Shares of Zynga were down 40 percent to just above $3 Thursday after the biggest developer of games played on Facebook’s social network reported disappointing results for the second quarter and cut its forecast for the full year.
Zynga reported a more challenging environment on the Facebook web platform, where it makes money by offering free games and selling virtual goods. It also said its recently-released “Draw Something” mobile game performed below expectations.
The report is a worry for Facebook, which will report its first-ever earnings report after the close of trading Thursday, as it suggests less engagement with the social network. Investors are hoping to see evidence of Facebook’s money-making abilities.
Shares of Facebook fell 6 percent to just below $28 in sympathy with Zynga. Games such as “FarmVille” and “CityVille” helped to make up more than a tenth of Facebook’s revenue last year.
A number of brokerages cut their price targets on Zynga Thursday, including Wedbush, Citigroup and Lazard, casting some uncertainty over Facebook ahead of its earnings report.
The poor post-IPO performance of Facebook and Zynga are a “black eye” for Wall Street and the nascent social media sector, said Joe Saluzzi, co-founder of Themis Trading LLC in Chatham, N.J.
Zynga’s results are “not creating good confidence in the sector as they [social media companies are] certainly related to each other,” Saluzzi said.
Since their respective IPOs, shares of Facebook and Zynga have fallen sharply. Facebook’s stock price is down 28 percent from its market debut price of $38 in mid-May, while Zynga has lost 68 percent of its value since its debut price of $9.50 in December.
Reuters contributed to this report.
