Zynga Inc (ZNGA), Facebook Inc (FB), Electronic Arts Inc. (EA) & Why The Social Gaming Fad Is Over

Facebook is partially reliant on social gaming

As the platform for most social games, Facebook Inc (NASDAQ:FB) is reliant on the popularity of these games for much of its income. In its S-1 IPO filing, the company identified the decline of social gaming as a negative risk factor.

We currently generate significant revenue as a result of our relationship with Zynga, and, if we are unable to successfully maintain this relationship, our financial results could be harmed…If the use of Zynga games on our Platform declines…our financial results may be adversely affected.

In its most recent earnings slides, Facebook Inc (NASDAQ:FB) notes that roughly 16% of its revenue came from “payments and other fees.” The company provides no breakdown for how much of this category is derived from social games, but reading the 10-K reveals that “substantially all of [Facebook’s] Payments revenue is from users’ purchases of virtual goods used in social games.”

There are, of course, many other companies that operate social games on Facebook Inc (NASDAQ:FB), and Zynga Inc (NASDAQ:ZNGA) has slowly weaned itself off of Facebook in recent months. But with both EA and Zynga struggling on the social gaming front, Facebook’s earnings could disappoint.

Investing in social gaming

Video game companies are lousy long-term investments. Social gaming companies are even worse. Given recent events, social gaming as a category looks to be imploding. New games could rejuvenate the sector, but investors shouldn’t bank on it.

The article The Social Gaming Fad Is Over originally appeared on Fool.com.

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