Zynga and Facebook are still dating, but they're now free to see others.
That's the upshot of a document the San Francisco gaming company filed
Thursday afternoon with the Securities and Exchange Commission, driving
Zynga's already deflated stock further downward.
Investors clearly worried about the loosening ties between Zynga and its
most important source of revenue. The stock closed at $2.62 a share, near its
all-time low, but it was down an additional 12 percent in after-hours trading
once the SEC filing hit.
"The relationship between Facebook and Zynga has seemingly worsened,"
analyst
Arvind Bhatia told Bloomberg News. Bhatia, who covers both companies for
Sterne Agee & Leach, has been bearish on Zynga since before its IPO last year
-- citing, in part, its dependence on Facebook.
Zynga derives the vast majority of its user traffic and revenue from the
social network; in turn, Zynga represents a significant chunk of Facebook's
user activity and 12 percent of the Menlo Park company's revenue last year.
Zynga's embattled chief executive, Mark Pincus, was one of the first
investors in Facebook, along with PayPal co-founder Peter Thiel. But the
gaming company and Facebook both have taken steps in recent months to reduce
their interdependence.
Facebook opened an "App Center" making it easier for competing
gaming developers to reach users on its site.
Zynga, like some other social game makers, has moved increasingly toward
mobile games; it also unveiled its own gaming website, Zynga.com, earlier this
year, although that site currently runs on Facebook's platform.
The new SEC filing lays the groundwork to change that. Zynga said it will
no longer be required to build its Web properties on Facebook or provide the
social network with exclusive games.
Zynga also won't be required to display Facebook ads on Zynga.com. And
visitors to the site won't have to use Facebook Credits to buy virtual goods
there.
Those goods, which Zynga devotees use to build out their online worlds,
represent most of the gaming company's revenue. Some developers have chafed
under the requirement to use the currency because Facebook keeps 30 percent of
every dollar users spend to buy credits.
Given the fact that so many of Zynga's users still access the company's
games via Facebook, the change isn't likely to impact either company's bottom
line in the near term.
More than 300 million of Zynga's monthly active users play games like
"CityVille" and "Words With Friends" on Facebook; that was 10 times the number
who played the games on mobile platforms. Even fewer play on the fledgling
Zynga.com, at least so far.
One possible hindrance to Zynga's efforts to grow that traffic is that
the revised agreement prevents the company from cross-promoting games between
Zynga.com and Facebook. Up to now, users playing on Facebook have been able to
click on links to play games on Zynga's own site; officials at both companies
said that was a special privilege not shared by other gaming companies.
The new deal also gives Facebook, for the first time, the ability to
develop its own games, which it previously had pledged not to do.
A Facebook spokeswoman, however, told this newspaper that the company has
"absolutely no plans to build our own games."
It's been a rough week for social media companies, with deals site Living
Social announcing plans to lay off 400 workers and rival Groupon, which, like
Zynga, went public last year, reportedly the scene of a boardroom split about
whether its CEO should resign.
