Analysts at Stifel Nicolaus lowered their earnings estimates for Zynga Inc (NASDAQ:ZNGA) to show the weakening fundamentals of the online social gaming company based on its performance in the first half of the current fiscal year.

Zynga

Concern for core games of Zynga

In a note to investors, Stifel Nicolaus analysts, Jordan Rohan and Michael Purcell emphasized that the core games of Zynga Inc (NASDAQ:ZNGA) remains a concern, and they believe that the stabilizing trends for the company is difficult to project. They maintained their position to remain in the sidelines based on the current volatile situation of the online social gaming company.

Rohan and Purcell said, “Investors should be wise to remain on the sidelines until more is known about new CEO Don Mattrick’s strategy for turning around the company.”

For the third quarter of 2013, the analysts reduced their earnings revenue and EBITDA estimates for Zynga Inc (NASDAQ:ZNGA) to $190 million and -$21.2 million, respectively. For the fiscal 2014, the company is expected to deliver $788.3 million revenue, and  $44.9 million EBITDA.

Zynga’s stock might continue to decline

The analysts believe that Zynga Inc (NASDAQ:ZNGA) will continue to decline given the fact that its portfolio of popular games has been negatively affected by competing titles such as Candy Crush Saga from King.com. During the first half of 2013, Zynga’s financial performance tumbled. According to them, the new games introduced by Zynga failed to offset the slowing growth of its established games. They also noted the Mattrick warns that the company expects more challenges ahead.

Rohman and Purcell wrote, “The June quarter did little to assuage investors’ fears with net revenues declining 12.5 percent q/q and 31 percent y/y and booking and audience metrics declining materially. This was despite an estimated 5 percent increase in q/q revenue due to an agreement with Facebook Inc (NASDAQ:FB) allowing non-Facebook payment options on its With Friends Network (and therefore, a concession below FB’s 30 percent).

Facebook adds worries for Zynga

The analysts also believe that Zynga Inc (NASDAQ:ZNGA) has a wall of worry to climb after Facebook Inc (NASDAQ:FB) announced its mobile games publishing initiative to support small to medium-sized developers in exchange for a share in revenue.

Rohman and Purcell said, “Investors might be tempted by the $3 a share price and nearly $2 a share in cash, but we note that the company generated $213 in operating cash flow last year, and will be break-even this year. We remain on the sidelines.