Today: Zynga experiences large drop in users and sees stock plummet despite posting a slight profit. Also: Apple (AAPL) shares stay higher than $400 despite drop in profit and analyst price target cuts, Wall Street flat.

Zynga loses users and gives dreary forecast, stock drops

Zynga reported a scant first-quarter profit Wednesday, but the social-gaming company's revenues declined 18 percent as users flocked away from the company's games, leading to a dreary prediction of future revenues and a plummeting stock price in late trading.

The San Francisco company said Wednesday that it brought in $4 million in net profit, earnings per share of virtually zero, on revenues of $263.6 million, an 18 percent dip from the same quarter last year. While profits increased from the first quarter of 2012, when Zynga posted a loss, and beat analyst predictions.

Beating forecasts for profit is no panacea, however: Zynga also reported a drastic drop in users, which led to a forecast for the second quarter far lower than analysts' predictions, both factors in an immediate drop in Zynga's stock price to less than $3. Daily active users dropped 21 percent to 52 million, an all-time low, and monthly active users dropped 13 percent to 253 million. Unlike its most recent quarterly earnings report, Zynga did not break out mobile users, a possible sign that its growth there is stagnant at best.


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"There isn't that much going on in mobile," Sterne Agee & Leach analyst Arvind Bhatia told Bloomberg News. "That's discouraging. That should be the growth driver. That was one of the key reasons for the upside last quarter."

Zynga reported that it expects to return to a loss in the current quarter: The company's forecast is for a net loss of $26.5 million to $36.5 million on revenues of $225 million to $235 million.

"2013 will continue to be a transition year as we face the challenging environment on the Web," CEO Mark Pincus said in Wednesday's news release.

Zynga has suffered since its sweetheart deal with Facebook came to an end, and has adjusted by closing studios and laying off workers in other parts of the United States, moves that help explain the profits in the face of declining revenues. Zynga played up the success of "Farmville 2," the sequel to the Facebook game that originally vaulted the gaming company to stardom, which Pincus characterized as "a breakout hit performance," and attempted to redirect the conversation Wednesday by launching "Draw Something 2," the sequel to a hot mobile game it obtained in the purchase of OMGPop last year.

The ability to churn out sequels of previously popular games is unlikely to bring gamers back to the company's offerings, however: Analysts believe the company's sole hope now may be legalized online gambling and the profits it could bring.

"We continue to think that any hope for real growth for this nebulous company really depends on what it can do in real-money gaming," Bhatia told Reuters.

Zynga closed with a 5.3 percent increase at $3.35, but slid more than 11 percent in after-hours trading to less than $3, a level it has not traded at in a regular session since February.

Apple's decline is slight as cash return offsets profit drop

Tuesday's big earnings report led to little movement Wednesday on Wall Street, as early declines in Apple stock turned around and the Cupertino company dropped only 0.2 percent and stayed above $400 a share after announcing its first year-over-year profit decline in more than a decade.

At least 17 analysts cut their price targets on Apple after the earnings report, with concerns voiced including CEO Tim Cook's acknowledgment that Apple's next big product won't arrive until at least fall, while rivals get ready to introduce devices that could take market share away from Apple, such as Samsung's soon-to-arrive Galaxy S4 smartphone.

"We believe the increased competitiveness of the smartphone market is creating challenges for Apple," BMO's Keith Bachman said, while Nomura analysts noted that they "had anticipated a late July to August launch of the iPhone 5S and midrange iPhone."

Apple managed to balance its negative features with the announcement of a $100 billion cash return to shareholders, which could have bought Cook some time away from institutional investors' cross hairs.

"On the one hand, the June quarter guidance suggests that investors will need to wait until 2H13 for new products. On the other hand, the company is returning $100bn to shareholders which should prove to be a near term benefit," Credit Suisse's Kulbinder Garcha wrote; he lowered his price target from $600 to $525 but maintained the equivalent of a "Buy" rating.

Apple shares closed at $405.46.

Wall Street trades flat, Microsoft gains after Xbox announcement

The major U.S. indexes mirrored Apple's flat close to the day, with only the Dow Jones moving perceptibly on the day, with a 0.3 percent loss. The SV150 did decline, however, with a 0.2 percent loss for the index comprising Silicon Valley's largest technology companies.

Microsoft continued momentum from earlier this week, gaining 3.8 percent to $31.76 after announcing a date for its unveiling of the newest Xbox, May 21. Amazon traded flat despite news that it is building a set-top device to rival Apple TV and developing an online-advertising program that should scare Google (GOOG) and Facebook; Google gained 0.7 percent and Facebook increased 0.5 percent.

Silicon Valley tech stocks

Up: Google, Oracle (ORCL), Intel (INTC), HP, eBay (EBAY), Facebook, Zynga, LinkedIn, Yahoo

Down: Apple, Cisco (CSCO), Gilead, VMware, Juniper, Netflix

The tech-heavy Nasdaq composite index: Up 0.32, or 0.01 percent, to 3,269,65.

The blue chip Dow Jones industrial average: Down 43.16, or 0.29 percent, to 14,676.30.

And the widely watched Standard & Poor's 500 index: Up 0.01, to 1,578.79.

Check in weekday afternoons for the 60-Second Business Break, a summary of news from Mercury News staff writers, The Associated Press, Bloomberg News and other wire services. Contact Jeremy C. Owens at 408-920-5876; follow him at Twitter.com/mercbizbreak.