ZYNGA Plunges 18%, But Analysts Cheer Facebook’s Ad Focus
Shares of online games purveyor Zynga ( ZNGA ) and Facebook (FB), where the company has traditionally derived most of its users, are joined at the hip today following Zynga's warning yesterday afternoon that revenue and profit per share this year will come in lower than it previously expected and below Street consensus estimates. Zynga also said it would right down about half the value of OMGPOP , developer of the game " Draw Something " and other titles, which Zynga bought in March for $180 million. Shares of Zynga are down 51 cents, or 18%, at $2.31, while Facebook is off 50 cents, or 2.3%, at $21.44. Analysts today pointed to push-outs of new game titles, and a certain decline in the traditional Facebook games such as " FarmVille " that established Zynga. The Street is fairly unforgiving of Zynga today, with R.W. Baird's Colin Sebastian cutting his rating on the stock to Neutral from Outperform, and cutting his price target to $3 from $6, warning that things may get worse before they get better: The company’s platform transition could extend well into 2013, requiring the ongoing realignment of resources and alterations to product development […] While we see limited downside from here (ZNGA has $2/share in cash as well as significant real estate investments), and mobile and social gaming continues to grow, the extreme lack of visibility point us to the sidelines. Citigroup's Neil Doshi reiterates a Neutral rating on the stock, observing that it now trades close to the $2 per share in cash it has. Despite his positive view on the company's role in online gaming, a lot more evidence needs to come forward that the company can thrive in this category: While we are positive on the LT prospects of Social/Mobile gaming, and think Zynga’s has a clear advantage to be the leader on these platforms, near-term fundamentals have cracked, and we’ll likely continue to stay on the sidelines until we can see improvement in ABPU, growth in engagement on FB and off, expansion into new genres, and production of higher monetizing games.