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I first outlined my bearish thesis on Zynga (NASDAQ:ZNGA) on March 2nd of this year, when the stock was trading at $14 per share. Then, on May 10th I wrote Part II of my Zynga short thesis, when the stock was trading at $8 per share. Shares now sit $5.76, representing a 58.8% decline in a little over three months, not too shabby.

But luckily, the fun doesn't stop here. In the midst of a time when sequential quarterly revenue growth has begun to slow, Zynga decided to host an event called 'Zynga Unleashed.' This may sound new, fun and exciting for shareholders, but it's really just more of the same in disguise. I will explain.

Zynga Unleashed is a multi-platform social gaming network that is supposedly independent from Facebook (NASDAQ:FB). Sounds a lot like Project Z doesn't it? Project Z was coincidentally announced at a past Zynga Unleashed event in October of 2011. The goal of Project Z as stated by Zynga was to "declare independence" from Facebook.

So what happened to Project Z? It failed and Zynga shut it down. A quick Google (NASDAQ:GOOG) of the term 'Project Z' will show you that the site no longer exists, that is unless it's somewhere past the first 15 pages of search results.

The descriptions of Zynga With Friends (what the network is called) so far have said things like it's a "stand alone social network," and "it will for the first time connect all our players no matter where they're playing." What investors must understand is that this is not new, Zynga has tried this numerous times before and failed. What baffles me is that both of these 'Facebook independent' networks were unveiled at back-to-back Zynga Unleashed events.

But wait! If we dig a little deeper into Zynga's past, we find even earlier attempt to establish Facebook independence, called farmville.com. Check out this article from May 2010 that catalogues Zynga's attempt to draw gamers away from Facebook (with farmville.com). So what happened to farmville.com? Well, I tried to type it into my URL bar and I ended up getting redirected to Facebook. Go figure.

Now one might ask, after all these failed attempts to establish independence, why didn't Zynga just give up? Because it is desperate, it's just that simple. As I stated in both Parts I and II of my thesis, Zynga's core business is actually in decline. Average daily bookings fell almost 10% quarter over quarter (in Q1 2012), despite being up 8% year over year. And ironically, this was in a period where Facebook's Daily Active Users actually rose 8.9%.

Although Zynga's Project Z hype managed to catapult the stock to new heights back in March, it's clear the market isn't falling for this same trick thrice (as we saw by yesterday's 5% drop).

From a valuation perspective, shares are still very expensive as well. Although Yahoo! Finance (NASDAQ:YHOO) reports Q1 2012 EPS at a positive $0.06, a quick peak at Zynga's Q1 press release will show you it actually lost $0.12 per share in the quarter. The reason for the difference is that Yahoo! is using Non-GAAP EPS figures. Yahoo!'s Non-GAAP earnings don't take into account stock based compensation (and other things, but none were even close to being as significant), which totaled $133.8 million in the quarter, or 42% of all revenue. For all of 2012, Zynga is projecting $425 million in total stock based compensation, which will once again completely override all profits.

So what are Zynga's employees doing with these hundreds of millions of dollars in stock-based compensation? Selling it to you. In the last six months, over 20,000,000 shares have been sold by insiders. Even as recently as June 17th, an officer by the name of Steven Chiang sold almost 70,000 shares at $5.87 per share (totaling over $410,000).

As Zynga remains unprofitable and continues to dole out massive stock-based compensation (that is in turned dumped on the market), I remain bearish. Zynga With Friends appears to be nothing more than the next manifestation of Zynga's perennial 'Facebook independence' attempt.

Source: Zynga With Friends: A 3rd Attempt At 'Facebook Independence'