What’s this about Zynga and whales?

Zygna (s ZNGA), the hot social gaming startup that went public, has confounded observers by trading at a valuation less than its prior private market valuation. So much so, that some folks are saying its IPO performance will have a cooling effect on Silicon Valley startup valuations. Maybe! Having not been much of a social gamer, it is a company that is interesting to me when it talks about its infrastructure.
Anyway, this morning Ben Schachter, Internet analyst for Macquarie Securities, initiated coverage of Zynga with a neutral rating on the stock with a $9 target price — around where Zynga is trading currently. In his report, Neutralville, he had some fun facts that were astounding at the same time, so I wanted to share with you folks.
For instance, he points out that Zynga has 150 million monthly unique users but only 2.2 percent, or about 3.4 million, actually pay the company anything — about $70 a quarter or about $280 a year to play its games. Schachter writes:

However, what is both extraordinary and a meaningful concern is that when we apply the 80/20 rule to the paying players, it implies that just ~680k account for 70%+ of ZNGA’s total revenue (excluding advertising). It also implies that these top 20% of paying players are paying, on average, over $1,100 per year to play ZNGA games.

Las Vegas, too, has such high-rollers, also known as “whales.”

Schachter, despite his neutral stance, does feel that the company has as many positives as negatives. For instance with only 35 percent of its revenues coming from the international markets Zynga can grow overseas nicely, especially as Facebook starts to get more traction in international markets. He also feels that average revenue per user is so minuscule that the company can actually benefit nicely. Of course, stagnating sequential revenue, declining margin structure and dependency on whales are some of the things that keep him neutral on the stock.