As expected, Zynga Inc (NASDAQ:ZNGA) has been downgraded even further in analyst’s ratings, after it did some major slashing in its FY2012 guidance. The expected EBITDA is $147-162 million. The estimated losses for the third quarter will be between $90- 105 million. This led to a major dive of 20 percent in Zynga Inc (NASDAQ:ZNGA) stock in pre-market trading.
Piper Jaffray’s analyst expects the loss in user base to continue. Needham & Co analyst, Sean McGowan, is also of the same opinion, he thinks the struggle to hold on to its users and declines in revenues will continue in the next quarters. Sterne Agee’s analyst has no price target on ZNGA, but is surprised at the size of the reductions that were announced in new FY12 guidance.
Brokerage firms have cut their price targets as well: Macquarie Equities Research reduced the target from $3.50 to $2.50. Wedbush Securities cut from $7.00 to $4.00. Evercore Partners reduced stock prices from $2.00 to $1.70. R.W. Baird cut its price target from $6.00 to $3.00. BMO Capital slashed its target from $5.00 to $3.00.
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The year has been full of struggles for the social games maker. The leading drivers of revenue for Zynga have been “FarmVille” (down 27 percent in 3Q2012), “CityVille” (down 46 percent in 3Q2012), “FrontierVille”, “Zynga Poker”, and “Mafia Wars”. These games have suffered from a consistent decline in active users, and a very small percentage of all users actually pay for playing such games.
Troubles have surrounded Zynga from all sides. A series of executives and developers have left the management one after another. About 15 executives have left the company since March, the departures include members from the board of directors as well.
Zynga’s advent into the mobile gaming platform has been slow as well. Zynga Inc (NASDAQ:ZNGA) is trying to reduce its dependence on Facebook Inc (NASDAQ:FB), which has been the lifeline of the game maker until now. Facebook generates 10 percent of its revenues from Zynga. The mobile gaming arena is already dense with competition, from previous players that make gaming apps for iOS and Android platforms.
Zynga Inc (NASDAQ:ZNGA) is also embroiled in legal battles with its competitor EA games. Zynga Inc (NASDAQ:ZNGA) has a habit of copying popular games, and this practice has taken it to court many times.
The stock is now trading at a low of 2.35, down 16.7 percent from the previous close and a mere fraction of its original value.