Zynga, Inc. (NASDAQ: ZNGA) is a dog and it knows that it is a dog. Is it a coincidence that it has a dog as its logo? Reports are out that Zynga slipped in 100 layoffs during the Apple product launch announcements today. The rationale for that is simple: hoping and praying that no one notices. What the company is trying to tell you is that playing with a bunch of virtual farm animals is for losers.

Zynga shares hit an all-time low of $2.20 today versus a prior 52-week range of $2.21 to $15.91. The problem is that it still has a market value of $1.7 billion and its mountain of cash underneath the books here won’t matter all that much if Zynga is going to be priced like a company that loses money from operations. As of now analysts are looking for 2012 and 2013 earnings to both come in at $0.04 EPS, according to Thomson Reuters.

So, what happens to Zynga if it starts to lose money on an annual basis? If social gaming does not get a resurgence, this is a real risk. Saving money on 100 salaries won’t matter if revenues fall more than expected. Thomson Reuters has a consensus target of $1.13 billion in 2012 sales but expects sales to fall to $1.10 billion in 2013. Imagine if people realize that building virtual farms is not really that cool? The website says that 1,656,598 people are playing now. That is called extra free-time for you.

Zynga’s June 30 balance sheet lists a total of $1.68 billion in cash, cash equivalents, short-term securities, and long-term investments. Yahoo! Finance lists its net tangible assets as $1.52 billion. Keep in mind that these figure are not interpolating any expenses that the company has taken to make acquisitions or to make large cap-ex spending.

Zynga is a dog just like its logo here shows, but at least it is a dog that is right at its book value… for now.

JON C. OGG

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