According to Sterne Agee analyst Arvind Bhatia, Zynga is losing an estimated $150 on every new paying customer it acquires. Bhatia's estimate is based on the company's $120 million marketing budget for the first nine months of 2011. In other words, the pace of user growth is too slow and the company is spending way too much on marketing.
"Almost all of that is for acquiring customers," he said in an interview with Benzinga. "We also know that they had 3.4 million unique payers in the September quarter, which is up from 3 million at the end of December 2010. In other words, they added 400,000 additional payers and they spent $120 million to acquire them."
To break that down a little more, Zynga is actually spending a total of $300 in marketing for each new user, who in turn is spending around $150 over 12 - 15 months. Bhatia thinks the model is flawed and unsustainable but he also believes that the social gaming space is slowing down and that companies are finding it harder to draw new players in.
"That math won't work for very long," Bhatia added.
Zynga has launched two titles since it went public and neither game has seen the kind of success that the company's earlier games enjoyed. Hidden Chronicles on Facebook, and Scramble With Friends on iOS were launched in December.
"When we say that traffic hasn't gone up despite new introductions, that's telling us that maybe people are moving from one game to another, but you're not really getting a lot of incremental people trying them," he continued. "The really hardcore are, perhaps, finding themselves trying FarmVille, Castle World and CityVille. The newer audiences are trying and finding that this is all the same and leaving."
He goes on to say that, because the number of customers that are willing to pay is small, the risk is tremendous for a company like Zynga.