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Zynga's New S-1 Reveals Slowing Growth

Zynga just filed a new, expanded S-1, revealing new third-quarter numbers. The filing may be nearly 500 pages longer than the last one, but it's missing a key piece of information — a stock price.

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That indicates that Zynga's road show, which was scheduled to start next week, has been delayed. This could indicate that the company isn't getting the kind of interest from investors as it had hoped.

With that delay, we're unlikely to see an IPO before Thanksgiving, as expected.

There's some good news in Zynga's filing: third quarter revenue of $306.8 million is up 80 percent from the year-ago quarter, revenue per unique user grew 30 percent year-over-year and daily active users grew 10 percent year-over-year after three successive quarters of year-over-year declines.

But there's plenty of negative news in this filing for investors to chew on: net income is down 50 percent from the year-earlier quarter to 12.5 million dollars. And growth this year seems to be slowing — revenue growth from Q1 to Q2 was 15 percent, and only 10 percent from Q2 to Q3. Plus daily active users dropped 8.5 percent from the second quarter to the third quarter, to 54 million.

Another surprising revelation about the number of people who are paying to play. The company counts just 6.7 million people, less than 3 percent of its 230 million monthly users — as "paying" users (this excludes some payers on mobile platforms and those who use smaller web-based payment methods). Not only is this percentage quite low, it's also lower than the "less than 5 percent" Zynga said in previous S-1 filings.

It's possible that Zynga will hold off until early 2012 for its IPO. Zynga is hit-driven — results are bound to spike around game launches. The company hasn't had a hit in quite a while, but is launching highly-anticipated "Castleville" this month. The company does have enough cash on hand that it can afford to hold off on its IPO until after Castleville has started to boost its bottom line. Greencrest Capital Senior Analyst A.B. Mendez says that if the game's the hit the company expects it will be, that will boost monthly user and revenue numbers, which should positively impact the company's valuation.

Greencrest Capital's Anupam Palit raises another question — he's not comfortable with the way the company accounts for deferred revenue. He calculates the company's normalized EBITDA margins for the first three quarters of the year are 18 percent — the company reports 28 percent margins for the same period. We'll see whether that's problematic for investors.

Questions? Comments? MediaMoney@cnbc.com

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  • Working from Los Angeles, Boorstin is CNBC's media and entertainment reporter and editor of CNBC.com's Media Money section.