Today: Zynga shares plunge after ending exclusive deal with Facebook, but could it pay off in the long run? Plus, new report says Apple (AAPL) will launch a streaming service to challenge Pandora in early 2013.
Zynga shares plunge, but could company be better off in long run?
Zynga shares felt the impact Friday of the announcement that the San Francisco online gaming company has amended its working relationship with Facebook. Zynga plunged 13 percent in after-hours trading Thursday, but recovered half that during Friday's trading session, closing down 6.11 percent, or 16 cents, to $2.46.
Thursday's deal essentially ended Zynga's special relationship with Facebook. Though the companies will still work together, they will no longer be so closely tied. Zynga will no longer have to accept Facebook Credits as payment, and won't have to display Facebook ads. The deal also ended Zynga's exclusivity agreement with Facebook, freeing Zynga to launch new games on its own platform, or with other sites. In return, Facebook got the right to develop its own games, though it said it has no plans to do so.
The news shook Zynga investors, as the lion's share of the company's revenue comes from Facebook games. Zynga has lost 76 percent of ifs value since its IPO last November, and has been plagued by the losses of a number of top executives in recent months. Experts were divided on just what this means for Zynga's future.
"It's not good. Zynga's relationship with FB was a big barrier to entry (for other social gaming developers). Now they are just one of many, and have to swim — or more likely, keep sinking — on their own," Joe Spiegel of Dalek Capital Management told the Merc's Peter Delevett.
But others say the deal may benefit Zynga in the long run. "Zynga now has an incentive to expand the reach of its most-popular social games beyond Facebook and Zynga.com, and be able to offer additional payment options, likely resulting in additional payers who are not Facebook users," Wedbush Securities analyst Michael Pachter wrote in a research note, according to MarketWatch. "While Zynga's popularity arose in part from Facebook's expansion, it was at the mercy of Facebook during (business) negotiations."
Pachter noted that Zynga, which now splits gaming profits with Facebook, will be able to reap 100 percent of profits from games outside of Facebook. He maintains that Zynga will outperform the market, setting a target price of $4 a share.
Others agreed. Needham & Co. analyst Sean McGowan told the Wall Street Journal, "The companies are changing the terms of their relationship, but not ending it. We believe these changes will better allow Zynga to pursue its multi-platform goals."
Though 7 percent of Facebook's revenue comes from Zynga games, the Menlo Park social network was unscathed by the changed relationship. Facebook shares rose 68 cents, or 2.49 percent, to close at $28, continuing its trend this week of hitting four-month highs each day.
Report says Apple set to launch Internet radio service
Apple may launch an Internet radio service next year, in a direct challenge to industry leaders Pandora and Spotify.
A report by BTIG Research predicted the service will launch in early 2013, saying its analysts found clues to the so-called "iRadio" through industry insiders and the addition of a "Radio" option in the new iTunes 11, which launched this week. The report said that while iTunes' current Radio option is "unappealing to most customers . . . the radio service can easily be updated."
BTIG has high hopes for the service: "We expect Apple's iRadio to be vastly superior to Pandora because Apple is unwilling to settle for compulsory music licenses. Instead, expect iRadio to seek direct deals with labels at premium rates enabling iRadio to offer a superior feature set," according to a CNet report.
The analysis supports a Bloomberg News report last month that Apple had intensified negotiations with major record labels with the intention of launching a radio service in the first three months of 2013. Rumors of such a service have been around a while; Apple bought streaming-music site Lala in 2009 amid speculation it would use the startup's technology to start its own streaming radio service.
The addition of Apple as a competitor could be disastrous for Oakland-based Pandora. Though one of the dominant sites in Internet radio, Pandora has yet to make a profit, and experts say an Apple radio service could take as much as 15 percent of Pandora's audience.
"Apple does not play to lose" wrote Richard Saintvilus of Forbes, and "it's too risky to suggest that Pandora is out of the woods just yet."
Pandora shares dipped 7 cents, or 0.8 percent, to close at $8.72. Apple shares fell $4.08, or 0.69 percent, to $585.28.
Tech stocks drag down Nasdaq
Wall Street closed with little change Friday, after a late rally pushed the Dow Jones industrial average and Standard & Poors 500 indexes into positive territory after fiscal-cliff worries had the markets losing ground most of the day. The tech-heavy Nasdaq, however, didn't recover quite as much, falling 0.06 percent for the day.
In addition to Zynga's tumble, other tech stocks did no favors for the Nasdaq. Shares in Virginia-based VeriSign, the company that controls Internet domain names, plunged 13 percent after the Commerce Department extended its contract for another six years, but said it wouldn't be allowed to raise prices without approval. VeriSign had been hoping to raise fees for domain names from $7.85 a year to $10.29, which would have boosted its annual revenue by $244 million. VeriSign closed at $34.13, down $5.21.
Chicago-based daily deals site Groupon was another poor performer, falling 8.7 percent, or 39 cents, to $4.14, after announcing it would not fire CEO Andrew Mason. Groupon stock is down 80 percent for the year, and the company's board of directors met Thursday to discuss Mason's fate.
Silicon Valley tech stocks
The tech-heavy Nasdaq composite index: Down 1.79 , or 0.06 percent, to 3,010.24.
The blue chip Dow Jones industrial average: Up 3.76 or 0.03 percent, to 13,025.58.
And the widely watched Standard & Poor's 500 index: Up 0.23, or 0.02 percent, to 1,416.18.
Check in weekday afternoons for the 60-Second Business Break, a summary of news from Mercury News staff writers, The Associated Press, Bloomberg News and other wire services.