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Why Zynga's Mess Is Bad for Facebook

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What impact could Zynga's collapse have on Facebook?

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MINYANVILLE ORIGINAL Zynga (NASDAQ:ZNGA) is getting the Hulk-smash treatment this morning after the once-hot social/online game maker significantly lowered its full-year outlook.

Zynga now expects full-year bookings of $1.085 billion to $1.1 billion, down from a previous outlook of $1.15 billion to $1.225 billion. At the midpoint, this is a reduction of 8%.

But that doesn't paint the whole picture. Let's look at the trend of Zynga's bookings:



Based upon Zynga's new full-year guidance, it is expecting bookings of just $209 million in the fourth quarter, a year-over-year decrease of 32%!

So what's the problem?

Well, Zynga says it has reduced expectations for games like The Ville, and has delays in launching new ones. Also, the acquisition of OMGPOP!, maker of the hot-for-a-minute mobile game Draw Something, has been a big flop, requiring an $85 million to $95 million write down.

Anecdotally, I'm seeing fewer of my Facebook (NASDAQ:FB) friends playing social games of the Mafia Wars and FarmVille ilk. If you're seeing something similar (or different), feel free to leave a comment below.

Which brings us to the obvious topic: What does Zynga's collapse mean for Facebook?

To answer this question, we'll have to once again bust out the eighth grade math.

According to Facebook's second quarter 10-Q filing, Zynga accounted for 12% of Facebook's revenue. This consisted of processing fees related to Zynga's sales of virtual goods, as well as advertisements purchase by Zynga.

But wait, there's more! On top of that, Facebook estimated that an additional 4% of revenue came from ads on pages generated by Zynga apps.

So weakness in Zynga doesn't just hit Facebook's payments business -- it also has a small impact on the advertising side.

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