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Surviving Zynga in a Facebook World

NEW YORK ( TheStreet) -- If you're a current Zynga (ZNGA - Get Report) investor, Wednesday's earnings release must have you wishing for another game to play.

Zynga has lost about 39% of its market cap from Wednesday's close. The loss in share price is primarily from the surprising earnings miss and a failure to demonstrate reasonable earnings are on the horizon.

Thursday's move didn't break through any support levels because there are none. Thursday's open was an all-time low. The widely watched 200-day moving average doesn't come into play because Zynga hasn't traded for at least 200 days. Zynga is oversold on the daily and the weekly charts, but without a support level it's make or break time.

Insiders sold shares faster than a dog chases a tennis ball. In the last six months, insiders sold over 20 million shares. It's a safe bet the end of the lockup period was circled on more than one insider calendar.

It's not clear management believes in the stock.(See Earnings Preview: Can Facebook and Zynga Stop the Bleeding? )

Yahoo (YHOO) is already in the online game space and Electronic Arts (EA) has Zynga squarely in its sights. Google's (GOOG) encroachment into Facebook's (FB) theater of operations likely obstructs growth.

The impact of Google on Facebook's future should not be underestimated. Don't forget that Research In Motion (RIMM) was once the undisputed king of smartphones. It didn't take long for Google to cut the legs out from under RIM.

Most of RIM's problems are self-inflicted, but expecting Zynga to execute flawlessly is perhaps too optimistic.

Google is the king of online advertising, and if there is money on the table offering online games it's a safe bet that at some point Google will enter the space. ( TheStreet's Ed Ponsi looks at Electronic Arts and Zynga For Electronic Arts, It's Game On . You need a Real Money Pro account to read, but Ponsi's analysis makes it worthwhile.)

Because the overwhelming majority of Zynga users come from Facebook, Google's continued social growth should be watched carefully. If users begin to migrate from Facebook to Google circles as the main social connection, it will be time to run, not walk, away.
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