Editor’s note: Jay Jamison is a Partner at BlueRun Ventures where he focuses on early stage mobile and consumer opportunities. You can read more of his analysis on startups and Silicon Valley at his blog jayjamison.com and you can follow him on Twitter at @jay_jamison.
The highest flying of internet high-flyers, Facebook and Zynga, were laid low last week in public markets on weaker than expected guidance on their paths forward. What a difference public market scrutiny and forward-looking forecasts can make. Given the size, scope and importance of these two companies to the broader technology ecosystem, it’s worth analyzing what these reports might mean for industry trends.
According to Wall Street analysts, Zynga had a “dreadful” Q2 report. Several negatives converged to deliver an egg, reported the New York Times:
“A critical new game, the Ville, was delayed. Another new game, Mafia Wars II, just was not very good, executives conceded. The heavily hyped Draw Something, acquired in March, proved more fad than enduring classic. Some old standbys also lost some appeal.”
Zynga’s problems, however, could be characterized as broader than just a weak quarter. Financial analyst, Richard Greenfield of BTIG painted Zynga’s issues as more far-reaching, saying, “Right now, everything is going wrong for Zynga. In a rapidly changing Internet landscape that is moving to mobile, it’s very hard to have confidence these issues are temporary.”
Things weren’t much better for Facebook, which was reporting its earnings to the public for the first time. Given the symbiotic partnership between Zynga and Facebook, anyone paying attention knew Zynga’s weak results spelled trouble for Facebook. And as expected, Wall Street found Facebook’s earnings disappointing.
In coverage, three key themes of concern arose out of Facebook’s report. First, user growth is slowing. This is undeniably true: the growth of two key user metrics, Daily Active Users (DAU) and Monthly Active Users (MAU), is slowing. It’s unclear whether this is a useful concern. If the entire Western world is using Facebook, then Facebook probably is not going to showcase much growth in DAU or MAU until it cracks China. The land has been grabbed.
A second growth concern is revenue. Can Facebook convert all its social engagement into monetization? Facebook clearly has more to prove, but it’s a strong start. With a topline of $1.2B for Q2, Facebook beat analyst estimates on revenue. Its 32% Q2 revenue growth was equal to its year-over-year growth in DAUs. This revenue growth map to its DAU growth is where concern centers. On the one hand, having revenue growth equal to DAU growth shows that on a per-user basis, Facebook is monetizing effectively. At the same time, if DAU growth continues to slow, as it inevitably will, the question will be how Facebook can continue to grow it’s topline faster than DAU growth. The answer is not yet clear. Expect much hand-wringing here around the answer to this question.
Semantics Empowered Web 3.0: Managing Enterprise, Social, Sensor, and Cloud-based Data and Services for Advanced Applications (Synthesis Lectures on Data Management)
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