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The fall of Zynga: Can the social game giant pull it together?

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Zynga HQ (Justin Sullivan / Getty Images)

Over the past year, no tech company has had ups and downs quite like Zynga.

In the days leading up to its debut on Wall Street last December, the social game kingpin was heralded as The Next Big Thing, an unstoppable force in an evolving industry, with proponents pointing to the enduring draw of games like Farmville, Mafia Wars, and Words With Friends. Lately, though, the company's stock has taken a brutal beatdown and those proponents have changed their tune.

It's a pretty rapid reversal, but is it one Zynga can survive?

There's certainly cause for concern. Monthly average users (MAUs) of Zynga's Facebook games have fallen by about 25 million since March, a telling sign that players are looking for other experiences. The April purchase of Draw Something creator OMGPOP for a whopping $180 million raised plenty of questions about whether the company had overpaid, and when the game's popularity began to fade soon after the check cleared, it was chalked up as another bad move.

Then there's the stock. Since the beginning of March, Zynga shares have fallen more than 60 percent. They've rebounded slightly over the past week or so, but many investors are still skeptical, as are some industry observers.

R.W. Baird recently cut its earnings estimates for the company at the end of May, noting a possible decline in user engagement and some concerns about how Zynga planned to make money off of its customers.

"We view Zynga as still exposed to some app fatigue on Facebook as users seek to diversify their consumption of casual games," wrote Baird analyst Colin Sebastian.

Most analysts tend to think the company can turn things around, though, noting that the stock has been sold off for reasons that had little to do with the company itself. Facebook's fumbled IPO, for instance, took a toll on several companies with ties to the social media space, but few were impacted as severely as Zynga.

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Even as he lowered estimates, Sebastian called Zynga "an attractive, albeit speculative, investment opportunity."

Wedbush's Michael Pachter has been particularly optimistic about the company, saying the recent sell off was "misplaced and misguided."

A decline in MAUs is natural, he said, as people try a new gaming app, then move on. Those who stay, though, become more involved with the game -- and eventually, those are the players who begin to make in-app purchase, making them Zynga's most important customers.

"We think that the average spending user takes six to nine months before they begin to purchase Facebook credits and invest in each game, and believe that spending increases gradually over time, meaning that an individual game's MAUs may have long since peaked and begun a decline while revenues from that game may continue to grow," said Pachter.

Zynga, for its part, seems ready to fight back against the negative perceptions. The company recently launched Zynga Slots for iOS as well as a pair of Bejeweled-like "Match 3" games. Four months ago, Zynga signed a deal with Hasbro to create a variety of Farmville toys and merchandise. And after a bidding war among the networks, CBS recently won the rights to produce a prime time game show based on Draw Something that could begin airing by the start of the year.

In the meantime, as doomsayers cry "the end is near," Zynga continues to dominate the Facebook top games charts and enjoys more engagement than its five closest social gaming competitors combined. Later this month, the company is hosting a media event at its campus, where it's expected to unveil its next big slate of games.

The big question, however, is whether or not those games will have what it takes to keep the company on top of the social ladder.

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