Nasdaq halted short-sales of Zynga Inc on Tuesday as shares of the social gaming company plummeted 11.8 percent on increased concerns that the craze for games on Facebook has already passed its peak.
The San Francisco-based producer of games such as “Farmville” and “Hidden Chronicles,” played by millions of Facebook users, is suffering as gamers switch to mobile phones for entertainment.
Zynga plunged below $5 a share for the first time Tuesday, reaching a low of $4.78. Nasdaq issued an alert shortly before 10 a.m. Tuesday alerting traders that the stock had tripped a “circuit breaker” prohibiting short sales. The ban will be in effect through Wednesday.
The sell-off came after an analyst at Cowen & Co published a damaging 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 analyst Doug Creutz 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 App Data that tracks apps on Facebook and mobile platforms.
In December, Zynga took advantage of the enthusiasm for Facebook and interactive online games with an initial public offering that valued the company at $9 billion.
Since then, Facebook’s messy IPO has dampened investors’ appetite for consumer Internet stocks, while Zynga has struggled to ignite further growth and insiders have sold more than $500 million in stock.
Zynga has shed more than half its value — some $4 billion worth of capitalization — since its December IPO at $10 a share. But the stock remains at some 20 times forward earnings according to Thomson Reuters data, outshining the 11 to 12 times of old-line gaming firms such as Activision Blizzard and Electronic Arts.