Investors learned a recurring, deterrent example from the downfall of Facebook’s initial public offering (IPO) over the past year, but the oblivious stock market will still fall for a similar hype in the future – a cycle that will continue as players take risks in trading securities.
What other reasons can clear up the sensational promotion of the social network’s IPO last year, especially after the IPO fiasco of social games developer Zynga?
Even though other Internet companies still strive to meet their high valuations, Facebook and Zynga now expect to break new ground and save their dominant positions.
Facebook Graph Search
After a series of dreary slumps following its IPO on May of last year, Facebook stock is finally gaining vigor, and investors are feeling more confident, as the social networking giant considers starting new income-generating projects to strengthen its place in the market.
While it backpedaled after the slip-up, the photo-sharing service acquired by the social network last year already lost more than a quarter of its active users.
To divert the attention and build interest on its future, Facebook recently announced a new search technology.
Turns out analysts who had off-the-wall predictions on the release of a new Facebook smartphone expected too much, as the cryptic plan was to create a less glamorous offering called Graph Search.
Although so-called market experts claim that Facebook is the new Google, the real deal is less remarkable.
The new social media search function will not be a big threat to Google’s leading online search engine, but it will help Facebook widen the gap against its direct rivals, such as LinkedIn and Yelp.
Facebook’s share price dropped after the announcement, which means the stock market is hesitant to take chances on the company’s plans and take them with a pinch of salt.
Graph Search is not the first of its kind – Netflix, LinkedIn, and Yelp already use social search – so investors will have to monitor if Facebook will make it unique and exciting.
The oddities of the stock market could explain the turbulence surrounding Facebook stock prices, given that the firm has not made key changes to its business.
The social network’s stock continues to pull in hedge funds and institutional investors, so retail investors can take advantage while it rides the waves.
Zynga’s Real Money Gambling
Financial website StockCall.com said Zynga, developer of popular Facebook games such as FarmVille and Mafia Wars, had a series of blows after Facebook decided to make independent social games.
A substantial portion of Zynga’s revenue comes from its joint work with Facebook, so this will hit its stock price in the next quarters.
To improve the monetization of its products and services, Zynga has started to move out of its Internet legacy and offer online casino games in the UK.
The company still has to tread through a rough road because its application to offer real money on casino games in Nevada is still under review, and online gambling is a hotspot filled with complex legal implications.
In the last few months, Zynga has lost a considerable number of key executives and talented employees, which only added up to its struggles.
The announcement to lay off 150 employees for downsizing is not helping much either.
Zynga seems to have a healthy cash reserve, so a buyback of its shares can still bring value to investors.