In addition to an already imploding business which I forecasted in my Zynga (ZNGA) September article, then detailed its implosion acceleration in my next article earlier this month, more bad news out after the close Thursday in an SEC filing. Zynga.com will no longer cater to Facebook (FB) in terms of ads or payments, and Facebook will no longer give Zynga special status on its platform. In addition, Facebook is now free to make their own games and compete directly with Zynga. Ouch. With a capital "O" -- it's already quickly dying core business depends on it.
At Zynga, monthly average users (MAU) and daily average users (DAU) continue their freefall even in the last 10 days. As explained in Zynga's most recent 10Q filing, their top 3 to 5 games can be anywhere from 50% to 80% of the entire company's revenues so I find it important to track the MAU and DAU traffic trends of their top games. Below is an updated detail on the top 5 games of Zynga (two months ago according to appdata.com) and what's happened to them since that time (figures in millions).
|Chefville||Slingo||Texas Hold 'em||Bubble Safari||The Ville|
But what does this mean for Facebook? Well a few things:
(1) There's the obvious revenue opportunity for Facebook to make their own games while cutting out the middle man. Facebook claims they have "no plans" to do so, but we all know if it's in the interest of Facebook and the interest of shareholders, they will indeed do so. Why wouldn't they?
(2) This makes it easier for more successful and actually growing, instead of imploding, competitors to do well on the Facebook platform -- and pay Facebook fees.
(3) The user experience at Facebook in general should improve for its 600+ million monthly users. Why? We should get fewer of those annoying Zynga-related popup requests. Less distraction and better experience gives Facebook more opportunity to monetize in other ways. And the smallest bits of monetization improvement across their massive user base could mean large increases in profits.
(4) According to FB's Q3 10Q filing, FB's Zynga-derived revenue was only 7% of sales, down to $88 million. Seems like it was just 2011 that FB was extremely dependent on Zynga when it was responsible for as much as 19% of their revenues. Interestingly, the fees from others that were not Zynga for the first time nearly equaled that of Zynga. It's clear that FB's reliance on Zynga has not only fallen to the point of being almost immaterial, but it was going to continue to decline as FB's other third party revenue as well as its overall company-wide revenue is growing by faster amounts than the entire combined total of Zynga revenue.
In short, giving favoritism to Zynga at this point in time is just a waste of opportunity. Canceling that portion of the deal has little to no downside risk for FB. Facebook is better off. Zynga is in trouble.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.