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Is Facebook still in the game after Zynga loss? Analysts say yes

July 26, 2012|By Jessica Guynn

SAN FRANCISCO — Facebook shares dropped nearly 7% to $27.35 ahead of its first quarterly report as a public company on Thursday, deeply wounded by a surprisingly weak quarterly report and slashed outlook from social gaming company Zynga.

But analysts are not convinced that the fortunes of the two companies should be so closely linked.

Sterne Agee analyst Arvind Bhatia said the falloff in Zynga’s business would have a “short-term negative impact” on Facebook, but that Facebook could ultimately benefit.

He says Zynga blamed changes Facebook made to help users discover games and other content on Facebook, leveling the playing field for other gaming companies and potentially weaning Facebook from its dependence on Zynga, which accounted for as much as 15% of Facebook's revenues last quarter.

Facebook takes a 30% cut from developers when they sell virtual goods in games to consumers. Some analysts have warned that the trend of consumers buying these goods could be waning. But Bhatia doesn't see it that way.

“This should help Facebook diversify away from Zynga,” he said.

Pivotal Research Group analyst Brian Wieser said changes to Facebook’s platform were just as likely to have “benefited other game publishers and yielded identical or greater revenues as they may have yielded lower revenues.”

“Assumptions about Facebook’s longer-term prospects should always have excluded meaningful dependence on Zynga in order to incorporate the wide range of prospective businesses that can evolve off of the Facebook platform,” Wieser concluded.

Not everyone is painting such a rosy picture, and that's because of the broader shift to gaming on mobile devices.

Cowen analyst Kevin Kopelman estimates that Zynga will account for 13% of Facebook revenues in the second quarter and that all social gaming will account for about 25% of revenues.

“We expect social games to be a significant drag on Facebook growth going forward given the ongoing shift to casual gaming on mobile devices,” Kopelman wrote in a research note.

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