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Analysts Cut Zynga Stock Ratings, Price Targets on Weak Financials

FarmVille

As the stock hits a new low, one analyst downgrades it and says "we are sorry and embarrassed by our mistake."

Analysts on Thursday cut their stock ratings and price targets for social gaming giant Zynga following a disappointing earnings report late Wednesday.

The stock, as indicated by after-hours trading, dropped sharply on Thursday, hitting a new all-time low.

The stock went as low as $3.04 in early trading, down 40 percent. That was its lowest point since the company's December IPO and gave the company a market value of $737 million.

BTIG analyst Richard Greenfield downgraded his rating on Zynga's stock from "buy" to "neutral" overnight and removed his $13 price target as he does not have price targets on "neutral"-rated stocks.

"We are sorry and embarrassed by our mistake," Greenfield wrote in a report.

While "declines of Zynga’s legacy games have been apparent for the past couple of months, we firmly believed that the small fraction of Zynga users who pay was increasing and that monetization per user was improving from both virtual currency and advertising," he explained.  

Stifel Nicolaus analyst Jordan Rohan also downgraded the stock from "buy" to "hold," citing "a shockingly bad quarterly report." In a reference to Zynga games such as FarmVille and CityVille, he entitled his report "DiappointmentVille."

BMO Capital Markets analyst Edward Williams reiterated his "market perform" rating, but cut his price target on Zynga shares in half to $5.

He also lowered his estimates for 2012 and 2013 earnings.

"While we believe the long-term trends in terms of casual gaming remain intact, Zynga is having significant difficulties executing in the short term," Williams said. "We expect the strength of its development capabilities as well as its distribution will eventually drive better performance; caution is warranted until we see signs of improved execution."

Wedbush Securities analyst Michael Pachter slashed bis price target from $17 to $7, but said: "Notwithstanding the sharply lower guidance, Zynga has some upside in our view...It is profitable and has tremendous brand equity, suggesting that there is upside to the share price."

Maintaining his "outperform" rating on the stock, he said: "While we would normally be inclined to downgrade the company’s shares due to a much more difficult outlook, the stock traded just above $3...and we believe there is significant upside."

Email: Georg.Szalai@thr.com
Twitter: @georgszalai