[physcab]

2% of customers paying is pretty average for a free-to-play model. If Zynga has 60 million daily active users, thats 1.2M payers per day, more than enough to be profitable you'd think.

The real question is the value of their users, and whether Zynga can increase that value. Zynga's largest expense is probably marketing and CPI costs have more than likely doubled (I don't know the exact numbers) on Facebook over the past couple years. If Zynga hasn't increased the value of their users, that means they can acquire less, thus the drop in DAU.

The key equation for a free-to-play business is LTV > Acquisition. Unfortunately, CPI for FB probably somewhere around $1 and on iOS it can be $1-$5 depending on who's buying the traffic that day. This is why the social game market is difficult to survive in, because most small companies don't have the marketing spend to acquire customers at that cost. For Zynga, these costs are starting to show in reduced DAU, due to a combination of natural declining retention and an increase in acquisition costs.