Is Capital Flowing from Zynga to Facebook?

Shares of Facebook FB game maker Zynga ZNGA declined more than 5% today, seeing a steep drop shortly before and after Facebook was first publicly traded. Investors might wonder if these two events could be related. More specifically, could traders be moving their money out of Zynga and into Facebook?

Before Facebook became publicly traded, investors sought indirect means to get exposure to the social media giant. For this reason, Zynga's stock became a key resource after the company's initial public offering late last year. Since investors could not buy shares of Facebook, they were forced to settle for a company that derives substantially all of its revenues from Facebook.

Now, Facebook's initial public offering begs the question: why buy indirect exposure to Facebook with Zynga when you could just buy the real thing? As a much larger company, Facebook shares have much greater volume and liquidity. In addition, Zynga relies almost entirely on Facebook, but Facebook will likely rely less and less on Zynga as other game producers introduce successful new products via Facebook's application platform.

Whether or not Facebook now offers investors a greater growth opportunity than Zynga, one thing is clear: Zynga's utility as a public investment proxy for Facebook has diminished drastically. With trading of Zynga's shares already halted twice today, could the occurrence of Zynga's extreme market activity on the same day as Facebook's first public trading really be coincidental?

Disclosure: At the time of this writing, I did not own shares of any companies mentioned in this post.