Zynga shares rise slightly after bruising decline

Associated Press

LOS ANGELES (AP) — Shares of online game maker Zynga Inc. moved higher Thursday after an analyst upgraded the online game maker's stock. He said the company's risks are now reflected in the stock price, which has dropped sharply since early March.

THE SPARK: Baird analyst Colin Sebastian upgraded his rating on Zynga shares to "Outperform" from "Neutral," saying that the shares have borne the brunt of negative feelings associated with Facebook Inc.'s rocky initial public stock offering.

THE BIG PICTURE: Zynga earns revenue from games such as "FarmVille" and "Mafia Wars." Most of its games are played on Facebook — Sebastian estimates that 90 percent of Zynga revenues come from Facebook games. That means Zynga has to share its revenue with Facebook for purchases that people make as they play Zynga games on the social network.

The company is trying to get people also to play on its website, Zynga.com, where it can keep all the revenue.

THE ANALYSIS: Fears of slowing growth in social games and worries that employees would dump their shares once they're allowed to sell have now been factored into current prices, he said.

After an IPO, there's typically a "lock-up period," when early investors and employees can't sell their stakes. Zynga, which went public in December, has staggered the dates at which early investors are allowed to unload their shares.

Going forward, Zynga shares could benefit from the announcement of a new game slate in July or August, stronger advertising revenues, expanding onto mobile and other platforms, and the possible move into real-money and sports games, Sebastian said.

He maintained his $13 price target on the shares.

SHARE ACTION: Zynga shares rose 14 cents, or 2.4 percent, at $6.01 in Thursday afternoon trading. Shares had dropped 30 percent in May alone, and were off 63 percent from their peak of $15.91 in March. Zynga sold stock for $10 in its December IPO.

Shares of Facebook, which went public two weeks ago, have lost more than a quarter of their value from the $38 IPO price. The stock dropped another $1.13, or 4 percent, to $27.06 Thursday.