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Facebook and Zynga -- 'It's Complicated'

NEW YORK ( TheStreet) -- Facebook's (FB - Get Report) second-quarter earnings disappointed investors as revenue growth slowed once again, hurt by its longtime relationship with Zynga (ZNGA - Get Report).

Facebook posted revenue of $1.18 billion, but just $192 million came from what's called Payments. (Facebook gets a 30% transaction fee when users pay for services through the social-media site; Zynga offers its games on Facebook.com.)

On its conference call, Facebook CFO David Ebersman noted that Payments revenue has been flat for the past three quarters. "We believe this trend is due to the fact that gaming, in general, has been growing mainly on mobile devices, where our payment system is generally not utilized," he said. Payments revenue was $186 million in the first quarter and $188 million in the fourth quarter.

Zynga and Facebook have a close business affiliation (11% of Facebook's Payments revenue came from Zynga in the first quarter). If Payments revenue continues to stay stagnant, there may be a fraying of the dependency when the agreement to use Facebook Payments as Zynga's primary means of payment ends in May 2015.

The Palo Alto, Calif.-based social network is trying to move away from Zynga now, said Sterne Agee analyst Arvind Bhatia in a note. Facebook is making changes to its platform, Bhatia noted, and " t hese changes make the discovery of content, including games, easier on FB and, as such, level the playing field for other companies. Ultimately, this should help FB diversify away from Zinga," he wrote. Bhatia rates Facebook shares "buy" with a $37 price target.

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