7 ms·

Zynga earnings miss, FB also falling

118 points by veyron 14y ago

ThomPete 14y ago
Shouldn't this just be "Zynga earnings miss". I don't see where the FB also failing comes into the picture.
- sp332 14y ago
  Zynga is mainly based on Facebook's platform. They also explicitly said that getting revenue on that platform is harder than expected. That makes investors very nervous about FB's outlook. We'll know more tomorrow when FB releases their own performance and expectation numbers.
  - ThomPete 14y ago
    Which doesn't change that we don't know yet and there is nothing in the article that indicates what it writes. I am not a big fan of the revisionists that are roaming HN but the title is flat out wrong.
    - bryne 14y ago
      FB is down 7% after hours, and the most likely culprit is this news, as the two companies' outlooks and stock performance have been tightly coupled after past quarterly reports. The title looks factually accurate to me.
    - bcbrown 14y ago
      From the article: "Shares slumped as much as 42 percent in extended trading, dragging Facebook’s stock down as much as 9.7 percent." The title seems pretty accurate to me.
- jessedhillon 14y ago
  FWIW it says "falling" not "failing," although FB actually rose +0.89 today.
  - sp332 14y ago
    FB is also down after hours, about 7% so far. https://www.google.com/finance?q=NASDAQ%3AFB https://www.google.com/finance?q=NASDAQ%3AFB
- mikek 14y ago
  Zynga Contributed 15% of Facebook’s Revenue In Q1 http://www.techcrunch.com/2012/04/23/zynga-made-up-15-of-facebooks-revenue-in-q1-down-from-19-a-year-ago/ http://www.techcrunch.com/2012/04/23/zynga-made-up-15-of-fac...
- veyron 14y ago
  I wrote "FALLING" not "FAILING". The title is accurate. Falling is due to the fact that it's 26.99 after hours now: http://cl.ly/image/1F3b1f3x3W1q http://cl.ly/image/1F3b1f3x3W1q
frankphilips 14y ago
I'm confident Zynga will succeed, and this is just a temporary setback. They are incredibly smart and have a solid business model. I don't think social games are going out of fashion any time soon, although I do think they are moving toward the mobile realm. Zynga also has an amazing track record of growing companies it acquires. After the purchase of Words with Friends from Newtoy for $53M, they doubled their daily active users in 6 months. I do think they may have to focus more of an effort on figuring out new avenues of driving revenue for the company. Because ultimately that's what investors are looking for.
evolve2k 14y ago
"Last week, Zynga expanded its board as it named former Yahoo! Inc. executive Ellen Siminoff its first female director."
ChuckMcM 14y ago
This was a very well written comment on ZNGA nearly 2 months earlier : http://news.ycombinator.com/item?id=4101906 http://news.ycombinator.com/item?id=4101906 I kept it in my bookmarks to go back to. The essence is that Zynga makes its revenue selling fake stuff, and the size of its market for its stuff is its users, and if they lose users their 'value' has to go down because their total available market got smaller. This struck me as potentially a very durable way of measuring value for 'information goods' type businesses. I don't see anything in Zynga's latest results to contradict this analysis.
- moe 14y ago
  This struck me as potentially a very durable way of measuring value for 'information goods' type businesses Not to sound snarky, but was there ever another way?
  - ChuckMcM 14y ago
    Not snarky at all, there are lots of ways you might choose to measure information goods. One would be to apply a loaded cost model to a product and then figure out gross margins on units. You can could equate product releases to inventory 'turns' and then craft a valuation factor which develops some sort of freshness metric. These all toy with the question of whether the user population is an independent or dependent variable in the valuation. If the user population is strongly influenced the rate of new game introduction for example, you would discount a decline of current users against the value created by the new titles. So in that case freshness would be the valuation metric not user population. Or you could say the population of casual game users is fixed, and the only ones who would consider a new Zynga game already have a relationship with the company (independent value). So if people stop playing Zynga games then have they stopped being casual gamers ? I think there is a lot of new territory here that is just being explored now.
    - moe 14y ago
      Ah, so that must be how they come up with billion dollar valuations for photo apps...
gojomo 14y ago
A problem with some 'viral' models is that eventually the herd develops an immunity.
- samstave 14y ago
  Brilliant. Some are immune prior, some become immune, and others will always get sick... This is the business model. Spike, Plateau, drop.... I'd like to hink that those of us on HN are fairly immune... You know what would be an interesting model: figure out the ratio of users on a site to users on HN for given things to determine a prediction of stupid adopters to smart adopters. Then take that ration and apply it to the total adoption, and determine the real profit margin a site could get. I am not sure how this would work, but I think we can derive the number of people that will do stupid investments of time vs those who see through the scam... (I am positive this is what quants are masters at...)
Kiro 14y ago
As soon as Zynga starts offering real money poker they will become the biggest and most profitable poker room in the world.
- veyron 14y ago
  MGM or LVS are better equipped to take advantage of a loosening of the internet gaming acts
  - Kiro 14y ago
    But Zynga already operates the largest poker site in the world. They just need to add real money play and they're set.
    - veyron 14y ago
      Adding "real money" isn't as simple as it sounds. Internet gambling in the US, if it returns, will be highly regulated.
      - CamperBob2 14y ago
        Which just means that the regulations will be written for (and likely, by) the best-capitalized players in the market.
        beedogs 14y ago
        What's happening now is that all the old stalwarts in the poker world (Partypoker, PokerStars, and Full Tilt) are being sued by the federal government while, at the same time, the brick and mortar casinos and Indian tribes are ghostwriting gambling legislation to heavily favor themselves. So, you're right, but it's an even shittier situation, because there already was an online poker marketplace, and it's being stolen from the original players in the industry.
      - Kiro 14y ago
        Zynga will team up with or aquire some already established company. http://www.pokerlistings.com/zynga-looks-to-acquire-real-money-poker-software-76668 http://www.pokerlistings.com/zynga-looks-to-acquire-real-mon...
dr_ 14y ago
With all this recent talk of paid vs defense of free vs freemium, at the end of the day, certain basic principles apply. Revenues still matter, a lot.
nekojima 14y ago
As Zynga copies games with some success, why has it been able to copy the Japanese model of social gaming? Gree and DeNA have been able to make money for several years now and it appears are growing sustainably. Gree's most recent quarterly results: http://v3.eir-parts.net/EIR/View.aspx?template=ir_material&sid=15325&code=3632 http://v3.eir-parts.net/EIR/View.aspx?template=ir_material&#...
deleted 14y ago
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deleted 14y ago
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tokenadult 14y ago
The New York Times reporting on this issue, http://www.nytimes.com/reuters/2012/07/25/business/25reuters-zynga-earnings.html http://www.nytimes.com/reuters/2012/07/25/business/25reuters... kindly shared to HN by iProject, http://news.ycombinator.com/item?id=4293713 http://news.ycombinator.com/item?id=4293713 includes this amazing statement: "The company blamed the poor performance of its established, money-making games - Facebook-based titles like 'Cityville' - on changes to Facebook's algorithm, which Zynga said spurred users to discover new games rather than repeatedly play existing Zynga offerings." So Zynga is saying it was hosed by the algorithms of the site that made its games famous--the site that derives a lot of its own revenue from a cut of Zynga's revenue. It looks like Facebook has a rather odd idea of how to be a "partner" with another business that uses its platform. No wonder the stock of both companies went down when Zynga's results were announced. This should increase interest in Facebook's results and Facebook's spin on its results, including any response Facebook has to what Zynga's excuse for its performance is.
austenallred 14y ago
Well, if TechCrunch is right, already-public companies missing the mark leads to smaller valuations which leads to cheaper rent in the Valley. I'll take the smaller valuations in exchange for the cheaper rent. </selfishness>
nrmehta 14y ago
I think Zynga will be a very hard stock for wall street to understand for some time. Since it's revenue is so tied to usage (meaning unpredictable after hockey stick growth flattens) and since usage is so tied to external factors (e.g., Facebook Open Graph changes), I think it will be a very difficult company to forecast. In general, it's tough to be a public company if you can't have some predictability to your financial results.
- jbigelow76 14y ago
  I don't think the two points you make: tied to usage and external factors, equate to difficult forecasts. Look at airlines, they are definitely tied to usage, empty planes and bad routes impact revenues; and external factors come into play with things like fuel costs and union negotiations (at least in the US). The things you list as making them a "hard stock for wall street to understand" are actually what make the sharks see right through zynga's value proposition/bullshit.
  - nrmehta 14y ago
    Thanks for the response and I think I probably should have been clearer. Zynga is fundamentally tied (today) to factors outside of its control (like airlines) but that are (a) controlled largely by one entity (facebook) and (b) opaque to the outside world. By comparison, airlines are tied to factors (GDP, fuel cost, etc.) that are not controlled by any single entity and that are more transparent (e.g., real-time markets for fuel, widely available forecasts for GDP). Regardless, I wasn't defending the stock - on the contrary I was saying this is going to be a very tough public company in general.
michaelochurch 14y ago
Zynga is (with some collaboration; to call it the singular reason would be a massive oversimplification) the reason Google+ Games failed, and the mediocrity of Google+ Games is one of the major reasons Google+ is seen as a "Me, too" product and will probably never have break-out success. Huge missed opportunity. Given this, I can't say I'm upset to watch Zynga fail. Although much of this loss was indirect, they probably cost Google billions of dollars. I predicted this in August 2011. I was at Google and wrote an internal missive on how social network fatigue, led by these shitty "social games", was about to evolve into outright brand damage and that it had the potential to ruin Google+ from the start. We had to differentiate ourselves from Facebook on the things that were causing SN fatigue. If we were going to do Games (which was a risky decision) we had to do them right. To its credit, Google+ seems to have managed to avoid a persistent association. Google+ isn't associated with Zynga shit-games. In fact, I'd bet that 99% of the people reading this have no idea there ever was a Google Games. Google did a good job of hiding that one under the rug. But if they had engaged independent developers and built a real community (I suggested starting with the German-style board games, then moving into 2D RPGs and decent casual games) then they could have had something massively successful and important.

118 points by veyron 14y ago

ThomPete 14y ago

Shouldn't this just be "Zynga earnings miss". I don't see where the FB also failing comes into the picture.

sp332 14y ago
Zynga is mainly based on Facebook's platform. They also explicitly said that getting revenue on that platform is harder than expected. That makes investors very nervous about FB's outlook. We'll know more tomorrow when FB releases their own performance and expectation numbers.
- ThomPete 14y ago
  Which doesn't change that we don't know yet and there is nothing in the article that indicates what it writes. I am not a big fan of the revisionists that are roaming HN but the title is flat out wrong.
  - bryne 14y ago
    FB is down 7% after hours, and the most likely culprit is this news, as the two companies' outlooks and stock performance have been tightly coupled after past quarterly reports. The title looks factually accurate to me.
  - bcbrown 14y ago
    From the article: "Shares slumped as much as 42 percent in extended trading, dragging Facebook’s stock down as much as 9.7 percent." The title seems pretty accurate to me.
jessedhillon 14y ago
FWIW it says "falling" not "failing," although FB actually rose +0.89 today.
- sp332 14y ago
  FB is also down after hours, about 7% so far. https://www.google.com/finance?q=NASDAQ%3AFB https://www.google.com/finance?q=NASDAQ%3AFB
mikek 14y ago
Zynga Contributed 15% of Facebook’s Revenue In Q1 http://www.techcrunch.com/2012/04/23/zynga-made-up-15-of-facebooks-revenue-in-q1-down-from-19-a-year-ago/ http://www.techcrunch.com/2012/04/23/zynga-made-up-15-of-fac...
veyron 14y ago
I wrote "FALLING" not "FAILING". The title is accurate. Falling is due to the fact that it's 26.99 after hours now: http://cl.ly/image/1F3b1f3x3W1q http://cl.ly/image/1F3b1f3x3W1q

frankphilips 14y ago

I'm confident Zynga will succeed, and this is just a temporary setback. They are incredibly smart and have a solid business model. I don't think social games are going out of fashion any time soon, although I do think they are moving toward the mobile realm. Zynga also has an amazing track record of growing companies it acquires. After the purchase of Words with Friends from Newtoy for $53M, they doubled their daily active users in 6 months. I do think they may have to focus more of an effort on figuring out new avenues of driving revenue for the company. Because ultimately that's what investors are looking for.

evolve2k 14y ago

"Last week, Zynga expanded its board as it named former Yahoo! Inc. executive Ellen Siminoff its first female director."

ChuckMcM 14y ago

This was a very well written comment on ZNGA nearly 2 months earlier : http://news.ycombinator.com/item?id=4101906 http://news.ycombinator.com/item?id=4101906 I kept it in my bookmarks to go back to. The essence is that Zynga makes its revenue selling fake stuff, and the size of its market for its stuff is its users, and if they lose users their 'value' has to go down because their total available market got smaller. This struck me as potentially a very durable way of measuring value for 'information goods' type businesses. I don't see anything in Zynga's latest results to contradict this analysis.

moe 14y ago
This struck me as potentially a very durable way of measuring value for 'information goods' type businesses Not to sound snarky, but was there ever another way?
- ChuckMcM 14y ago
  Not snarky at all, there are lots of ways you might choose to measure information goods. One would be to apply a loaded cost model to a product and then figure out gross margins on units. You can could equate product releases to inventory 'turns' and then craft a valuation factor which develops some sort of freshness metric. These all toy with the question of whether the user population is an independent or dependent variable in the valuation. If the user population is strongly influenced the rate of new game introduction for example, you would discount a decline of current users against the value created by the new titles. So in that case freshness would be the valuation metric not user population. Or you could say the population of casual game users is fixed, and the only ones who would consider a new Zynga game already have a relationship with the company (independent value). So if people stop playing Zynga games then have they stopped being casual gamers ? I think there is a lot of new territory here that is just being explored now.
  - moe 14y ago
    Ah, so that must be how they come up with billion dollar valuations for photo apps...

gojomo 14y ago

A problem with some 'viral' models is that eventually the herd develops an immunity.

samstave 14y ago
Brilliant. Some are immune prior, some become immune, and others will always get sick... This is the business model. Spike, Plateau, drop.... I'd like to hink that those of us on HN are fairly immune... You know what would be an interesting model: figure out the ratio of users on a site to users on HN for given things to determine a prediction of stupid adopters to smart adopters. Then take that ration and apply it to the total adoption, and determine the real profit margin a site could get. I am not sure how this would work, but I think we can derive the number of people that will do stupid investments of time vs those who see through the scam... (I am positive this is what quants are masters at...)

Kiro 14y ago

As soon as Zynga starts offering real money poker they will become the biggest and most profitable poker room in the world.

veyron 14y ago
MGM or LVS are better equipped to take advantage of a loosening of the internet gaming acts
- Kiro 14y ago
  But Zynga already operates the largest poker site in the world. They just need to add real money play and they're set.
  - veyron 14y ago
    Adding "real money" isn't as simple as it sounds. Internet gambling in the US, if it returns, will be highly regulated.
    - CamperBob2 14y ago
      Which just means that the regulations will be written for (and likely, by) the best-capitalized players in the market.
      - beedogs 14y ago
        What's happening now is that all the old stalwarts in the poker world (Partypoker, PokerStars, and Full Tilt) are being sued by the federal government while, at the same time, the brick and mortar casinos and Indian tribes are ghostwriting gambling legislation to heavily favor themselves. So, you're right, but it's an even shittier situation, because there already was an online poker marketplace, and it's being stolen from the original players in the industry.
    - Kiro 14y ago
      Zynga will team up with or aquire some already established company. http://www.pokerlistings.com/zynga-looks-to-acquire-real-money-poker-software-76668 http://www.pokerlistings.com/zynga-looks-to-acquire-real-mon...

dr_ 14y ago

With all this recent talk of paid vs defense of free vs freemium, at the end of the day, certain basic principles apply. Revenues still matter, a lot.

nekojima 14y ago

As Zynga copies games with some success, why has it been able to copy the Japanese model of social gaming? Gree and DeNA have been able to make money for several years now and it appears are growing sustainably. Gree's most recent quarterly results: http://v3.eir-parts.net/EIR/View.aspx?template=ir_material&sid=15325&code=3632 http://v3.eir-parts.net/EIR/View.aspx?template=ir_material&#...

deleted 14y ago

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tokenadult 14y ago

The New York Times reporting on this issue, http://www.nytimes.com/reuters/2012/07/25/business/25reuters-zynga-earnings.html http://www.nytimes.com/reuters/2012/07/25/business/25reuters... kindly shared to HN by iProject, http://news.ycombinator.com/item?id=4293713 http://news.ycombinator.com/item?id=4293713 includes this amazing statement: "The company blamed the poor performance of its established, money-making games - Facebook-based titles like 'Cityville' - on changes to Facebook's algorithm, which Zynga said spurred users to discover new games rather than repeatedly play existing Zynga offerings." So Zynga is saying it was hosed by the algorithms of the site that made its games famous--the site that derives a lot of its own revenue from a cut of Zynga's revenue. It looks like Facebook has a rather odd idea of how to be a "partner" with another business that uses its platform. No wonder the stock of both companies went down when Zynga's results were announced. This should increase interest in Facebook's results and Facebook's spin on its results, including any response Facebook has to what Zynga's excuse for its performance is.

austenallred 14y ago

Well, if TechCrunch is right, already-public companies missing the mark leads to smaller valuations which leads to cheaper rent in the Valley. I'll take the smaller valuations in exchange for the cheaper rent. </selfishness>

nrmehta 14y ago

I think Zynga will be a very hard stock for wall street to understand for some time. Since it's revenue is so tied to usage (meaning unpredictable after hockey stick growth flattens) and since usage is so tied to external factors (e.g., Facebook Open Graph changes), I think it will be a very difficult company to forecast. In general, it's tough to be a public company if you can't have some predictability to your financial results.

jbigelow76 14y ago
I don't think the two points you make: tied to usage and external factors, equate to difficult forecasts. Look at airlines, they are definitely tied to usage, empty planes and bad routes impact revenues; and external factors come into play with things like fuel costs and union negotiations (at least in the US). The things you list as making them a "hard stock for wall street to understand" are actually what make the sharks see right through zynga's value proposition/bullshit.
- nrmehta 14y ago
  Thanks for the response and I think I probably should have been clearer. Zynga is fundamentally tied (today) to factors outside of its control (like airlines) but that are (a) controlled largely by one entity (facebook) and (b) opaque to the outside world. By comparison, airlines are tied to factors (GDP, fuel cost, etc.) that are not controlled by any single entity and that are more transparent (e.g., real-time markets for fuel, widely available forecasts for GDP). Regardless, I wasn't defending the stock - on the contrary I was saying this is going to be a very tough public company in general.

michaelochurch 14y ago

Zynga is (with some collaboration; to call it the singular reason would be a massive oversimplification) the reason Google+ Games failed, and the mediocrity of Google+ Games is one of the major reasons Google+ is seen as a "Me, too" product and will probably never have break-out success. Huge missed opportunity. Given this, I can't say I'm upset to watch Zynga fail. Although much of this loss was indirect, they probably cost Google billions of dollars. I predicted this in August 2011. I was at Google and wrote an internal missive on how social network fatigue, led by these shitty "social games", was about to evolve into outright brand damage and that it had the potential to ruin Google+ from the start. We had to differentiate ourselves from Facebook on the things that were causing SN fatigue. If we were going to do Games (which was a risky decision) we had to do them right. To its credit, Google+ seems to have managed to avoid a persistent association. Google+ isn't associated with Zynga shit-games. In fact, I'd bet that 99% of the people reading this have no idea there ever was a Google Games. Google did a good job of hiding that one under the rug. But if they had engaged independent developers and built a real community (I suggested starting with the German-style board games, then moving into 2D RPGs and decent casual games) then they could have had something massively successful and important.