Zynga down but not out, analysts say

At its initial public offering a little more than six months ago, San Francisco-based social gaming developer Zynga’s shares were $9.50. In the heady days that followed, the stock hit a hiccup when the company behind Farmville and Mafia Wars was sued over patent violation, but then bounced back when it released numbers that exceeded analyst expectations, eventually reaching a high of $14.69.

The tables seemed to turn, however, after the Zynga announced the purchase of Draw Something-developer OMGPOP for $200 million. As Forbes pointed out, Zynga’s purchase occurred at almost the precise moment Draw Something peaked on the App charts. Wondering why Zynga’s share price declined some 50 percent from early March to late April, Forbes’ Tero Kuittinen concluded it was the OMGPOP purchase, in the absence of other significant revelations in the company’s first quarter earnings.

Rob Fahey at gamesindustry.biz puts the blame on Zynga’s inability to make the transition to mobile devices from Facebook, the platform that allowed it to grow so far so fast, and on the fact that the company, in his opinion, forgot that they were a video games developer – an industry that doesn’t reward extended laurel-sitting.

For Zynga, the only route out of their current predicament is to start producing some genuinely exciting, high profile and appealing new games – preferably games which lead on the mobile platforms. My suspicion, sadly, is that neither of those things is in the company’s DNA. Social gaming may see its first truly high-profile casualty before long.

But not everyone is down on Zynga. Barrons quoted Morgan Stanley analyst Scott Devitt who lowered his growth estimates for next year based on “risk factors,” but they remain at 23 percent for 2013, still respectable. “Games are reaching peak user levels more quickly, which could have positive …  and / or negative … implications for Zynga,” he wrote.

The company itself told reporters that it will begin pushing into the potential online gambling market. Though online gambling is currently illegal in the United States, some suspect it will be legalized to provide additional tax income to pay down national deficit.

Zynga’s share price has declined steadily since the high in early March – almost 65 percent down at $5.18 per share as of midday trading  on Friday.