Zynga Falls to Four-Month Low on Morgan Stanley Downgrade

Zynga Inc. (ZNGA) fell to the lowest price in more than four months after Scott Devitt, an analyst at Morgan Stanley, downgraded the stock and said the social-games maker may need to trim staff to make up for user declines.

The shares fell 5.1 percent to $2.71 at the close in New York, the lowest level since Feb. 4. The stock has jumped 15 percent this year, compared with a 12 percent gain for the Russell 1000 Index.

Zynga, which generates most of its revenue from games offered on Facebook Inc. (FB)’s social network, isn’t adding mobile users fast enough to bolster sales as fewer people access titles such as “Farmville” and “Texas HoldEm Poker” via the Internet. The San Francisco-based company’s move earlier this month to cut 18 percent of staff may not be enough as revenue continues to fall, Devitt wrote in a research report.

“Zynga may need to cut even deeper to navigate its transition to mobile,” Devitt said. He downgraded the shares to underweight.

Growing competition from rivals including King.com, the maker of “Candy Crush Saga,” have put pressure on Zynga’s core business of online games, Devitt said. King.com has hired JPMorgan Chase & Co., Credit Suisse Group AG and Bank of America Corp. to prepare for an initial public offering, two people familiar with the matter said earlier this week.

Real-money gambling may not contribute meaningfully to Zynga’s revenue for more than a year, as regulations block such games in countries including the U.S., Devitt said.

Zynga’s revenue fell 18 percent in the first quarter, and analysts predict it will keep dropping for four more earnings periods, according to data compiled by Bloomberg.

To contact the reporter on this story: Douglas MacMillan in San Francisco at dmacmillan3@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net

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