Other users made good points that for a company like Zynga advertising is a significant expense. There is another thing causing losses though -- depreciation of goodwill and other intangibles.
It is an issue for companies that do a lot of buyouts, especially if those buyouts are at high prices and the purchased assets do not perform as well as expected. I do not have time to explain in depth, but to put it simply -- when you buy a company you initially get to pretend that it is worth the purchase price for accounting purposes. But, later on, accountants have to evaluate how the purchased assets perform and record a loss if they are not as valuable as initially recorded.
This is often a reason losses appear for companies with positive cash flow (I believe Zynga has a positive cash flow). The issue appeared in the recent Microsoft earnings as well.
This is exactly what happened with their OMGPOP (Draw Something) acquisition. It was an obvious hit but not one that was very monetizable and the popularity has declined after paying a ridiculous sum for it.
It is an issue for companies that do a lot of buyouts, especially if those buyouts are at high prices and the purchased assets do not perform as well as expected. I do not have time to explain in depth, but to put it simply -- when you buy a company you initially get to pretend that it is worth the purchase price for accounting purposes. But, later on, accountants have to evaluate how the purchased assets perform and record a loss if they are not as valuable as initially recorded.
This is often a reason losses appear for companies with positive cash flow (I believe Zynga has a positive cash flow). The issue appeared in the recent Microsoft earnings as well.