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Why Zynga needs Facebook

Zynga stock has tumbled following a lackluster earnings report. Is Facebook to blame? 

By Matthew Shaer / July 26, 2012

Zynga Senior Vice President of Product Development Mark Skaggs speaks during the Zynga Unleashed event in San Francisco earlier this year.

Reuters

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It's been a grim week for Zynga, the social gaming company behind Farmville and Words With Friends. First came the dismal second quarter earnings report. Then came the tumbling stock prices.

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By Thursday morning, shares of Zynga were trading at around three bucks – down 70 percent from the initial public offering price, according to a report in The Wall Street Journal. So what's wrong with Zynga? 

Well, in a call with investors, Zynga Chief Financial Officer David Wehner tied the company's travails to "the performance of our existing games." But Facebook may also be to blame. Simply put, Zynga needs Facebook. The vast majority of Zynga games are accessed by Facebook users, who also share their in-game updates and victories, in the process luring in hordes of prospective players. (More on the "parlor game" revolution here.) 

But as the Washington Post has pointed out, in recent months, an increasing amount of Facebook users have been accessing the social network on their smartphone or tablet. Since many Zynga games are Web-based, that's bad news for Zynga.

Also bad news: Facebook may have altered the way many users find new games, John Schappert, chief operating officer of Zynga has told the Post. 

The social network "changed some of the algorithms for surfacing, which affected player engagement," Schappert said. He added that Facebook is highlighting new games instead of promoting old standbys such as Words With Friends.

And it may get worse before it gets better. "Facebook's promotional changes are likely to negatively impact Zynga for multiple quarters," JP Morgan analyst Doug Anmuth wrote to clients obtained by the Journal. 

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