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Zynga struggles as mobile use grows

Gamemaker cuts its forecast amid falling demand.

Bloomberg News
October 6, 2012 at 2:15AM
In this June 26, 2012 photo shows Zynga CEO Mark Pincus walks off the stage after an announcement of new games at Zynga headquarters in San Francisco. Not long ago, online games company Zynga looked on pace to unseat much bigger, well-established rivals as it rode the popularity of "FarmVille," the clicking game of virtual cows and real money. But the iPad came along, and more people bought smartphones. People weren't playing Zynga's games on Facebook and computers as much as they used to. Zynga
This June 26, 2012 photo shows Zynga CEO Mark Pincus (Associated Press - Ap/The Minnesota Star Tribune)

Shares of Zynga Inc. tumbled to a record low Friday after the gamemaker cut its forecast for full-year bookings, a predictor of sales, citing lower demand for titles such as "The Ville."

Zynga's shares dropped 12 percent to $2.48 in New York, the lowest closing price since the company's initial public offering in December. Shares of Facebook Inc., operator of the social network responsible for most of Zynga's game revenue, declined 4.7 percent to $20.91.

Zynga, which makes most of its money by selling virtual goods in games played on Facebook, is struggling with slowing growth as users spend more time on mobile devices. Pressure on the stock, which had fallen 75 percent since the IPO, has lowered the value of equity used to compensate staff, hastening the departure of some of the company's key managers.

"For a lot of employees, it was one thing when you were getting a bunch of options at Zynga when the stock was at $15, but now that the stock is near $2 it's a lot easier to leave," said Michael Pachter, an analyst at Wedbush Securities Inc. in Los Angeles.

Zynga lost two developers Friday, as Paul Bettner and David Bettner, creators of the "Words With Friends" mobile game, departed. The exits follow the departures of at least eight managers since early August, including Jeff Karp, its former marketing chief.

Bookings this year will be no more than $1.1 billion, compared with an earlier forecast for as much as $1.23 billion, San Francisco-based Zynga said Thursday. The company also wrote down the value of its acquisition of OMGPop Inc. and sliced its forecast for a closely watched measure of profitability.

Analysts on Friday slashed price estimates on the shares by an average of 23 percent to $3.35, according to data compiled by Bloomberg. Colin Sebastian, an analyst at Robert W. Baird & Co., downgraded the stock to neutral and cut his price target in half, to $3. Benjamin Schachter, an analyst at Macquarie Securities USA Inc., lowered his target 29 percent to $2.50.

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DOUGLAS MACMILLAN

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