updated 03:20 pm EDT, Fri October 5, 2012
Second 2012 reduction causes analysts to reduce price guidance
Brokerages and market analysts have dropped price targets on Zynga stock by up to 40 percent after the social game maker slashed its 2012 guidance further due to revenue damage from departing gamers. Zynga said on Thursday it was losing paid customers from Facebook games CityVille and FarmVille, and reduced its annual guidance for the second time this year. Since the IPO in December 2011, the company has lost three quarters of its market value.
Zynga executives blame Facebook for the drop in traffic and revenues, saying that the social network made extensive changes that favored new games, mostly from Zynga's competitors. Regarding the user departure, ex-Chief Operating Officer John Shappert said “Our users did not remain as engaged and did not come back as often."
Two insider trading suits have been filed against the company, and follow investigations of Zynga staffers and CEO Mark Pincus. Pincus and other high-ranking Zynga employees are accused of selling 43 million shares of stock in April at $12 per share, when employees and other early investors were banned from selling until May. By then, the stockholders claim, the business had already begun to slump.
Zynga is also facing a lawsuit from gaming giant EA, claiming the social games developer has violated copyright law. The complaint focuses on Facebook game The Ville, where Zynga is accused of infringing on The Sims Social, EAs own casual gaming endeavor. EA believes The Ville "blatantly mimic[s] the entire framework and style of gameplay," making the two games "nearly indistinguishable."
The company's shares have fallen 20 percent since Thursday to a new low of $2.21. The annual high price of the stock was $15.91 in March. Facebook's revenue is impacted by Zynga's revenue depression, as ten percent of its revenue comes from the game maker.