Zynga Shares Come Under Pressure (ZNGA)

Shares of Zynga Inc. (NASDAQ: ZNGA) fell to all-time lows this week. Zynga shares have come under pressure recently due to the social-game maker’s close association with Facebook Inc. (NASDAQ: FB) and the prospect of new shares coming into market.

Zynga, which is the maker of popular games such as Farmville and CityVille, has seen its shares fall more than 20% since last Friday, when Facebook completed its much-awaited IPO. On Friday, Zynga shares fell 2.79% to finish the day at $6.61.

The recent losses have wiped off the gains made by Zynga shares earlier in the year. Zynga shares had risen sharply in early February after Facebook’s IPO filing.

But, Zynga has lost favor among investors since Facebook’s IPO last Friday. Facebook’s trading debut was marred by technical glitches. This was followed by a sharp decline in FB shares and then a lawsuit.

This week Reuters reported that Facebook’s main underwriters slashed their revenue forecasts for the company just days before the offering. The information was, however, selectively disclosed.

Growth concerns at Facebook are not a good sign for Zynga, which generates virtually all of its revenue from the Facebook platform. In fact, over-dependence on Facebook has been a major worry for Zynga all along.

According to Michael Pachter of Wedbush Securities, Zynga is irrevocably linked to Facebook’s user growth (which hasn’t slowed) and anything that hurts Facebook will be perceived as hurting Zynga.

Although Facebook’s user growth has not slowed, there are concerns that the social networking giant will not be able to maintain its growth momentum. The concerns rose after this week’s report that Facebook’s main underwriters slashed company’s revenue growth forecasts.

All these are not a good sign for Zynga, and hence the sharp decline in the company’s shares this week.

Another factor that is putting pressure on Zynga shares is the expiration of the company’s post-IPO share lockups. Zynga will have around 325 million shares free from the lockup period on May 29 from nonemployee stockholders that did not participate in the company’s previous secondary offering.