Zynga shares fall as analyst warns about users

LOS ANGELES (AP) — Shares of social game maker Zynga Inc. fell more than 6 percent on Monday after an analyst said insider selling and a declining number of users was putting pressure on the stock.

THE SPARK: Sterne Agee analyst Arvind Bhatia said in a research note Monday that the number of active users per day playing Zynga's top five games such as "Farmville" and "Zynga Poker" are down 12 percent in 2012. In addition, active daily users of "Draw Something," the game it owns through its March acquisition of OMGPop, peaked around the beginning of April.

Bhatia also expressed concern about the increasing number of Zynga shares being released onto the open market. Less than 30 days ago, the number of Zynga shares available to the public was around 100 million, but that is expected to hit 800 million by mid-August, Bhatia said.

The increase is mainly due to insider selling as the lock-up period following the company's public debut in December expires, he said.

"We expect continued pressure on the stock, especially given our belief the company's growth is slowing," he said.

A company spokeswoman did not immediately reply to a request for comment.

THE BIG PICTURE: Zynga makes popular Facebook games such as "Mafia Wars" and "Cityville." It shares revenue made on small in-game purchases with Facebook, but it is trying to get people to also play on its website, Zynga.com, where it won't have to face such a fee.

THE ANALYSIS: Bhatia has an "underperform" rating on the stock and a price target of $7.

SHARE ACTION: Zynga shares dropped 46 cents, or 5 percent, at $8.75 in afternoon trading, after earlier trading down as much as 6.9 percent. The stock has been on a volatile ride since its initial public offering at $10 in December, falling to $8 in January but hitting a peak closing price of $14.69 in early March. The company reports its first-quarter earnings on Thursday.