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Second-quarter crash sees shareholders sue Zynga

Zynga has had a tough two weeks – the game maker's second-quarter earnings slid in well below expected, sending its shares into the ground, which has resulted in twin shareholder lawsuits against the FarmVille creator.

Class-action suits were filed by two California law firms on behalf of stockholders, who allege that Zynga failed to warn them about declining revenue ahead of the company's earnings report.

The first suit, brought by Kessler Topaz Meltzer & Check LLP, accuses the Web game producer [PDF] of misrepresenting or failing to disclose "material facts about the business, operations, and management of Zynga," the complaint said.

The company's revenue comes mostly from in-game sales of virtual goods, as well as advertising, primarily on Facebook.

In a 25 July press release, Zynga reported its second quarter 2012 financial results, which it touted as an improvement over last year. Total revenue equaled $332 million (£214 million), up 19 per cent from last year, while bookings reached $302 million (£194 million), a 10 per cent increase from 2011.

"Our games reached record audiences," CEO Mark Pincus said in a statement, citing more than 300 million monthly active users.

The class-action complaint, however, paints a different picture, saying that Zynga saw net losses of $22.8 million (£15 million), compared to 2011's second-quarter gain of $1.4 million (£901,000). The company's gross bookings for the quarter also decreased 9 per cent, to $301.6 million (£194.3 million), the complaint said.

Pincus admitted to short-term "challenges" that led to a decline in bookings, but didn't let that bring the company down.

"We're optimistic about the long-term growth prospects on mobile where we have a window of opportunity to drive the same kind of social gaming revolution that we enabled on the web," he said in a statement.

A second lawsuit was filed Tuesday by Robbins, Geller, Rudman, and Dowd LLP, mirroring many of the first complaint's allegations, Reuters reported.

Zynga did not immediately respond to a request for comment.

The company, best known for online social games FarmVille, Words With Friends, Draw Something, and Mafia Wars, produces games for various platforms, including Facebook, Apple iOS, and Google Android.