Zynga hit by twin lawsuits after stock carnage

Reuters News

7/31/2012 11:58:01 AM - Reuters News

By Gerry Shih

SAN FRANCISCO (Reuters) - Zynga Inc was hit by a pair of lawsuits from shareholders accusing the "FarmVille" creator of failing to warn about declines in user and revenue growth before disastrous results sent its shares into a tailspin last week.

Two California law firms filed lawsuits seeking class-action status on behalf of stockholders this week, taking the company to task for allegedly concealing threats to its business and sales growth, such as Facebook platform changes that made it easier for users to find rival games.

The social gaming giant behind a plethora of Facebook games like "Mafia Wars" last week stunned Wall Street by reporting quarterly results well below expectations and slashing its 2012 revenue forecast.

Its stock plummeted 42 percent to a record low and analysts cut their recommendations on the stock.

"Zynga misrepresented or failed to disclose material adverse facts about its business, operations, and growth prospects," according to a lawsuit filed late on Monday by Kessler Topaz Meltzer & Check LLP.

Zynga's results also cast a pall over Facebook because the No. 1 social network relies on Zynga for roughly 15 percent of its revenue.

The lawsuit accused Zynga of concealing declines in users and the sale of virtual goods -- such as a cow in "FarmVille" -- the company's prime revenue source. A second lawsuit filed Tuesday by Robbins, Geller, Rudman and Dowd LLP echoed many of the allegations.

Zynga declined to comment.

The company founded by Mark Pincus was among a crop of fast-growing consumer Internet companies, including Groupon Inc, that debuted in 2011 with much investor enthusiasm but have since lost vast amounts of market value as Wall Street questioned the sustainability of their growth trajectories.

Zynga shares fell 2 percent to finish Tuesday at $2.95, a far cry from their December $10 debut price.

(Reporting By Gerry Shih; Editing by Gerald E. McCormick, John Wallace, Andrew Hay and Chris Gallagher)