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, Think Finance (588 clicks)
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Zynga (ZNGA) went nuts yesterday (+9.9%) and it is continuing with the nuttiness today (+7.0%). The reason? Zynga is launching its own website.

There is little rhyme or reason to this move. The move is reminiscent of similar moves that took place during the tech bubble (though not of the same magnitude), when companies announced websites. I can clearly remember Books-a-Million (BAMM) shooting up hundreds of percentages when it announced it was going to close its stores and open a website, as can be seen below.

The website Zynga is going to open has no guarantee of success. Furthermore, due to a contract with Facebook (FB), Zynga can't even have a higher margin on this site than it does with its games inside Facebook. This is so because Zynga is contractually bound to use Facebook credits in any sales of virtual goods it makes to its gamers, even outside Facebook. This means Facebook gets its 30% cut, even if the sales happen in Zynga's new website.

So basically Zynga gained $830 million in market cap mostly because of the announcement of a website that can't increase its earnings and might only have residual revenues from advertising, if it manages to attract the public - which again, is far from guaranteed.

In short, this kind of move is only happening because of the extremely speculative nature of the market right now, something that I had already called the attention to regarding commodities, but now is seemingly affecting stocks in an obvious manner as well.

Source: Parsing Zynga's New Website Move