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I have been following news about Facebook (NASDAQ:FB) and Zynga (ZNGA) with great interest. In this article I will link the articles that have raised alarm bells in my mind and expand on my personal thoughts. I encourage you to take a look and come to your own conclusions.

Forbes recently wrote an article about "How Zynga, Facebook and Groupon's (NASDAQ:GRPN) Go-To Auditor Rewrites Accounting Rules." Not too surprisingly the "Go-To Auditor" happens to be Ernst & Young. What the author didn't mention is Ernst & Young has been involved in 11 major accounting scandals since 1996. As a matter of record they have been involved in more accounting scandals than any other firm and almost all other firms combined since 1996.

Forbes has also released another article; "Facebook's Seasonal Slowdown: Explanation or Excuse?" The author asks, " Should Facebook investors (and would-be investors) be nervous that the social networking behemoth just posted its first quarter-to-quarter revenue decline in at least two years, just weeks in advance of its expected $100 billion IPO?"

The author compares both Google (NASDAQ:GOOG) Pre-IPO and Facebook Pre-IPO advertising growth and loss. Google was way ahead in numbers while Facebook showed a loss. Without effective advertising, Facebook has little to offer. Too much advertising is annoying. Can Facebook maintain the balance without losing members?

Market Watch from the Wall Street Journal released an article; "Zynga's phantom numbers bring back memories." The author compares Cisco's (NASDAQ:CSCO) serious overvaluation during the 1990's to Zynga's serious overvaluation. Quoting the author, "Of course, unlike Zynga , which last year lost $404 million, or $1.40 a share, Cisco ran a highly profitable business, generating hundreds of millions of dollars in net income every quarter on a GAAP basis. Still, it wasn't profitable enough to sustain its lofty stock price, which today sits at a fraction of where it traded more than a decade ago."

I recently wrote an article on Seeking Alpha, "Zynga and the lack of federal oversight." Quoting myself, "The Internet is a relatively new technology and online "pay to play" or "free" games have become common, yet there is no oversight. There are no safeguards on behalf of the consumers to assure the games are not tilted to inspire purchase. The ease and possibility of fraud exists on a billion-dollar scale, yet no one is questioning this issue."

My thoughts about Facebook:

I believe Mark Zuckerberg stole the Facebook idea from his college classmates and is laughing all the way to the bank (Is he honest?). He may have won the court battle but the courts are not always correct. I have a right to my opinion. There are two sides to every story and I don't believe his version.

But despite my personal opinion of Mr. Zuckerberg he recently blew a billion dollars on a single program; Instagram. Isn't Mr. Zuckerberg a programming genius? The guy who wrote all the Facebook code couldn't make his own Instagram clone? I am shocked.

During the Internet's brief history, many social networking sites have tried and failed, Myspace is an excellent example of a complete failure and they were once in the number one spot for online hangouts.

How many reading this article recall the social networking site that started social networking? Do you remember the name? It was Six Degrees and lasted from 1997 to 2001. Everyone at that time heralded the site as "The Future." How about Friendster? Myspace? I know, you are all using Google Plus right? Probably not. My point? We lose interest or just aren't interested to begin with.

I have already lost interest in Facebook and I don't like their new "Timeline" design. I especially hate visiting other websites that are showing my Facebook friends list. Facebook is tracking us all over the web and many people don't like that kind of privacy invasion.

As for Zynga:

There are just too many unanswered questions, too many insider sell offs, too much funny money being spent, too many negatives and uncertainties. Too much creative accounting by Ernst & Young.

Mark Pincus said in a Bloomberg interview that he had plans of making more purchases similar to the OMGPOP acquisition for $200 Million. And during the Zynga First Quarter Conference Call said that they weren't going to do more deals like OMGPOP. He is obviously a Flip-Flopper and might make a good politician.

Zynga.org has raised more than $10 million for several international nonprofits by occasionally selling virtual goods for charitable causes.(Sounds good and honest)

However, the company had been criticized in the past for keeping up to 50% of donations it collected. (Clarity - not so honest) It's kind of like - we will help you if we can keep half.

We don't know enough about the programming that inspires users to buy virtual items or if the programming is able to cheat players. There is no oversight and this could become a serious scandal.

In Conclusion:

I don't see Facebook being in the top spot for more than a couple of years and I don't believe Zynga can keep up the pace in the next cool game race. Zynga hasn't produced a hit in quite some time and certainly can't afford to buy every competitor. I see huge and unprecedented risks associated with both of these companies.

Source: Zynga And Facebook: 2 Bubbles That Will Eventually Burst