San Francisco-based analyst firm Cowen & Co argued that Zynga’s shares are “likely overvalued at current levels”, citing the company’s declining usage as players continue to switch to mobile devices to browse social networks such as Facebook.
The analysts quoted data showing that Zynga’s daily active users dropped 8.2 per cent to 54.2m last month and claimed the firm’s culture “could be a stumbling block to further growth”.
Within half an hour of markets opening in New York, Nasdaq imposed a two-day ban on short-selling the company’s stock. The rule, designed to prevent short-sellers thrashing down already knocked shares, comes into effect when a stock loses over 10 per cent on the previous day’s closing price.
Cowen & Co said: “We believe that interest in Facebook-based gaming may have reached a negative inflection point as more casual gamers migrate to mobile platforms.”
Zynga, which owns games including Farmville and Words With Friends, said in its first quarter results last month that it generates substantially all of its revenue and players through the Facebook platform and expects to continue to do so for the foreseeable future.
The news followed a research paper from Facebook and data analysis firm ComScore defending the benefits of advertising on the social network. The report claimed one in seven online minutes are spent on social media and said advertising on Facebook “drives lifts in purchase behaviour”.