[TobiHeidi]

Obvious mistake made in the calculation. From "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." lead them to "In other words, they added 400,000 additional payers and they spent $120 million to acquire them.”

This is an obvius mistake, as not all of the 3 Million from Dec 2010 continued to be a customer in Sept 2011. I roughly assume they lost 800.000 customers in that span (i think its more), then the newly aquired customers triple to 1.2 Million. Thus Zynga makes 50$ profit per customer.

[acgourley]

Exactly!

I'd go farther, if players stick around 12-15 months historically, and they had 3M users, then in 9 months they could lose 60%-75% so 1.8M to 2.25M players! This of course depends on distribution of lifespans, and assumes that the 12-15 month figure remains accurate.

If that's true, they're getting users for as cheap as $50 each, and making $100 on each.

[RuggeroAltair]

Oh, come on, guys... You all are over simplifying a complicated calculation. Have you considered that you don't know the distribution of the 3M players? How many of them had just joined compared to how many had been around already for a while? (this could push both ways) Also, have you considered how many new users they were expect to get just by word of mouth and no investment? What is the percentage of regeneration of users that quit in 12-15 months but maybe also brought in other users to play with them? Without knowing the details you can't say anything. I'm not saying that I agree or not with the article, but I assume that every person working as an analyst learns on their first day what you were suggesting above. So, it could be that the analysis is wrong (and it does look wrong), but the calculation that an analyst should do is much more complicated that you guys seemed to think from what you wrote (and two wrong analysis won't make a correct one).

I would have spent at least part of those $120M in funding startups to develop new games (and later bring them in, in case...). I'm pretty positive the return might have been better...

[tatsuke95]

Yeah, the math is a bit wonky and requires speculation about many numbers we don't know, but the fact is that Zynga spent $120MM to grow...slightly. It's not the straw to break the bulldog's back, but a straw nonetheless.

[azakai]

But that skews in the opposite direction: If they lost more users, that means they lose customers more quickly, so the value of a customer decreases the higher you raise your estimate here.

Losing more users is good in that it means they gained more in the same timespan - for fixed changes in the number of users (which is the datapoint we have). But it also means they are having a hard time keeping them.