FB Off 6%: Be Wary, Says Pac Crest; Sell-Off Overdone, Says Needham
As shares of online games purveyor Zynga ( ZNGA ) continue their meteoric descent this morning, falling $1.98 or 39%, to $3.10, following disappointing Q2 results , a cut in outlook, and a raft of downgrades this morning from the Street, scrutiny passes to Facebook ( FB ), which has been the major source of Zynga's usage, is coming under assault, currently down $1.69, or almost 6%, at $27.65, in advance of the company's Q2 report this evening, its first report since going public on May 18th. The Street seems to be dividend as to just how much to read into Facebook's quarter from Zynga's results. Zynga represents about 12% to 15% of Facebook's revenue, according to various analyst estimates. Evan Wilson of Pacific Crest, who rates Zynga stock Sector Perform, doesn't believe Zynga's explanation that some changes in the way Facebook operates hurt its usage patterns: Zynga said a late-quarter change by Facebook adversely affected its older titles (CityVille was called out) and that led to a precipitous drop in use. Below is the chart of CityVille’s daily average users (DAU). Nothing about it looks too unpredictable to us. And Wilson offers the following chart: However, Wilson, who also rates Facebook Sector Perform, does think the are bad tidings here for the company:
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