Shares in social games company Zynga fell off a cliff last night, falling 37% to $3.18 – they originally traded at $10 when the company went public in December 2011. Why? Zynga missed analyst expectations for its Q2 financials, as it reported revenue of $332m and a net loss of $22.8m for the quarter.
Here’s the music lesson: Zynga admitted that one of the reasons its revenues disappointed was changes made by Facebook to its viral algorithms. In short, Facebook users saw more alerts about brand new games their friends were playing, and less alerts about existing titles – lost cows, requests for help, etc. Which penalised some of Zynga’s biggest games.
There are bright spots: Zynga still has 72m daily active users and 306m monthly active users, and its new The Ville game was installed by 4.5m people on its first day. In fact, the latter should make music marketers’ ears prick up: anyone considering getting their artists into console/PC games like The Sims should be giving Zynga a call about The Ville.
But the results are an illustration of life when your company’s success is closely tied to Facebook’s platform, and when a tweak to that platform can have an instant impact on your business, for better or worse.
Which is not to say Spotify, Rdio, Deezer and the rest were naive in their eager adoption of Facebook’s Open Graph – but more a timely reminder that such platforms can take away as well as give.