26th July 2012  Facebook and Zynga Tumble.

Shares in Facebook (FB) fell sharply after its first earnings call since becoming a publicly floated company on Thursday. The social-networking giant posted a quarterly loss of $157 million due to a number of one-time charges and when this was adjusted for reported a profit of $295 million on revenue of $1.18 billion. Even though this was in line with expectations investors fled, with shares falling over 11% to under $24 in after hours trading, down from $26.84 before the earnings call and well short of its $38 May IPO price.


While Facebook users grew to 955 million and should shortly exceed 1 billion, new US user growth has begun to decline. Also, while revenue is growing the amount of money it generates per user has decreased from average of $5.11 last year to an estimate of $4.96 this year.


Advertising revenue rose 28% to $992 million which accounted for 84% of the total $1.18 billion the company generated in the second quarter. This figure was up 32% from the same time a year ago but shows a slowdown in growth for a company that had often doubled revenue from quarter to quarter.


Shares in joined-at-the-hip online gaming company Zynga (ZNGA) collapsed over 40% on Wednesday to a new low of $3.05 after revenue came in at $302 million, $42 million below expectations. In an ever deteriorating vicious circle Zynga accounts for 12% of Facebook's revenue and is dependent on Facebook for 90% of its own revenue. Facebook has recently changed how it promotes games to users, advertising new games over older titles such as Farmville. The farming sim accounted for over 29% of Zynga's total second quarter revenue and has seen a fall in its user base from 80 million to just 20 million. Zynga blamed game-launch delays and lower user uptake to one of its newer titles, "Draw Something" which it acquired with its purchase of developer OMGPOP for $180 million in March.


On top of its dire earnings, or indeed because of it, Law firm Schubert Jonckheer & Kolbe have announced that they'll be investigating Zynga after 43 million shares were sold at $12 by company insiders in April, shortly after the start of the second quarter.


Facing opposition to its core titles like CityVille from EA's (EA) SimCity Social Zynga also has to contend with the fact it is no longer a major or important source of revenue for Facebook. Over $1 million a day was generated by "Sponsored Story" ads placed in users newsfeeds and its estimated that advertising will account for over half of the $16.9 billion in social media revenue generated this year, displacing Facebook's reliance on gaming companies.



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