Is Zynga the Next Facebook?

Many traders thought the 7.7% rise in Facebook Inc.’s (NASDAQ: FB) stock after CEO Mark Zuckerberg made comments at a TechCrunch conference about the firm’s future made no sense. He said little beyond the fact he was disappointed in Facebook’s stock price and that the company has begun to attack the mobile market, which Wall St. thinks the social network has not been done with sufficient zeal. Another effect of Zuckerberg’s comments was that the stock of Zynga Inc. (NASDAQ: ZNGA) rose 10%, as if Facebook’s fortunes would dig the social game company out of the hole it is in.

The press has focused recently on the number of senior executives who have left Zynga. Chief marketing and revenue officer Jeff Karp just departed. If Zynga loses its best people, it will be harder for the company to recover.

Of course, Zynga’s problems go well beyond the success or failure of Facebook, a fact that was lost when its share rocketed up 10%. Its Farmville franchise is old as far as players of the game are concerned. Farmville 2 and games developed with TV personality Ryan Seacrest and with Hasbro Inc. (NASDAQ: HAS) are supposed to reverse Zynga’s slide, at least in the opinion of company management. Zynga wants to prove it can expand beyond its relationship with Facebook. There is absolutely no evidence that will work. Outside the Facebook universe are companies that have competed for the gaming interests of Americans for years. First among those is Electronic Arts Inc. (NASDAQ: EA), which is just as desperate as Zynga is to reach beyond the markets in which it was initially successful.

To point out that Zynga is trapped between its faltering relationship with Facebook and its long-shot attempts at diversification repeats a set of facts that already have been stated over and over. It is worth repeating them again when Zynga’s shares surge 10% without reason.

Douglas A. McIntyre

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