Cowen and Company analyst Doug Creutz says that the continued user decline in various Zynga games on Facebook is "extremely troubling."
"Three of the five recent launches ('Empires & Allies', 'Pioneer Trail', and 'Adventure World') have suffered 40%+ DAU drops off their post-launch peaks, while 'Mafia Wars 2', launched two weeks ago, is already showing signs of having peaked. We think the lack of user growth at Zynga - which is really a two-year old problem - could cause issues ahead of a potential IPO in November, particularly given an expected rich valuation," he said.
Of course Facebook recently changed the way it counts Daily and Monthly Active users, so that is changing the number of users dramatically - at least in the last couple of weeks. Still, even new titles aren't helping to stop the player drop off on Zynga's games. As Creutz points out, newer games are "largely cannibalizing users from old titles, and failing to attract new users to Zynga’s portfolio."
Creutz goes into detail on why user drop-off may prove to be a serious problem for Zynga - particularly because the company is moving towards going public soon:
"At least as disturbing has been the degree to which new launches have begun rolling over almost immediately after the initial launch. Three of the five games (Empires & Allies, Pioneer Trail, and Adventure World) are already down more than 40% from peak DAU levels. Mafia Wars 2 hit a DAU peak 8 days after launch and has gone sideways for the last week; while it is very early in the game’s lifecycle, we view this as a bad sign, particularly given that Empires & Allies, Pioneer Trail, and Adventure World hit peak levels between 5 and 18 days after the initial launch. Only Words With Friends has enjoyed sustained DAU growth (and we note that this was a Facebook port of a popular mobile game that Zynga acquired, i.e. not developed internally at Zynga). In sum, we view the user trends at Zynga as extremely troubling given the apparent lack of organic growth, particularly in front of an IPO that continues to be talked about at rich valuations in the $10B range."