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Why Did Zynga Tank After Facebook IPOed?

theatlantic.com

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Re: Why Did Zynga Tank After Facebook IPOed?

#11

Post by tatsuke95 »

hristov wrote: post #8

The reason is obvious to me. In fact it is so obvious now that I am kicking myself for not finding a way to make money out of it. It is related to the reasoning proferred by the Atlantic, but it is not exactly it. It is true that Zynga and facebook are very related. And for that reason, it seems to me that a lot of Zynga shareholders were holding Zynga shares not because they want to own Zynga, but because they want…

>"So a lot of Zynga shareholders were merely holding Zynga as a proxy for Facebook. Once Facebook was offered all those people decided to sell Zynga to buy Facebook. And Zynga tanked accordingly"

If people were holding ZNGA as a proxy for FB, with the intention to dump the shares for FB when it went public, then these people should have known that others would be doing the same. Thus, they should have started earlier. I think this theory explains the flash crash, but not the bigger picture.

>" The reason Facebook went down is the usual immediate post IPO sell-off when a bunch of people that got into the IPO sell their shares immediately to make some quick profit."

A stock transaction is a two-way street. There is a buyer on the other end of the deal, you don't sell shares into a vacuum. So, selling the shares doesn't drive down price, lack of demand does.

Re: Why Did Zynga Tank After Facebook IPOed?

#12

Post by tatsuke95 »

dbkbali wrote: post #5

There is another possibility and that is dealers were desperately trying to maintain facebooks price above the Ipo price, especially given the significant lower fees taken on this Ipo and the greenshoe option. Without this dealer intervention it is possible facebooks price would have correlated more with zynga's price short. The greenshoe option http://en.wikipedia.org/wiki/Greenshoe could also have something to do w…

This isn't a "possibility", it's the duty of the underwriter.

Re: Why Did Zynga Tank After Facebook IPOed?

#13

Post by aleyan »

hristov wrote: post #8

The reason is obvious to me. In fact it is so obvious now that I am kicking myself for not finding a way to make money out of it. It is related to the reasoning proferred by the Atlantic, but it is not exactly it. It is true that Zynga and facebook are very related. And for that reason, it seems to me that a lot of Zynga shareholders were holding Zynga shares not because they want to own Zynga, but because they want…

I subscribe to your hypothesis that people were trading Zynga as a proxy for Facebook. The fortunes of Zynga are highly dependent on Facebook, and when big daddy was going down today so was Zynga.

As for making money on this, no dealers had shares available to sell short this morning or the past few days I believe.

Re: Why Did Zynga Tank After Facebook IPOed?

#14

Post by nullspace »

hristov wrote: post #8

The reason is obvious to me. In fact it is so obvious now that I am kicking myself for not finding a way to make money out of it. It is related to the reasoning proferred by the Atlantic, but it is not exactly it. It is true that Zynga and facebook are very related. And for that reason, it seems to me that a lot of Zynga shareholders were holding Zynga shares not because they want to own Zynga, but because they want…

>So a lot of Zynga shareholders were merely holding Zynga as a proxy for Facebook.

This might be a part of the reason. But the big huge fall, then the huge rise might just be triggered by silly trading algorithms, maybe?

Like you said, Zynga and Facebook are presumed to be highly correlated in terms of value. But, Zynga needs facebook more than the other way round. I think (and this may just be utterly wrong), that the steep fall in facebook's value triggered an even steeper fall in Zynga's share price, which then cascaded to panicked investors selling their shares to lower it even more.

The real funny thing however, is the steep rise again. I am tempted to venture a guess that everyone was watching the trades to see who would make the first move, and then piggyback on them.

Sort of like a room full of people with guns pointed at each other. No one really wants to make the first move, but as soon as someone does, the only chance of surviving would be to start shooting.

Re: Why Did Zynga Tank After Facebook IPOed?

#15

Post by luser001 »

dmvaldman wrote: post #6
coryl wrote: post #4

I don't think anyone in the startup/tech world believes in Zynga's ability to be a (public) company that can seriously grow revenues and create sustainable products.

Can you explain why?

I'll try: they're sharecroppers (e.g., http://www.tbray.org/ongoing/When/200x/2003/07/12/WebsThePla...)

Re: Why Did Zynga Tank After Facebook IPOed?

#16

Post by justDance83 »

dmvaldman wrote: post #10
hristov wrote: post #8

The reason is obvious to me. In fact it is so obvious now that I am kicking myself for not finding a way to make money out of it. It is related to the reasoning proferred by the Atlantic, but it is not exactly it. It is true that Zynga and facebook are very related. And for that reason, it seems to me that a lot of Zynga shareholders were holding Zynga shares not because they want to own Zynga, but because they want…

Hindsight bias: http://lesswrong.com/lw/il/hindsight_bias/

interesting link.

Re: Why Did Zynga Tank After Facebook IPOed?

#17

Post by jarek »

hristov wrote: post #9
hristov wrote: post #8

The reason is obvious to me. In fact it is so obvious now that I am kicking myself for not finding a way to make money out of it. It is related to the reasoning proferred by the Atlantic, but it is not exactly it. It is true that Zynga and facebook are very related. And for that reason, it seems to me that a lot of Zynga shareholders were holding Zynga shares not because they want to own Zynga, but because they want…

To further support my theory, I note that LinkedIn also fell today by 5.6%. This was not a fall as steep as that of Zynga, but of LinkedIn is not as closely intertwined with facebook as Zynga.

GOOG dropped by 3.6%, that's around $7.1B in market cap which is almost half of the entire Facebook offering - do you suppose this was driven by people who really wanted Facebook exposure, too?

Re: Why Did Zynga Tank After Facebook IPOed?

#18

Post by samwilliams »

hristov wrote: post #8

The reason is obvious to me. In fact it is so obvious now that I am kicking myself for not finding a way to make money out of it. It is related to the reasoning proferred by the Atlantic, but it is not exactly it. It is true that Zynga and facebook are very related. And for that reason, it seems to me that a lot of Zynga shareholders were holding Zynga shares not because they want to own Zynga, but because they want…

While this is a nice theory in principle, I think it falls down because of the timing of the ZNGA drop. The drop happened exactly when the FB shares were made available to trade (11.30 - 11.38), before this time they had been trading fine (in big volumes). You would expect the people that were holding these shares as a proxy for FB to have anticipated that others like them would have wanted to sell that morning and done so before the moment arrived. In fact, there is evidence that this did happen in that there was big movement of ZNGA in the first hour of trading and at around 10.50.

This means that is was much more likely that it was down to bad trading algorithms. Or that is how I see it anyway...

Re: Why Did Zynga Tank After Facebook IPOed?

#20

Post by panarky »

We know that Morgan Stanley propped up Facebook's share price to keep it from falling below $38.

To prop up the price, Morgan had to buy a truckload of shares.

How else would you hedge your exposure to all those Facebook shares than to short Zynga and Google?

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