LOS ANGELES (AP) -- Shares of Zynga Inc. fell to their lowest level yet Tuesday after the chief executive of rival Electronic Arts Inc. suggested Zynga paid too much for a recent acquisition, and analysts fretted about the declining number of daily users.
THE SPARK: During its fourth-quarter earnings call on Monday, EA CEO John Riccitiello suggested that acquisitions in the social game sector have gotten too expensive. Although he didn't mention Zynga by name, Riccitiello referred to the value of recently acquired companies.
Zynga, which makes popular Facebook games including "Mafia Wars" and "FarmVille," paid $180 million in March to buy OMGPop, maker of the popular mobile game "Draw Something."
"Right now, what I'm starting to see is valuation expectations that assume that these things are all hockey sticks moving up and to the right with no end in sight," Riccitiello told analysts on a conference call. "I think those are bad assumptions."
Confirming fears of a slowdown, several analysts noted that the number of people playing "Draw Something" daily has declined since April.
Cowen & Co. analyst Doug Creutz said in a research note Thursday that Zynga's daily active user base declined 12.5 percent in April.
Zynga said last month that it lost $85.4 million, or 12 cents per share, in January through March, when its revenue rose 32 percent to $321 million.
The company declined to comment Tuesday.
Zynga executives told analysts in late April that the OMGPop acquisition prompted it to raise its annual outlook for bookings and adjusted earnings. Bookings reflect in-game purchases of virtual goods in the quarter they are made, but revenue is recognized for accounting purposes as the goods are consumed.
THE BIG PICTURE: Zynga shares its revenue with Facebook from the purchases that people make as they play Zynga games. But it is trying to get people also to play on its website, Zynga.com, where it can keep all the revenue.
THE ANALYSIS: Riccitiello said valuing social game companies at 10 or 20 times adjusted earnings requires a belief the growth will last a "very, very long time." Instead, he said he said one should add up a company's expected profits over three or four years, expecting that they will rise and then fall, and to discount that value to account for risks.
SHARE ACTION: Zynga shares fell 41 cents, or 5 percent, to close Tuesday at $7.93, after earlier touching an all-time intraday low of $7.58. The stock, which priced at $10 when the company went public in December, has since traded between $7.58 and $15.91.