Zynga Inc shares fell 7 percent in premarket trade, suggesting investors were wary of the social game maker's weak bookings outlook and expensive valuations, and at least three brokerages downgraded the stock.
A lackluster fourth-quarter showing -- Zynga's first as a publicly traded company -- and expectations of sequentially slowing bookings in the first half of 2012, may rattle bullish industry watchers who have driven up the company's valuations.
Bookings is the metric Zynga uses to measure the cash it gets upfront when people spend money on virtual items in its games such as tractors, houses or poker chips.
Evercore Partners said the company's stock -- trading at 31 times the brokerage's 2013 estimate for earnings before interest taxes depreciation and amortization (EBITDA) -- bears risk, and downgraded it to under weight from equal weight.
The company, which went public in December, trades nearly 67 times forward earnings, compared with the sector average of 12, according to Thomson Reuters data.
Core game monetization is slowing more rapidly than expected, Macquaries Equities Research said in research note.
Zynga said its games are designed to gain popularity and make money in the longer term, adding that it still has the six-most played games on Facebook.
The owner of the popular Farmville and Cityville games does not disclose the number of its unique payers on Facebook, making it difficult to gauge any possible deceleration trends.
The company's Words with Friends, a Scrabble-like game, was recently in news after actor Alec Baldwin got kicked off an American Airlines flight for playing the game on his iPhone while the plane was parked at the gate.
While filing its IPO last year, Zynga said it gets almost all its revenue from Facebook. Investors are closely watching its strategy to diversify and make money from games on smartphones and tablets.
Analysts, however, remain convinced that Zynga is well positioned for longer-term growth.
Zynga was one of the key developers that turned Facebook from a relatively passive communications medium to a more active and engaged social platform, Robert W. Baird & Co wrote in a research note, and downgraded the stock.
While growth has slowed for both Facebook and Zynga, long-term secular shifts in content consumption, along with significant growth opportunities on smart devices from Apple and Google are too compelling to ignore.
The gamemaker's shares, were trading at $13.42 in trading before the bell. The stock, which has jumped more than 30 percent since its December 16 debut, closed at $14.35 Tuesday on the Nasdaq.
(Reporting by Sayantani Ghosh in Bangalore; Editing by Joyjeet Das)