NEW YORK (Reuters) - Social media stocks, led by Zynga Inc, dropped in volatile trading as traders used the securities to hedge or bet against the day's star of the sector, Facebook Inc, which went public in a somewhat disappointing debut on Friday.
Facebook shares rose 8.5 percent to $41.25 in afternoon trading. Analysts blamed the poorer-than-expected first-day showing of Facebook on the vast number of shares floated and market weakness.
Shares of Zynga, the leading social gaming company which gets much of its revenue from Facebook, fell more than 14 percent at one point, and were halted twice. Zynga was down 5.7 percent at $7.80 a share in afternoon trading, having earlier hit a low of $7.08, which triggered an automatic halt due to the fluctuation in its price.
Other social media stocks, including LinkedIn, Groupon, Pandora Media and Yelp, were also lower on Friday, with Groupon and Yelp losing more than 5 percent.
GSV Capital, a listed investment vehicle that bought Facebook shares before the IPO, slumped 14 percent to $13.87.
Some traders who can't short Facebook shares early may be betting against other social media stocks instead, according to Max Wolff, a senior analyst at GreenCrest Capital.
Zynga accounts for more than 10 percent of Facebook revenue, so traders may be focusing most on Zynga shares and options as an alternative to Facebook.
"Zynga options have high skew right now. That's the pricing difference between out-of-the-money puts and out-of-the-money calls," said Ralph Edwards, director, derivatives strategy at ITG. "This typically means people are looking for Facebook to kind of spill over to Zynga. If Facebook catches a cold, then Zynga gets pneumonia."
(Editing by Bernadette Baum)
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Updated Date: May 19, 2012 00:00:05 IST