Zynga shares dive as Facebook game craze wanes

By Bill Rigby and Gerry Shih

SEATTLE (Reuters) - Zynga Inc shares fell more than 10 percent on Tuesday, extending three months of steady losses, as the social gaming company's user numbers wane and investors worry that the craze for games on Facebook may have passed its peak.

The San Francisco-based creator of "Farmville" and "Hidden Chronicles" - Web-based titles played by millions of Facebook users - is having trouble retaining gamers, many of whom are switching to mobile phones for entertainment, analysts say.

The company said on Tuesday that it had expanded its mobile hit Draw Something to 12 additional languages to entice new users worldwide, but that announcement failed to arrest a steep sell-off as shares plunged below $5 for the first time.

Nasdaq shortly before 10 a.m. on Tuesday alerted traders that the stock had tripped a "circuit breaker" intended to stem precipitous drops in share prices. The ban, which is automatically triggered whenever a stock falls 10 percent or more from a previous day's close, will be in effect through Wednesday.

Zynga's slide came after analysts at Cowen & Co published a report Tuesday predicting that the market for games on Facebook was in an "accelerating user tailspin."

"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."

Zynga's daily active users dropped 8.2 percent to 54.2 million in May, according to AppData.com, a website that tracks apps on Facebook and mobile platforms.

The slide in user numbers does not necessarily foretell declining financial performance at a company that has been exceptionally adept at squeezing big revenue out of a small number of dedicated, hard-core gamers, analysts caution. But some warn of cloudy forecasts for social gaming more broadly.