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Zynga Stocks Fall After 4th Quarter Disappointment

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Published on:
Feb/15/2012

NEW YORK (AP) — Investors sold off shares of Zynga on Wednesday after the company behind the most popular Facebook games fell shy of high expectations for its first earnings report as a publicly traded company.

Zynga Inc. of "FarmVille" and "CastleVille" fame reported better fourth-quarter results than what Wall Street was expecting, at least according to the average estimate compiled by FactSet. But Barclays analyst Mark May said the results fell short of some recent, more bullish expectations.

The company had 54 million daily active users in the fourth quarter, which May called "an improvement from recent trends." But he added that Zynga revenue growth seemed to benefit from a growth in the number of mobile users and paid downloads of its mobile games, as well as from advertising revenue.

This, he said suggests that non-mobile, online metrics — in other words, its Facebook games — "may have been a bit soft."

Zynga did not have an immediate comment on May's report Wednesday.

The company had more than 15 million daily active mobile users at the end of the year. That means 15 million people played its mobile games such as the popular, Scrabble-like "Words With Friends," on their phones every day.

That should help the company become less dependent on Facebook, though games played on the online social network account for the vast majority of its revenue, so any sign of a slowdown might worry investors.

Even so, May and other analysts called Zynga's first public earnings report solid. But noting a recent uptick in the San Francisco company's stock price, several issued downgrades.

The San Francisco-based company went public in mid-December after pricing its stock at $10. Shaking off a sluggish start in December and January, the stock hit a record high of $14.55 on Tuesday, before Zynga released its earnings report after the closing bell. On Wednesday, the stock fell $2.19, or 15.3 percent, to $12.16 in early afternoon trading.

May cut his rating to "Equal-weight" from "Overweight" and raised his target price on the stock to $12 from $11. Baird analyst Colin Sebastian downgraded Zynga to "Neutral" from "Outperform."

Wedbush's Michael Pachter, meanwhile, kept his rating at "Outperform" even though Zynga's revenue of $311 million fell below his expectations of $335 million. On average, analysts were expecting $302 million, according to FactSet.

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