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Analysts cut price targets on Zynga as paying users decline

US-ZYNGAINC-RESEARCH:Analysts cut price targets on Zynga as paying users decline

(Reuters) - Brokerages lowered their price targets on Zynga Inc's <ZNGA.O> stock by up to $3 per share after the social-games maker slashed its 2012 outlook for the second time due to a decline in paying customers.

The company's shares looked set to open down 20 percent on the Nasdaq on Friday.

Shares of Facebook Inc <FB.O>, which derives over a tenth of its revenue from fees paid by Zynga, were also set to open lower.

Zynga said on Thursday it was still struggling to stem user flight from Facebook games like "CityVille" and "FarmVille" that had once driven revenue growth.

The game maker's revenue fell sharply in the second quarter as it struggled to retain users of its Facebook-based titles.

Zynga is likely to continue to struggle as it does not have a sustainable competitive advantage over other game developers, and as Facebook users increasingly shift to mobile, Macquarie Equities Research analyst Ben Schachter said.

Schachter cut his price target on the stock to $2.50 from $3.50. Wedbush Securities slashed its price target to $4.00 from $7.00 and Evercore Partners cut its target to $1.70 from $2.00. Other brokerages lowered their price targets to around $3.00.

Zynga shares closed at $2.81 on Thursday on the Nasdaq.

Though the company's new web-based games such as "The Ville", "ChefVille" and "FarmVille 2", began well, growth tailed off after hitting about 7 million daily active users, BMO Capital Markets analyst Edward Williams said in a note.

Zynga, which went public with much fanfare in December, has since lost three quarters of its market value and gets most of its revenue from Facebook.

The percentage of paying users continues to decline as greater variety of games became available for free on Facebook, Macquarie Equities Research analyst Michael Pachter said.

(Reporting by Neha Alawadhi in Bangalore; Editing by Sreejiraj Eluvangal)

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