Here are the problems they face:
Free-to-Play Conversions Are Getting Harder
In their most recent quarterly statement, Zynga grew both its daily and monthly active users  . It sounds impressive, until you realize that their average daily bookings—which are the percentage of actual free-to-pay conversions—decreased 10% over the prior year. And Zynga appears to be facing a few significant hurdles, namely a still yet to be quantified market and unreliable monetization.
While Zynga has enjoyed incredible growth in their short history, their success relies on three strategic initiatives, only one of which is healthy:
One: For Zynga to continue growing, at even a reasonably steady rate, the overall social market must continue to grow as well. This isn’t a problem if you think about social games on a global scale. EA, for example, recently estimated the free-to-play market at $10 billion dollars, growing 20% annually for the next few years . For Zynga to grow, they simply need to keep pace with the market. On this point, they may be well positioned.
Two: On the other hand, their long-term growth depends on retaining players, not just in acquiring them. This is more difficult because everyone wants to be in the Facebook game market these days. In 2010, Disney’s acquired social game publisher Playdom for $763 million. That’s serious money. And Disney is serious competition. With Playdom’s John Pleasants now in charge of interactive operations,  Disney is in good position to take a piece of Zynga’s market.
EA’s in the game, too, and they have stated clearly they intend to take on Zynga.  EA’s also been on an acquisition spree, buying everyone from Playfish  to Pop Cap to a whole crop of little guys. That EA hasn’t seen the success they anticipated isn’t nearly as relevant as Zynga's need to spend more to develop games and retain players as a result of EA's efforts. 
Add to these a few global factors: China. South Korea. Japan. Everyone is focusing on the U.S. social market these days.
Three: Most importantly, Zynga’s growth depends on increasing revenue per user. It’s here they’re hurting most.
In Zynga’s 2011 annual report, they concluded that if the average amount of money per player declined, so too could their business model.
Their overall revenue has grown. So too has the number of customers. But their average bookings per user (called "ABPU") has declined for the last two quarters. 
Zynga is spending more money, getting more customers, but their customers are spending less money on average. That’s what makes this a significant problem for them.
When Zynga was just a young pup, insiders reported that every dollar they invested in advertising yielded approximately $2 in gross revenue. It was a formula with guaranteed results. Now their marketing and sales expenses are outpacing revenue growth, according to businessinsider.com.  Investors don’t like what they see: increased competition in Zynga’s core platform market (Facebook), a substantially lower free-to-pay conversion rate, and higher marketing and sales costs to get there.
The Primary Sales Channel is Volatile
Another problem is that Zynga derives essentially all of their revenue from Facebook, in an arrangement whereby Facebook receives 30% of the Zynga’s gross revenue.  Unfortunately, the deal expires mid-2015, which gives Zynga less than three years to either renew its relationship with Facebook (which is uncertain given the quality and quantity of competitors) or successfully transition to new platforms.
Mobile phones are Zynga’s close target, and their 2011 Annual Report specifies this as an intended strategic platform. Yet, their CEO, Mark Pincus, doesn't exactly exude confidence when he says things like,“…I don’t think we have that all-in confident moment. The flywheel isn’t there in an obvious way,” when speaking about the mobile market.
Zynga’s dabbling in other markets, too, primarily a .com site and the Google App store, but as their annual report so clearly states, their biggest risks are
• Facebook discontinuing or limiting access to its platform;
• Facebook terminating or not renewing their agreement;
• Facebook modifying its terms of service or policies;
• Facebook changing how user information is accessed or made available to Zynga;
• Facebook establishing more favorable relationships with Zynga’s competitors;
• Facebook offering its own games.
The Bing Factor
I'm a big fan of Bing Gordon, former Electronic Arts co-founder and chief creative officer.
He’s made zillions (well, lots of millions) in the video game market. He’s smart. Rich. And, he's also the self-proclaimed consigliore to Mark Pincus, Zynga's CEO. 
Gordon’s venture firm Kleiner Perkins Caufield & Byer was key to Zynga’s explosive growth, so Gordon undoubtedly has Mr. Pincus’s ear. But, respectfully, what Bing did really well in 1995 may not work so well in the free-to-play space of 2012.
Gordon’s no slouch. He’s a Harvard boy. And he likes numbers. If you talk with Zynga insiders, they'll tell you they live for their daily numbers too. They're like a chip off the old Bing Block: MMU. DAU. ABC. EFG. LMNOP. The problem is that Zynga doesn't appear to be pursing break-through games. It’s about the numbers. Dialing them in. Cutting losses early. Increasing revenue. It’s about how to extract a half of one percent more from the ABPU instead of thinking out of the box and developing kick-in-the-pants game experiences, which is what the folks at Pop Cap and others do really well, by the way.
In the same way that EA had its Madden. FIFA. Need for Speed, etc., Zynga has developed a pattern of fill-in-the-blank “ville” games. Farmville. Cityville. Moneyville. Marketshareville. MMU-ville. Zynga has the opportunity, but they’re not innovating.
Time and Competition
Zynga has other challenges, namely time and competition. The barriers to entry in the free-to-play market is still low in comparison to other video game platforms. But where Bing Gordon's EA was able to dominate by way of exclusive franchises (Tiger Woods, John Madden, NFL, MLBPA), Zynga’s world of casual games isn’t based on household brands. Not yet at least.
The free-to-play world is looking for innovation right now, and Zynga will need to look up from their spreadsheets if they want to catch the next wave.
Incentives, Baby, Incentives
Zynga's employees are another issue. Although Zynga's reputation as a sleep-under-the-desk-till-its-done company is well publicized , the bigger problem is math. Those employees who have managed to make it this far are selling their vested options, which dilutes Zynga's overall stock value. It's supply and demand. Equally important is that employees whose stock is underwater don't have an incentive to stay.
The University of Oregon’s Investment Group put it this way:
“Lastly, insiders who participated in the IPO have already been released somewhat from IPO lockup agreements and have begun to unload their shares. These lockup periods will continue to expire over the summer of 2012.”
On a Positive Note
Despite their challenges, Zynga has nearly single-handedly created the free-to-play and virtual goods market on Facebook. They’ve reaped just rewards, reaching $1.2 billion dollars in revenue in 2011. It took EA more than a decade to achieve that same level of performance.
Zynga reports an intention to enter the gambling market too, hoping to have its first products released by 2013.  Given the United States' strict gambling regulations, however, it's unlikely that this opportunity will offer Zynga's US sales any short time relief. And whether Zynga’s in the position to take advantage of this market is unknown too. Nevertheless, it's a healthy sign that they may indeed be willing to think out of the “Ville” box.
My guess is that Zynga’s survival will ultimately turn on their ability to innovate. They have the technology. Know-how. Tenacity. And momentum. What they may need is the risk-everything attitude that they undoubtedly had when they came up with the brilliant idea of putting a free video game inside of a social networking engine.
Copyright, Dan Rogers, 2012.
Zynga’s daily active users (DAUs) increased from 59 million in Q2 2011 to 72 million in Q2 in 2012, up 23%. Monthly active users (MAUs) increased from 228 million in Q2 2011 to 306 million in Q2 2012, up 34%. Monthly unique users (MUUs) increased from 151 million in Q2 2011 to 192 million in Q2 2012, up 27%.
 Playfish was acquired in 2009 for $400 million dollars.
 Pop Cap was acquired in 2011 for $750 million dollars.
 EA’s Sims Social, as of May 2012, had acquired approximately 3 million daily players in comparison to Zynga’s Farmville, which as the same time had approximately 4.3 daily gamers.
 Zynga defines average bookings per user (ABPU) as the total bookings in a given period divided by the number of days in that period, divided by the number of daily average uses. According to their 2011 annual report, Zynga believes ABPU measures overall monetization across all their players. Zynga’s historic ABPU is as follows:
June 30 2012 - $.46
Mar 31 2012 - $.55
Dec 31 2011 - $.61
Sep 30 2011 - $.58
June 30 2011 - $.51
Mar 31 2010 - $.51
Mar 31 2011 - $.55
Sep 30 2010 - $.49
June 30 2010 - $.36
Mar 31 2010 - $.30
 Are Zynga employees miserable, ready to bail after IPO?, http://news.cnet.com/8301-13506_3-57332096-17/are-zynga-employees-miserable-ready-to-bail-after-ipo/  http://www.fundinguniverse.com/company-histories/electronic-arts-inc-history/