Zynga shares slump as Facebook changes raise concerns

Zynga shares slump as Facebook changes raise concerns

Thu Jul 26, 2012 6:28pm IST
(Reuters) - Shares of Zynga Inc fell in premarket trading on Thursday, after Facebook Inc made it harder to find games such as "FarmVille", sparking concerns that its results were unlikely to improve anytime soon.

A slew of analysts cut their ratings and price targets on shares of Zynga, which slashed its outlook and reported lower-than-expected quarterly results on Wednesday.

"The biggest factor impacting current performance appears to be the way Facebook is surfacing gaming content on its platform," JP Morgan's Doug Anmuth wrote in a note to clients.

Surfacing refers to how a website showcases content.

Facebook recently tweaked the way users find games in its app center -- giving prominence to newer titles and pushing down older games -- making it difficult for users to find older, popular titles from Zynga.

Shares of Zynga started sliding in post-market trading after the company reported results and were
down 39 percent in premarket trading on Thursday. They closed at $3.20 on Wednesday.

Zynga's lowered outlook spooked Facebook investors who are waiting for the social networking company to report results for the first time on Thursday. Its shares were down 6 percent at $27.45 in trading before the bell.

Zynga, which relies on Facebook for more than 90 percent of its revenue, is facing a steep drop in players for its core money-making games such as "FarmVille" and "Hidden Chronicles."

"As Zynga looks to grow its footprint in the mobile category, the traditional Facebook business was expected to act as a solid foundation, but is instead showing incremental weakness," said Piper Jaffray analysts.

FarmVille, which represented 29 percent of Zynga's second-quarter revenues, has shrunk to just 20 million users this month from a high of about 80 million in March, according to Appdata.com, a Facebook tracking service.

Trends for games on Facebook have deteriorated as some developers focus on mobile platforms and users show some fatigue for "management style" games, Robert W. Baird & Co said.

"And there is a broader shift from desktop to mobile Facebook access that impacts social game monetization," analysts at Baird added.

J.P.Morgan Securities, Citi Investment Research, Lazard Capital Markets, Stifel Nicolaus and Goldman Sachs downgraded Zynga's stock to "neutral," or equivalent ratings.

Goldman also removed Zynga from its Americas Buy List.

At least five other brokerages slashed their price targets on the stock to as low as $3.00.