Why Zynga Will Still Never Be Great Again

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Paul SakumaSocial gaming giant Zynga (ZNGA) has a problem.

The company behind Mafia Wars 2 and Draw Something tried to impress the market on Tuesday by unveiling its arsenal of upcoming games during an event that it brazenly called Zynga Unleashed. The online game developer didn't really wow the watchers. The stock moved lower on the day, and it's pretty easy to see why.

Game on

ChefVille? Really? Zynga already has FarmVille, CastleVille, and CityVille. The master plan of slapping a noun in front of the "Ville" suffix and creating a virtual world where users will spend time and virtual coins to build up their realms and annoy their friends on Facebook (FB) with viral requests is tired. It's so 2011. Dolling up this franchise with a cooking theme is less al dente and more overcooked. Can one suggest CloneVille or FuneralVille next?

Ruby Blast? Zynga plans to expand this game -- a kissing cousin to Bejeweled -- to more platforms. This would normally be good news, but a quick check on Facebook shows that the game is attracting fewer than 70,000 monthly users on the site. Zynga's biggest games peaked with tens of millions of average monthly gamers. There's a reason for this, naturally. The game has only been out for roughly a week. It takes time to cultivate a following. However, the game should be doing better organically before it's expanded across devices.

Matching With Friends? So, what board game is Zynga going to rip off now after swiping from Scrabble and Boggle? Well, this is more of a puzzle game. Players need to line up three or more jelly blocks to make a match. Wow. This has been done before. A lot.

Zynga Elite Slots? Zynga's broadening its casino games. The allure of online poker, and perhaps even bingo or slots, makes sense. However, there are no barriers to entry here. Why will Zynga fare any better than the countless other international companies that have been specializing in this niche for ages?

The Ville? You know, this is probably a lot like CityVille -- only newer. Is it too late to get Cadillac or 101 Dalmatians' Cruella for a sponsorship deal?

Share Prices Can Sink Faster Than Popularity

It's been four months since my original "Why Zynga Will Never Be Great Again" article. The stock was trading for $12 at the time; the company has gone on to shed roughly half of its value.

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What's wrong with Zynga? On the surface, it seems to be doing everything right. Since going public at $10 six months ago, Zynga has delivered back-to-back quarters of better-than-expected profitability. Investors usually eat that up, but they're just not comfortable with Zynga's valuation and its model.

After all, the very reason Zynga is pushing out all of these new games and trying to expand across several platforms is that folks are tiring of games a lot faster than they used to. There may be nearly 16 million monthly Facebook players for its item-searching Hidden Chronicles game, but there probably won't be that many a year from now.

Social games have become pop songs. One may be sticky for a moment, but each quickly falls out of rotation when something catchier comes along.

Future Value Relies on a Model's Future

Zynga is no longer outrageously priced on an earnings basis. The stock is fetching 21 times this year's projected profitability and a mere 16 times next year's bottom-line results. The problem here is that there's a fair deal of skepticism when it comes to Zynga actually hitting its future earnings targets.

The shift from desktop to mobile -- and more folks are turning to smartphones to play Zynga games these days -- finds the company not only fighting with hundreds of thousands of apps vying for attention but also struggling with the shortcomings of monetization. Mobile display ads just don't pay as well as desktop advertisements.

Zynga was big man on the Facebook campus, commanding 15% of the social networking giant's revenue during the first three months of this year. It's going to be a much smaller fish in the big smartphone ocean.

The push to perpetually reinvent itself at a quickening pace to stay relevant won't be easy. It probably won't be fun, either.

Longtime Motley Fool contributor Rick Munarriz does not own shares in any stocks in this article. The Motley Fool owns shares of Facebook.

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