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Slow transition to mobile gaming hits Zynga shares

The corporate logo of Zynga Inc, the social network game development company, is shown at its headquarters in San Francisco, California Apri
The corporate logo of Zynga Inc, the social network game development company, is shown at its headquarters in San Francisco, California Apri

(Reuters) - Shares of Zynga Inc fell 10 percent in early trading on Thursday after the online game maker forecast a bigger-than-expected second-quarter loss on concerns about its slow transformation into a gaming company focused on mobiles.

Zynga management on Wednesday pleaded for more time for the turnaround effort, saying that the company's business, although stabilized, may not pick up until the latter half of the year.

Analysts said until the company showed more progress on its mobile strategy, it would have to fall back on its popular "Farmville" game and new games such as "Draw Something 2" to draw in and retain gamers and investors.

"Zynga keeps hinting at meaningful changes to come ... profitably, on mobile, but we will need to see it before we can give them credit for it," Macquarie Equities Research analyst Ben Schachter said.

The company now gets 22 percent of its revenue from its mobile platform, up from 12 percent a year earlier, but that share remains modest compared with similarly sized technology companies such as Twitter Inc, which gets more than half of its revenue from mobile users.

"Zynga is unlikely to ever dominate the mobile gaming market in the same way that it has the web-based gaming market for many years," Wedbush Securities analyst Michael Pachter said.

The company aims to tap gamers on smartphones as it loses users on PCs but doubts remain over whether this can sustain its revenues and profits.

"Zynga's path toward renewed growth is uncertain and fraught with competitive and internal risks," Piper Jaffray analyst Michael Olson said in a research note to clients.

The company has also said it would tap into potentially lucrative new revenue streams, after it revised its once-lucrative business partnership with Facebook Inc.

Zynga has in recent months sought to establish a more independent network even at the risk of less visitor traffic from the social media giant and is looking to launch real-money casino games around the world, starting with Britain.

Analysts said though real-money gambling games is a good long-term opportunity, it is unrealistic to think it would boost Zynga's prospects anytime soon.

"Zynga must overcome significant competitive and legislative issues, among others. The near-term impact of real money gaming should be limited," Wedbush's Pachter said.

Shares of the company fell to $3.01 in early trading on Thursday. The company's stock, which listed on the Nasdaq in February 2011 at $10, has lost nearly a third of its value over the past year.

(Reporting by Sayantani Ghosh in Bangalore; Editing by Sriraj Kalluvila)

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