Written by Rebecca Lipman
At least three brokerages downgraded Zynga's (ZNGA) stock on Wednesday after the company warned of a slowdown in bookings in their fourth quarter earnings report. It was the Farmville, Words with Friends and Cityville game owners' first quarter as a publicly traded company.
"Zynga uses bookings as a metric to measure the cash it gets upfront when people spend money on virtual items in its games such as tractors, houses or poker chips," explains Reuters. The slowdown indicated players might be paying less than expected on the gaming site.
The bookings are important for investors because Zynga does not disclose the number of its unique players on Facebook, "making it difficult to gauge any possible deceleration trends."
Analysts expect the company is entering periods of slower sequential growth, a bad sign for a new company. This can be seen, argues Business Insider, through Zynga's aggressive spending on advertising and marketing budgets that are increasing much faster than revenue.
"Sequential quarterly sales growth at the company was just 1% in Q4. Meanwhile, the sales/marketing dollars Zynga spent to get that growth went from 14% of sales to 36% of sales in a single quarter."
Most importantly, Zynga is considered a bit of a bellwether for the success of Facebook's IPO, scheduled for sometime in May. After all, Zynga gets most of its revenue from Facebook, although it is working to diversify and make more money on other media platforms like tablets and smart phones.
Still, some analysts think Zynga and Facebook have ways of continuing their momentum: "While growth has slowed for both Facebook and Zynga, long-term secular shifts in content consumption, along with significant growth opportunities on smart devices from Apple and Google are too compelling to ignore," wrote Robert W. Baird & Co when the firm downgraded the stock. (via Reuters)
Zynga's, Chief Operating Officer John Schapper also pointed out that the games are meant to be played, gain popularity, and make money over the long run. "That's why we still have the six-most played games on Facebook."
Interactive Chart: Press Play to compare changes in market cap over the last two years for the stocks mentioned below.
Business Section: Investing Ideas
Is this a bump in the road for Zynga or an ominous signal for the health of social media companies?
If you're interested in following the trend, the following is a list of social media companies already trading on the US markets. (Click here to access free, interactive tools to analyze these ideas.)
1. Groupon, Inc. (Nasdaq:GRPN): Operates an e-commerce marketplace that connects merchants to consumers by offering goods and services at a discount in North America and internationally. Ma Market cap of $12.44 billion. The stock is currently stuck in a downtrend, trading -8.39% below its SMA20, -7.34% below its SMA50, and -8.46% below its SMA200. It's been a rough couple of days for the stock, losing 20.63% over the last week.
2. LinkedIn Corporation (Nasdaq:LNKD): Operates an online professional network. Market cap of $8.55 billion. The stock has had a couple of great days, gaining 14.5% over the last week.
3. Pandora Media, Inc. (NYSE:P): Operates as an Internet radio company in the United States. Market cap of $2.12 billion. The stock is a short squeeze candidate, with a short float at 5.99% (equivalent to 5.18 days of average volume). It's been a rough couple of days for the stock, losing 5.68% over the last week.
4. Zynga, Inc. (Nasdaq:ZNGA): Develops, markets, and operates online social games on the Internet, social networking sites, and mobile platforms. Market cap of $8.25 billion. It's been a rough couple of days for the stock, losing 13.8% over the last week. The stock has had a good month, gaining 27.99%.
Rebecca Lipman does not own shares of any companies mentioned above. Data sourced from Finviz.
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