Why Zynga's (ZNGA) Best Days Might Be Over (FB)

With the upcoming Facebook (NYSE: FB)(Nasdaq: FB) IPO, many investors are rushing to grab up a piece of its number one social gaming partner, Zynga (Nasdaq: ZNGA). But should investors take a pause before plunking down bucks to catch a some upswing?

That's a good question and the answer doesn't appear to be too simple. According to IHS (NYSE: IHS) Screen Digest (IHS SD), Zynga, as well as its investors, might need to look somewhere else if it hopes to continue steady growth.

IHS SD points out that although the number of Facebook users showed substantial growth from 2009 through 2010, that growth has hit a brick wall in 2011. For example, in 2010 about 50 percent of Facebook's monthly active users (MAUs) used social games as well. In 2011, however, there was no change to the number of gamers and the overall MAU participation halved to 25 percent. IHS SD also commented that MAUs for perennial Facebook game leader Zynga actually declined during the fourth quarter of 2011 to 225 million, down from 266 million at the end of the third quarter.

Here's why there Zynga and Facebook will have trouble getting gamers in 2012:

• Well, just getting them will be tough. There is increasing competition in the sector so the overall cost to acquire gamers will go up as well with more market, features, and support being needed. There is greater incentive for retention and monetization to mitigate these costs.
  
  
• IHS SD does a good job with the second point, "The second challenge for Facebook gaming is intense competition, which means that user engagement is under pressure. As seen in 2011, there's been a trend away from the most accessible game genres and toward play styles that require greater player commitment or skill, in return for deeper senses of engagement.
  
  These have been typified by slow yet steady increases in the presence and quality of strategy, action and traditional/casino games."
  
  
• Finally, Facebook isn't known as a "specialist" games platform. As well as competing with other game operators, companies competing in the Facebook environment must jostle for user attention across a landscape of non-gaming functionality.

Not all is entirely lost. Facebook might decide to move its gaming sector onto mobile devices as well, or make a stronger push in Asia, though both of those initiatives will garner the same rapid growth enjoyed in 2009 - 10.

Today, Zynga is up over a percent as is 37 percent better since the start of 2012. In addition, Zynga recently posted very strong quarterly numbers as Facebook users have continued to grow.

As for Facebook, with about 20 percent of the globe's population maintaining an account on the site, it's also looking for new ways to increase engagement. And that might mean being open to all offers for user engagement...including new gaming companies.

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