As Facebook and Zynga Drop, Some See a Shift in Silicon Valley

SAN FRANCISCO - Another couple of days like this and the great tech bubble of 2012 might recede into history.

Several companies that were supposed to be the foundation of a new Internet era plummeted this week as analysts and investors downgraded their dreams. There were instant echoes of the crash of 2000, when the money stopped flowing, the dot-coms crumbled and Silicon Valley devolved into recriminations and lawsuits.

Shares of stumbled to a new low Friday after its first earnings report revealed a murky path to any profit that would justify its lofty valuation. The heavily promoted $100 billion company on the eve of its May debut is now a $65 billion company and persistently headed south.

, the social games company that uses Facebook as a platform, was battered even worse on Thursday, leaving its value at less than a quarter of its peak last winter. Netflix, which is trying to move from physical discs to streaming video, and the coupon company Groupon have also been under severe pressure, leaving them at a fraction of their recent worth.

Feelings of disillusionment are far from universal, and came even as The New York Times reported that , the most successful tech company, had been discussing an investment in . Social media is flourishing; a billion Facebook and 500 million Twitter users would vouch for that. But as just about every Internet company is grappling with the transition to a mobile world, turning groups of people into cash-generating customers on a hand-held device is clearly an immense task.

Nick Zaharias, an independent consultant who advises institutional investors, said his clients were “infinitely more skeptical.”

“For future deals that are pitched as social deals,” he explained, “they're not going to pay up. The multiples are going to be far, far lower.”

The issues facing each tumbling company are slightly different. But they all have the problem of selling something - imaginary tractors, Internet films, discount deals or, in Facebook's case, someone “liking” a product - that is not quite real and perhaps less than essential.

“The gleam has come off the word ‘social,' ” said Ben Schachter, an Internet analyst with the Macquarie Group. “The ground is now shifting underneath these companies' feet at a speed that we didn't see even in the late 1990s.”

Groupon and Netflix have been in the investor doghouse for a while, while with Facebook there seems simple regret that its grandest ambitions might not be reached (“The jury is in: Facebook is not and will not be a second ,” the research group IDC said).

With Zynga, however, there was a sudden sense that building a blue-chip business from virtual goods might be virtually impossible.

“Shocking,” Mr. Schachter wrote in his report after Zynga revealed in its earnings report on Wednesday that it might make less than half of what it had hoped to earn this year from its more obsessive players who pay actual money for virtual goods like tractors - its only real source of income. Increasingly, gamers want to play on the run, and Zynga's mobile games are not a runaway success.

For all the pain that stockholders of Zynga and the other companies must feel, it is not yet March 2000, when all tech stocks went into free fall. The old-line companies, including Google, and Apple, are doing fine.

But the questions about whether the chief executives and other early investors in some once-hot companies might have been a little too eager to cash in are already beginning, just as they did 12 years ago.

Early investors in Facebook increased their participation in the public offering at the last minute by more than 80 million shares, netting them nearly a billion dollars more than the shares would have fetched Friday on the open market. (Mark Zuckerberg, Facebook's founder, was not among those increasing their allotment.) Zynga's founder, Mark Pincus, sold 16 million shares in an unusual secondary offering four months after the December public offering. He and other executives got $12 a share in those more optimistic times, four times the price on Friday.

Mr. Pincus was asked about those sales on Wednesday during the analyst conference call by the BTIG analyst Richard Greenfield. “I wanted to see whether he felt bad about it,” Mr. Greenfield said later. Mr. Pincus did not address the point.

If investors were battered and Wall Street was alarmed, Silicon Valley was unfazed.

The downward slide in public valuations would have an effect on private valuations, venture capitalists said, but it would be manageable.