Mike Isaac

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Feeling Zynga’s Pain, Facebook’s Payments Biz Takes a Dive

Many of Facebook’s earnings numbers were positive when results hit on Tuesday afternoon. Ad revenue is accelerating, and mobile now makes up a notable portion of overall revenue.

One number, however, wasn’t so heartening — Facebook’s payments business. Revenue on payments and other fees came in at $176 million in the third quarter, well under the Street’s consensus of $206 million. That’s a decline of 9 percent quarter on quarter, down from $192 million.

The reason for the big hit on payments? A big part of that is a direct result of Zynga, according to Facebook CEO Mark Zuckerberg.

“Gaming on Facebook isn’t doing as well as I’d like,” he said on the company’s earnings call on Tuesday. He made it a point to finger Zynga’s serious underperformance this quarter, a 20 percent decrease compared to the year-ago quarter. Whereas Zynga was responsible for 10 percent of Facebook’s overall revenue last quarter, that number decreased to 7 percent in today’s Q3 numbers.

It says something that Zuckerberg decided to call out Zynga by name to its investors. Though, to be fair, Zynga CEO Mark Pincus was just as blunt in his company’s earnings call last quarter, chalking Zynga’s terrible performance up to “a more challenging environment on the Facebook Web platform.”

So in other words, Pincus is saying that it’s Facebook’s fault his games are tanking.

And the social gaming company is certainly feeling the heat in a very public way. The company laid off nearly all of its Austin, Texas-based employees working on The Ville, one of its underperforming social games. Earlier in the month, Zynga lowered its yearly expectations yet again. To boot, Zynga’s stock hit an all-time low today, closing at $2.20 per share.

Despite whatever pains Zynga may be going through, Zuckerberg claims that Zynga’s failure isn’t Facebook’s entire payments story. Zynga’s slack, he says, is being made up for by other new gaming companies entering the space, like Kixeye and King.com.

While it is in part a slight to Zynga, it seems like Zuckerberg wants to shift the perception of who is responsible for Facebook’s payments revenue. Yes, Zynga was cited as one of Facebook’s largest risk factors in the early days of Facebook’s S-1 filings. Now that there are more gaming companies on the platform, the success of Facebook payments isn’t tied to one company alone. More competition means diversified revenue streams, including ad spending from gaming companies whose ads appear on Facebook, according to CFO David Ebersman.

For Facebook, that’s a good thing. For Zynga — not so much.


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Another gadget you don’t really need. Will not work once you get it home. New model out in 4 weeks. Battery life is too short to be of any use.

— From the fact sheet for a fake product entitled Useless Plasticbox 1.2 (an actual empty plastic box) placed in L.A.-area Best Buy stores by an artist called Plastic Jesus