3 Ways This Stock is Killed by No Honor Among Thieves
Danny is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Ye Olde Playfully Social Investors:
Tech companies can be expensively frightening. It's a relatively young industry with everyone claiming to pave the way in terms of revolutionary innovation. The wary investor and company alike must constantly check over their shoulder to make sure their investment doesn't slip up and that the competition isn't up to harmful hijinks.
In fact, it's all dangerous fun and games until someone gets sued -- and Zynga (NASDAQ: ZNGA) is about to get sued. Do you know enough to keep you on the safe side of the shiv?
1. No Honor Among Thieves
Here you are as Zynga. You run a solid scheme: find a promising game, then copy and release it under the Zynga brand. Repeat with a different game every time.
The original game's development shmucks have a problem with that? Forget about it. They're small fries, you're Zynga: the legal costs alone are too expensive for them to be a threat.
Now scope out the neighboring territories. Electronic Arts (NASDAQ: EA) runs a smooth ploy of its own: identify a profitable series or brand, then keep releasing it with a bigger number. Acquire and close studios accordingly.
What's that? They stole a piece of your pie for their own popular franchise, using your own thieving tactics? Two can play at that game! Enter The Ville, your next knockoff courtesy of EA origin.
Wait a second, they didn't like that at all -- and they've enough money for that to matter. EA brings out the guns: lawsuit time.
In your prospects is now a monetary bloodshed worthy of crime lords hypocritically ratting out one another. The worst part? While your entire business runs off the uncreative methods threatened by this lawsuit, EA leaves its normal operations intact and unaffected.
2. Deserted By Your Partner In Crime
Rejoice indeed, victims of the Zynga evil, for an unlikely hero has appeared to enact justice on the copycat.
That's okay, the you-Zynga thinks. You've got a partner that has had your back before; you mutually profit from the same people where your territories intersect. Facebook (NASDAQ: FB) has done you favors, pushing your games to the point that you've been 12% of their revenue over a year. However you end up after this lawsuit, at least your new titles will still get that extra attention.
Again comes a scene straight out of a mob movie: Facebook tells you they're finished hooking you up. Both companies shared a disappointing IPO and downward trend, but any naive expectation of honor, from a linked past, is shattered as they clarify they're cleaning up their act.
A platform is a double-edged sword. Facebook's strategy change -- with a focus on advertisers -- severs their dependency on you. While they're straightening up and flying right, your main revenue source is now on equal footing with the shmucks you once exploited.
This runs deeper than might initially be apparent because of distribution channels for your games. Facebook isn't just web; it's mobile devices. Rising adoption of the Apple (NASDAQ: AAPL) iPhone and iPad meant more traffic through the Facebook app. Consider that Apple users are known for spending a good amount of cash, and suddenly there's still more to lose without your old Facebook cohort. Another independence: Apple itself doesn't rely on Facebook nor on Zynga as it has already wielded the power of independent developers you're known to copy. If your absence doesn't simply help Facebook, it will strengthen numbers in Apple's App Store.
Google (NASDAQ: GOOG) tends to be a refuge for many developers; could you capitalize on their Google+ network? Unfortunately, Google is among the most legitimate businesses out there and doesn't even have a linked past with Zynga, which puts Zynga-you at par with every other developer on Google+. Recent diversification means a long-term success based on glasses, self-driving cars, and providing fast internet. That spells out long-term success for Google, but not with a wounded developer that must rebuild a Facebook-worthy funnel of users on a new, higher-quality social network.
3. Mutiny! Betrayal from the Goons
Et tu, investors?
While things are looking bleak, the last strikes appear internally as a lawsuit appears from your own investors and another executive leaves the company.
These simple signs, outside of services provided, hint at an obvious future.
The Gig is Up
From the games created to the executive level, Zynga is having problems in most -- if not all -- fronts. Not discussed here are the weak prospects for innovative talent (thanks, copycat reputation) that could reinvigorate the organization, or of the other executives that seem to be trickling out of the company.
You should know enough to stay out of Zynga's bad neighborhood. Crime starts off fun, but eventually someone will make you face justice.
dfavela has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple, Facebook, and Google. Motley Fool newsletter services recommend Apple, Facebook, and Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.
