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I spent much of last weekend reviewing Zynga's (ZNGA) business and financials. As odd as it may seem, I decided to get a better look by trying out one of its games to see if the company had the right business model to recover from its recent earnings drop and news about deciding not to enter into the online gambling business. My results were somewhat disappointing.

When I went to the Zynga's website over the weekend, I was prompted to make a Zynga account or sign in using Facebook (FB). The number of online players is shown on the front page at all times on the top left. The number stayed at about 500,000 for both days. Signing up was very easy, even though I didn't have a Facebook account. Some problems did arise later on from not having one. The game I spent my time on was CityVille; a game very similar to Sim City. The object of the game is to build a city of people and businesses so that you may eventually collect money from them and expand.

While the game was fun for the first hour or so, you were eventually restricted to waiting for most things to happen unless you paid money. There was a bright sign at the top of the page that constantly showed a sale of 90% off its prices for in-game money, but I simply wasn't all that interested in paying them for something I would eventually earn. In addition I doubt parents would be so willing to give kids their credit cards to buy imaginary items from a company that isn't very well known to them. There was also an occasional video ad that would give you in-game items for watching, and later ask questions to see if you were paying attention. The video ads shown while I was playing weren't very specific towards what I normally look at. Other than video ads, I didn't see any banner ads while playing the game. Needless to say the game got boring quickly and you were eventually required to sign on every few hours to collect money from your city so the time would reset. When I tried to play some other games, they would only allow me to play if I had a Facebook account which I wasn't interested in making. The company seems to rely on Facebook for many of its games which I view as a bad thing because it limits users time on the website that don't have a Facebook or don't want to connect it.

While the company appears to be cheap at just $3.00 a share, I don't see how the company will ever be profitable. While nearly half of the market cap is cash on the balance sheet with no debt, I see that cash fading as the quarters roll onward with losses. After watching Don Mattrick speak at E3 for years I don't view the him as a catalyst for the stock to move higher either. Ultimately, I see Zynga getting bought out by Facebook or integrated into Microsoft's (MSFT) Xbox Live community where players would be more willing to buy in-game items.

Source: Zynga Is Missing A Viable Business Model