In new S.E.C. flings made on September 19, 2001, Zynga shows that its growth actually already had slipped by other measures, but now for the first time it recently slipped according to self-proclaimed Zynga's "preferred measure" of DAUs, from 62 million to 59 million).

Source: www.privco.com/private-company/zynga-inc

Note that this figure was actually as high as 67 million in the second quarter of 2010, something WSJ overlooks, so the drop is actually worse, from 67 million DAUs for 1st quarter 2010 to just 59 in the most recent quarter. (Note that MAUs are also below where they were in the first quarter of 2010, from 236 then to 228 now).

These trends are worrisome. 

The suggestion that Zynga's slipped mostly on its own (that is, unrelated to Facebook's growth) is only partly correct. If you read closely in the S1 amendment it states that Zynga depends on Facebook for "virtually all" of its revenues. (Indeed in late 2010 Zynga agreed to an amended contract with Facebook that ensures this remains the case for at least the next 5 years.) The part of "slipping on its own" if you will is the fact that there are new entrants (like Rovio and even traditional games maker electronic arts) agressively peeling social games audience away from Zynga, which used to have the playground all to itself and now must share. So its part right that Facebook could grow even while Zynga shrinks. However, the fact that Zynga still represents the majority of the social games market means that if Facebook usage were growing quickly the rising tide would also lift Zynga's boat. That isn't happening.

Another interesting factoid is that Zynga quietly revised downward its estimate of how long a user plays its games for the first time to just 11 months from 14 months. This little accounting trick added $27.3 million in revenue so far this year (about $55 million for the year) and added about $20 million to net income for the 1st half of 2011. Sneaky! So the revenue growth is actually slower than shown by $27.3 million. Quoting the filing's fine print:

"The estimated weighted-average life of durable and consumable virtual goods included in bookings during the six months ended June 30, 2010 was 14 months compared to 11 months for the six months ended June 30, 2011. In the six months ended June 30, 2011, online game revenue increased $27.3 million related to changes in our estimated average life of durable virtual goods."

(Without this change in accounting judgement call, Zynga's revenues would have been just $494.7 million and its profit would have turned into a loss!)

All in all based on our analysis so far http://www.privco.com/private-company/zynga-inc, we see:

* Zynga is a hit-driven business, with no recent hits (no major new game releases in the first half of 2011) and aging titles; games historically have a gradual decline after initial enthusiasm. 
* Zynga's brief period of benefiting from a first mover status on Facebook is gradually fading; Zynga no longer has nor will ever again have a nearly exclusive presence for social games, and will have to compete with other game developers for the next hit quarter after quarter and year after year
* Zynga's metrics confirm the decline
* If Facebook's usage were growing dramatically, Zynga could still show rapid growth temporarily despite declining market share based on a smaller share of dramatically growing audience; however dramatic Facebook usage growth is no longer happening
* However, Zynga continues to have a strong cash position and does not need to go public or raise capital at this time, unlike many other private companies with IPOs pending or delayed. (Needing to go public and having investors/founders wanting to go public and get liquidity asap are of course two different matters.)

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