Analyst: Zynga is losing $150 per new paying customer

Analyst firm Sterne Agee has reported that social games giant Zynga spent more money on pulling in new paying customers over the last nine months than those players paid back into the company's games. Speaking to news website Benzinga, Sterne Agee analyst Arvind Bhatia explained that Zynga lost $150 on average for each new paying customer during the current fiscal year, as the marketing costs outweighed average customer spending. "They've given us the sales in marketing dollars for the first nine months - $120 million," he explained. "Almost all of that is for acquiring customers." "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. In other words, they added 400,000 additional payers and they spent $120 million to acquire them." He continued, "We know that, on average, these people are spending about $150 or so. Our concern is [whether or not it's worth] spending $300 to get these customers when people are spending $150. That math won't work for very long." Bhatia was quick to point out, "That's our math; that's not what the company says." He also noted that this shows "a slowdown in social gaming in general... I don't think it's just Zynga." "But Zynga clearly has tried many games, and they're finding that the interest level isn't necessarily going up," he continued. "We've seen many games launch and then fade within a few weeks." "Not immediately, but down the road this is going to catch up with them - whether it takes three quarters or four quarters is hard to say. But our projection for the next 12 to 15 months is that growth is slowing significantly. That's with us giving them a lot of credit for the possibility that they will add more payers and that [each payer] will pay more," he concluded. When Zynga listed its IPO last month, Sterne Agee initiated coverage of the company with an "Underperform" rating, noting that Zynga's growth has slowed down rapidly in recent months. [Update: Game industry veteran and entrepreneur Dylan Collins questioned Bhatia's conclusion in a blog post, but Bhatia stood by his analysis, telling Gamasutra, "We think looking at the marketing spend relative to the 'net' increase in paying customers provides a more effective measure of customer acquisition costs. As you know, the company does provide the number of unique payers for each quarter."]