Zynga Stock Drops Below $5

Posted Jun 12, 2012

Zynga shares were hit hard today as investors worried about the company’s user base. Zynga tripped a short-sale circuit breaker and fell below $5 for the first time in the history of being a public company. Cowen analyst Doug Creutz said that Zynga’s daily active users declined 8.2% last month, which is the second straight month-over-month drop. ?Nearly all of the company?s major titles declined significantly,? said Creutz.

?We have been concerned that the company?s accelerated release strategy is simply resulting in more churn of existing users,? said Creutz. ?However, we now additionally believe that interest in Facebook-based gaming may have reached a negative inflection point? as users are moving more towards mobile platforms.

The Nasdaq Stock Market alerted traders that Zynga shares hit a short-sale circuit breaker at 9:59AM this morning. A short-sale circuit breakcer happens when a stock price drops more than 10% from the prior day’s closing price. It will remain in effect through tomorrow’s close. This rule is intended to prevent short sellers from knocking a stock down even lower.

Other tech stocks that are down include LinkedIn (down 0.5%), Groupon (down 4%), and Pandora (down over 7%). Facebook actually grew 1.7% to $27.45.

?We believe that consumer preferences may be switching decisively to mobile games given that game quality is similar, if not better, and mobile games have the added advantage of being playable at any time, anywhere,? added Creutz. ?While Zynga is aggressively pursuing mobile game developments, its biggest advantages of scale and cross-promotion remain largely confined to the Facebook platform.?