After a second significant drop in monthly users, Zynga's share price dropped as far as 13% yesterday, a drop so sharp that Nasdaq issued an alert prohibiting further short selling of the stock. Zynga's share price has now halved since its initial IPO in December.
As reported by the Chicago Tribune, many investors and analysts now believe that the viability of Facebook games has reached a turning point.
"We believe that interest in Facebook-based gaming may have reached a negative inflection point," Cowen & Co analysts Doug Creutz and Jason Mueller wrote, "as more casual gamers migrate to mobile platforms."
Forbes has been touting EA as an alternative on the share market, as their games continue to experience growth on the Facebook platform, but some investors seem to have become wary of the Facebook platform as a whole, particularly when it comes to games.
Most investors believe that gamers in the casual space are migrating to the mobile platform in the short term. If companies like Zynga don't adapt to this sea change, its share price may continue to plummet.
Zynga's acquisition of OMGPOP for over $180 million was also criticised, and seen as a rash move, particularly in the face of Draw Something's dramatic drop in user base.
Our view is that Zynga's shares were massively overpriced to begin with, so some correction was inevitable. Zynga has proven adept at navigating these kind of struggles, and squeezing revenue from their properties, so we don't think it's quite the disaster some analysts believe it to be.
That said, Zynga will have to make some changes if it is to reverse these negative trends.