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Summary:

Zynga has been trying its very best to diversify its business away from Facebook and it doesn’t have much of a choice. Ben Schachter, Internet analyst with Macquarie Securities went through the Facebook S-1. His take: Zynga’s fourth quarter 2011 isn’t going to be pretty.

Zynga CEO Mark Pincus and his wife Alison ringing the NASDAQ opening bell

Zynga has been trying its very best to diversify its business — with 93 percent of its sales coming from Facebook, it doesn’t have much of choice. Ben Schachter, Internet analyst with Macquarie Securities sent a note to his clients this morning after digging through the Facebook S-1. His take — it isn’t going to be a pretty fourth quarter of 2011 for the game-maker, who is still swimming in lukewarm waters since its public offering.

  • The Bottom Line – The initial read-through for ZNGA is potentially a negative indication for ZNGA’s 4Q revenue estimate.
  • Assuming ~93% of ZNGA’s bookings are generated through FB (average of first three quarters of 2011), then total net FB bookings for ZNGA for 2011 would be $1,117mm (based on FB’s ZNGA rev of $445mm divided by 30%, generating gross FB bookings of $1,484mm for ZNGA, then multipled by the 70% that ZNGA keeps).  This implies $268mm in total net bookings for the fourth quarter, while our model estimates $302mm in 4Q bookings.  In other words, unless ZNGA has meaningfully diversified its revenues away from FB, it could miss our 4Q bookings estimate.
  • Additionally, this ignores the fact that some percentage of FB’s ZNGA revenue is generated by ZNGA’s purchase of FB advertising, thus the actual ZNGA bookings from FB is likely even lower.
  • Where we could be wrong – there could be other definitional items around revenue recognition and advertising that we are failing to incorporate into these estimates.
No wonder, Zynga is been on a tear, trying to launch new games for mobile — some of them, copies of other top selling games.
  1. Om, I believe Zynga negotiated a sweetheart deal for itself when it did the deal with Facebook to use Facebook Credits — meaning, I think, that Zynga pays only 20% of gross revenue (not 30%)

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  2. Zynga never was an innovator. They clones games, just like Facebook clones everything. It’s all theft, and zero innovation. I am happy to see them both crash and burn.

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  3. Zynga need to invest in Sales and Marketing especially in Asian countries. Segrate the games acoording to age and Target players

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