, frisbee, t-ball, etc) so perhaps there's just not the boredom to drive as much traffic?
- yvdriess 14y ago
  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.
zerostar07 14y ago
The lack of inspiration, willingness or innovation on Zynga's part is still baffling.
steve8918 14y ago
I stepped in and bought some shares at $5.00. ZNGA's current market cap is $3.5B. But it has about $1.2B in cash, and little debt. Regardless of how you feel the games, they do have a real business, so if Instagram is worth $1B to Facebook, ZNGA must be worth somewhere north of $2.5B, its current enterprise value.
- joejohnson 14y ago
  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.
  - Florin_Andrei 14y ago
    Many people find the incessant game posts on Facebook annoying. Perhaps that explains some downvotes. But I do agree with everyone. :) Yes, it's annoying. Yes, it was a fad, initially. But yes, there must be some enduring value in the business model, after the bubble bursts and people start thinking more rationally about it.
  - runako 14y ago
    >> they are a profitable company Citation? SEC filings say they are losing money at a rapid clip.
- joering2 14y ago
  > 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 http://www.donnaklinenow.com/investigation/instagram-scam
mxttr0 14y ago
Rumor has it that the insider lock-up is tomorrow, which doesn't help as it's being discounted. http://www.nasdaq.com/markets/ipos/company/zynga-inc-782377-67565 http://www.nasdaq.com/markets/ipos/company/zynga-inc-782377-...
- mxttr0 14y ago
  if anyone cares: - apparently 6/13 is not the actual lock-up expiry: http://techcrunch.com/2012/03/14/zynga-lockup-secondary-offering/ 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/california-internet-poker-bill-pulled-from-senate-committee.html http://blogs.sacbee.com/capitolalertlatest/2012/06/californi...
Aethaeryn 14y ago
Please do not be a contrarian who buys ZNGA. You will probably lose money. They have 3,000 employees,[1] even though their business model revolves largely around cloning[a] games that are simple enough for very small teams to create.[2] They're losing money; their EPS is -1.30.[3][4] Just because they have cash from investors doesn't mean that the business model will make significant money in the long run and it's made more complicated by the fact that they have a very heavy dependence on Facebook.[5] They're also dependent on casual gamers (who don't have much loyalty or will to pay) and current trends.[b] Apparently, only 2% of their customers pay for their games.[5] Their stock market valuation seems largely mapped to their active user count[6] (and also Facebook's share prices[5]) rather than their financials.[c] In fact, I can't even say that they're overvalued because that involves looking at the P/E and with a negative EPS, I can't really do an apples-to-apples P/E comparison of Zynga against companies that are actually listed as profitable. Is a -3.8 P/E overvalued?[4] It certainly is risky! ----- [a] They also buy some companies behind popular games too, like OMGPOP. This isn't necessarily a good idea.[7] [b] The use of the term "game craze" in the title of the parent article implies that part of the reason ZNGA has a valuation in the billions is because of the current trendiness of Facebook games. The problem with relying on trendiness for investments is that when there's something even trendier (i.e. mobile apps), all the investor money that chases trendy stuff could simply go there instead. [c] It was a popular dot-com bubble plan to focus on market share with a free product at a sustained financial loss.[8] Of course, it's too early to tell if ZNGA will sustain its losses in the long run because its stock is too young. Still, it's very risky. ----- [1] https://en.wikipedia.org/wiki/Zynga https://en.wikipedia.org/wiki/Zynga [2] https://s3.amazonaws.com/nbpromo/dearzynga.jpg https://s3.amazonaws.com/nbpromo/dearzynga.jpg [3] http://www.google.com/finance?q=NASDAQ:ZNGA http://www.google.com/finance?q=NASDAQ:ZNGA [4] http://data.cnbc.com/quotes/ZNGA http://data.cnbc.com/quotes/ZNGA [5] http://beta.fool.com/buffettbeater/2012/06/11/dont-get-zynged-zynga/5571/ http://beta.fool.com/buffettbeater/2012/06/11/dont-get-zynge... [6] http://www.marketwatch.com/story/zynga-falls-on-ugly-facebook-trend-2012-06-12 http://www.marketwatch.com/story/zynga-falls-on-ugly-faceboo... [7] http://www.forbes.com/sites/insertcoin/2012/05/04/draw-something-loses-5m-users-a-month-after-zynga-purchase/ http://www.forbes.com/sites/insertcoin/2012/05/04/draw-somet... [8] https://en.wikipedia.org/wiki/Dot-com_bubble#Bubble_growth https://en.wikipedia.org/wiki/Dot-com_bubble#Bubble_growth
rhizome 14y ago
In other news, it's summertime in the US and school just let out. People are using their casual time differently at this time of year.
podperson 14y ago
My reaction to this: Good.
- uvTwitch 14y ago
  My thoughts exactly; I hope this trend towards quality continues.
- Karunamon 14y ago
  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.
bond 14y ago
http://www.wolframalpha.com/input/?i=znga+vs+fb http://www.wolframalpha.com/input/?i=znga+vs+fb Some nice charts...
jerf 14y ago
The performance of all these stocks would seem to be a huge argument against the idea that we're in a bubble, a favorite topic around these parts. Bubbles don't look like this.
- georgemcbay 14y ago
  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.
  - jerf 14y ago
    "Company valuations as defined by VC" won't float free of stock market performance for very long. I'm specifically referring to the last few big-name tech IPOs, none of which have been even remotely performing like a bubble surfer.
btbuilder 14y ago
Any inclination to play Draw Something was removed when it started asking me for extra Facebook permissions.
ahi 14y ago
So major FB source of revenue is collapsing, but FB shares go up? Too much coke on Wall St.
yvdriess 14y ago
Can we have Brian Reynolds back now, please? http://en.wikipedia.org/wiki/Brian_Reynolds_(game_designer) http://en.wikipedia.org/wiki/Brian_Reynolds_(game_designer)

101 points by acak 14y ago

One thing I've always wondered with these headlines: how do they establish causality? Do they ask some pundit why shares dropped 10% in a day and run with that?

slug 14y ago
Probably they are having fun looking at this and extrapolating from there: https://www.google.com/finance?chdnp=1&chdd=1&chds=1&chdv=1&chvs=maximized&chdeh=1&chfdeh=0&chdet=1339531200000&chddm=6647&chls=IntervalBasedLine&cmpto=NASDAQ:ZNGA&cmptdms=0&q=NASDAQ:FB&ntsp=0 https://www.google.com/finance?chdnp=1&chdd=1&chds=1...
joshu 14y ago
Basically, they make some shit up.
- ahi 14y ago
  A family member is in the biz press. joshu has it right. Although, in this particular case the attribution is probably correct.
jswinghammer 14y ago
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.
- koeselitz 14y ago
  Yes, but that doesn't answer the question. Sure, it makes sense that there's not much reason to hold stock when the growth is negative. The question was: how do you decide why the growth is negative? This is an important, because sometimes stocks dip for a day, and sometimes they dip for a decade. Knowing why would seem to be the best basis for investing.
Retric 14y ago
http://xkcd.com/904/ http://xkcd.com/904/
its_so_on 14y ago
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.
- brown9-2 14y ago
  The headline might not argue causality but I think it certainly is written in a way to imply it. This is a common structure for headlines about stock prices moving large amounts in either direction. The average reader does not like to think that finding a singular reason for something like this is impossible.
gruseom 14y ago
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.
- brc 14y ago
  Yes, I think you're right on your source. In short, markets move around for a whole host of random reasons. The nightly news 'the market moved lower on profit taking' or 'the market moved higher on positive news X' is just rubbish. Occasionally, there is a cause-and-effect like an unexpected interest rate change, or a better-than-expected sales figure in a key industry, but for the rest of the time, it's just random movement. The worst thing is the need to commentate on it confuses the correlation in the general publics mind, so people believe you can talk the economy up or down, which is an assertion I don't agree with.
veyron 14y ago
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

deleted 14y ago

[deleted]

smoyer 14y ago

Zynga is said to be moving games into the mobile market, but you also have to figure that being a gaming company is hard. You're top-rated game will be supplanted by something else in short order and you have to constantly be updating. I think that the way Zynga acquired its customers/users is exacerbating the situation. If your friends are all there you feel compelled to join too, but if some leave it's socially acceptable to follow them elsewhere. Since we're talking about "social" gaming, I also have to wonder whether part of the drop isn't seasonal ... at least where I live, it's now nice enough to spend a lot of time outside socializing (picnics, frisbee, t-ball, etc) so perhaps there's just not the boredom to drive as much traffic?

yvdriess 14y ago
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.

zerostar07 14y ago

The lack of inspiration, willingness or innovation on Zynga's part is still baffling.

steve8918 14y ago

I stepped in and bought some shares at $5.00. ZNGA's current market cap is $3.5B. But it has about $1.2B in cash, and little debt. Regardless of how you feel the games, they do have a real business, so if Instagram is worth $1B to Facebook, ZNGA must be worth somewhere north of $2.5B, its current enterprise value.

joejohnson 14y ago
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.
- Florin_Andrei 14y ago
  Many people find the incessant game posts on Facebook annoying. Perhaps that explains some downvotes. But I do agree with everyone. :) Yes, it's annoying. Yes, it was a fad, initially. But yes, there must be some enduring value in the business model, after the bubble bursts and people start thinking more rationally about it.
- runako 14y ago
  >> they are a profitable company Citation? SEC filings say they are losing money at a rapid clip.
joering2 14y ago
> 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 http://www.donnaklinenow.com/investigation/instagram-scam

mxttr0 14y ago

Rumor has it that the insider lock-up is tomorrow, which doesn't help as it's being discounted. http://www.nasdaq.com/markets/ipos/company/zynga-inc-782377-67565 http://www.nasdaq.com/markets/ipos/company/zynga-inc-782377-...

mxttr0 14y ago
if anyone cares: - apparently 6/13 is not the actual lock-up expiry: http://techcrunch.com/2012/03/14/zynga-lockup-secondary-offering/ 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/california-internet-poker-bill-pulled-from-senate-committee.html http://blogs.sacbee.com/capitolalertlatest/2012/06/californi...

Aethaeryn 14y ago

Please do not be a contrarian who buys ZNGA. You will probably lose money. They have 3,000 employees,[1] even though their business model revolves largely around cloning[a] games that are simple enough for very small teams to create.[2] They're losing money; their EPS is -1.30.[3][4] Just because they have cash from investors doesn't mean that the business model will make significant money in the long run and it's made more complicated by the fact that they have a very heavy dependence on Facebook.[5] They're also dependent on casual gamers (who don't have much loyalty or will to pay) and current trends.[b] Apparently, only 2% of their customers pay for their games.[5] Their stock market valuation seems largely mapped to their active user count[6] (and also Facebook's share prices[5]) rather than their financials.[c] In fact, I can't even say that they're overvalued because that involves looking at the P/E and with a negative EPS, I can't really do an apples-to-apples P/E comparison of Zynga against companies that are actually listed as profitable. Is a -3.8 P/E overvalued?[4] It certainly is risky! ----- [a] They also buy some companies behind popular games too, like OMGPOP. This isn't necessarily a good idea.[7] [b] The use of the term "game craze" in the title of the parent article implies that part of the reason ZNGA has a valuation in the billions is because of the current trendiness of Facebook games. The problem with relying on trendiness for investments is that when there's something even trendier (i.e. mobile apps), all the investor money that chases trendy stuff could simply go there instead. [c] It was a popular dot-com bubble plan to focus on market share with a free product at a sustained financial loss.[8] Of course, it's too early to tell if ZNGA will sustain its losses in the long run because its stock is too young. Still, it's very risky. ----- [1] https://en.wikipedia.org/wiki/Zynga https://en.wikipedia.org/wiki/Zynga [2] https://s3.amazonaws.com/nbpromo/dearzynga.jpg https://s3.amazonaws.com/nbpromo/dearzynga.jpg [3] http://www.google.com/finance?q=NASDAQ:ZNGA http://www.google.com/finance?q=NASDAQ:ZNGA [4] http://data.cnbc.com/quotes/ZNGA http://data.cnbc.com/quotes/ZNGA [5] http://beta.fool.com/buffettbeater/2012/06/11/dont-get-zynged-zynga/5571/ http://beta.fool.com/buffettbeater/2012/06/11/dont-get-zynge... [6] http://www.marketwatch.com/story/zynga-falls-on-ugly-facebook-trend-2012-06-12 http://www.marketwatch.com/story/zynga-falls-on-ugly-faceboo... [7] http://www.forbes.com/sites/insertcoin/2012/05/04/draw-something-loses-5m-users-a-month-after-zynga-purchase/ http://www.forbes.com/sites/insertcoin/2012/05/04/draw-somet... [8] https://en.wikipedia.org/wiki/Dot-com_bubble#Bubble_growth https://en.wikipedia.org/wiki/Dot-com_bubble#Bubble_growth

rhizome 14y ago

In other news, it's summertime in the US and school just let out. People are using their casual time differently at this time of year.

podperson 14y ago

My reaction to this: Good.

uvTwitch 14y ago
My thoughts exactly; I hope this trend towards quality continues.
Karunamon 14y ago
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.

bond 14y ago

http://www.wolframalpha.com/input/?i=znga+vs+fb http://www.wolframalpha.com/input/?i=znga+vs+fb Some nice charts...

jerf 14y ago

The performance of all these stocks would seem to be a huge argument against the idea that we're in a bubble, a favorite topic around these parts. Bubbles don't look like this.

georgemcbay 14y ago
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.
- jerf 14y ago
  "Company valuations as defined by VC" won't float free of stock market performance for very long. I'm specifically referring to the last few big-name tech IPOs, none of which have been even remotely performing like a bubble surfer.

btbuilder 14y ago

Any inclination to play Draw Something was removed when it started asking me for extra Facebook permissions.

ahi 14y ago

So major FB source of revenue is collapsing, but FB shares go up? Too much coke on Wall St.

yvdriess 14y ago

Can we have Brian Reynolds back now, please? http://en.wikipedia.org/wiki/Brian_Reynolds_(game_designer) http://en.wikipedia.org/wiki/Brian_Reynolds_(game_designer)