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Zynga shares slip as game development costs soar 8 times

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By Noel Young, Correspondent

February 15, 2012 | 2 min read

Shares in Zynga , the biggest developer of games for Facebook , fell the most since it first started trading as the cost of creating new games hit profits in the fourth quarter.

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Zynga dipped 11 percent to $12.78 at 9:32 a.m. after the company's earnings report, said Bloomberg. Before today, the stock had gained 44 percent since its initial public offering at $10 in December , which raised $1 billion.

In the fourth quarter earnings fell 34 percent to $67.8 million from a year earlier as expenses climbed, Zynga said in a statement.

Zynga, has been busy creating new titles and features. Research and development costs went up eight times to $444.7 million last quarter, the company said. Sales and marketing expenses were three times higher at $112.2 million.

“The fact that R&D went up more than we expected is not a good sign,” Benjamin Schachter, an analyst at Macquarie Capital in New York told Bloomberg. “They are continuing to spend more money to create games.”

Chief Operating Officer John Schappert said their expenses and costs were "in line with our growth plans. “We're investing for growth in our business.”

Zynga makes money by selling virtual goods in its games -- say, a gun in “Mafia Wars” or a tractor in “FarmVille,” says Bloomberg. Sales rose 59 percent to $311.2 million in the fourth quarter, $10 million more than predicted. Profit was 5 cents a share, higher than the 3-cent estimate.

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