Zynga Inc (NASDAQ:ZNGA) is no longer a sought after stock among technology investors. The firm’s recent revised guidance for last quarter has left its share price depressed, and traders questioning the firm’s entire business model.

A Piper Jaffray report concerning the social gaming company sees the decline in the popularity of the business, and predicts it will continue. The report puts a twelve month price target of $3 dollars on the stock.

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“Weakening Fundamentals” is the most important phrase used in the report. The analysts sees Zynga Inc (NASDAQ:ZNGA) booking declining at a steeper pace in 2013 as average active daily user numbers decline, and low engagement leads to deteriorating monetization trends.

Zynga suffers from the same disease that has affected many social network based businesses in the past. The business rises exponentially, but tends to decline in the same fashion.

Because social networking is entirely based on connections with friends, a drop in the number of users leads to an associated drop in the same. The cumulative effect also leads to lower Average Revenue Per User, ARPU, as users become less engaged due to the loss in competition with acquaintances.

Social gaming, according to the report is now as unpopular among the coveted teenage age group as it has ever been. 83% of students indicated that they do not play games on Facebook, or other social networks, and 90% reported that they intend to play less games in the coming twelve months.

In the Autumn of 2010, a similar survey found that 56% of students intended to play fewer social games in the coming twelve months, while 44% indicated they would play more. The results of the latest survey are worrying for Zynga’s future.

Zynga Inc. (NASDAQ:ZNGA) is involved in an attempt to reduce costs and so create larger margins. The problem with this strategy, as highlighted in the research, is that it may lead to a lower quality of game, and therefore fewer players.

So what is Zynga Inc (NASDAQ:ZNGA) to do in the current environment? The company is forging ahead with plans to release Cityville 2, despite the fact it falls into the same category as games which are currently performing poorly.

We highlighted in a previous article the possibility that Zynga’s future may lie in a move toward online gambling, and away from Facebook Inc (NASDAQ:FB). There are other options for the firm though none seem particularly reassuring.

The problem is not with Zynga Inc (NASDAQ:ZNGA) in particular, but with the online social gaming industry. It is simply too fast to keep up with. This was of course highlighted by Zynga’s acquisition of Draw Something creator Omgpop earlier this year.

Zynga bought in at an inflated price right before the peak of that firm’s popularity. Since acquisition, player numbers have fallen quickly. The firm is not worth close to the $180 million Zynga Inc (NASDAQ:ZNGA) paid for it.

Social games can be made quickly and cheaply by small development company’s. Very few of the big names in the industry were recognizable, or even existed, just five years ago. The mechanism that decide which games succeed and which games fail is not properly understood, and so a much higher risk is to be attributed to these equities.

It may be that the world of online games is just not a suitable place for investors to put their money. The likelihood of a company misfiring and hemorrhaging users is simply too great. No firm has yet established itself long enough in the market to pretend stability.

Zynga Inc (NASDAQ:ZNGA) is an example of what can happen in an investment market driven by high potential growth in a single industry. There is a bubble in technology stocks. Zynga is just one example of the high risks weighing on such a market.