Zynga has made many acquisitions in recent years as they’ve tried to pad their status as a mobile giant, but one of their most questionable ones was when they bought OMGPOP, creators of Draw Something, for $200M.
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Zynga's Gamble: Royal Flush or a Bluff?
By Michael Lewis, The Motley Fool
Filed under: Investing
After seemingly endless arguing among investors and analysts regarding mobile gaming innovator Zynga , the market appears to have settled on a positive affection, as the stock soared yesterday following the company’s announcement that it would begin its real money gambling service in the U.K. The gambling concept sounds like a possible saving grace for the beleaguered tech firm, with revenue potential that could bring the company from market pariah to darling status in no time. However, this is the very beginning of a very large, risky undertaking. Should investors buy now, or wait until the online gambling space becomes clearer?
Mouthwatering potential
For tech and growth investors, the concept of online gambling is downright mouthwatering. Take, for example, 888, an existing online real money gambling company. The 888 Poker game has roughly 3,000 average active users, and generated $87.5 million in revenue for 2012. That’s almost $30,000 per user, annually. The company credits its growth to mobile expansion. Zynga hauled in $1.28 billion last year, and has an incredible scale advantage over 888. Zynga Poker, the company’s fake money gambling game, has 102,000 active users. Now, there will not be 100% conversion from fake to real, and the gambling program is only currently launching in the U.K., but we can extrapolate this data out to give us an idea of the potential.
If Zynga were able to leverage just 10% of their active Poker users into real money gamblers, that could potentially bring in an addition $300 million in revenue — just from poker. Is this some oversimplified math? Of course, but it gives us a rough idea of the addressable market and what they can earn per user.
Plenty of risk remains
The numbers above are enough to excite even the most conservative investors, especially considering the fact that the company’s stock remains close to its all-time lows. But before you hit the buy button, keep in mind that there remain both macro-level and company-specific risks.
Online gambling in the United States is still a “TBD” issue — and there will be plenty of competition from well-funded, more diversified gaming companies such as Wynn . One option, as noted in a Forbes article, is for Zynga to partner with Wynn to leverage the former’s technology with the latter’s deep gaming experience. This, to me, is a better way to manage the inherent risk.
Zynga itself does not have a stellar management track record. Not even a year ago, the company paid $100 million for one-hit-wonder OMGPOP—creator of Draw Something. That acquisition was almost completely written down. The mobile gaming industry, while quickly growing and potentially lucrative, moves incredibly fast and consumer preferences tend to change with the wind. Major investments in any one game could prove to be poor uses of capital.
Foolish bottom line
As an analyst who thoroughly dislikes Zynga, I am compelled by the gambling foray. If it becomes legal in the U.S., and the company makes a strategic partnership with …read more
Source: FULL ARTICLE at DailyFinance
Forget Gambling: Zynga Has a New Hit
By Rick Munarriz, The Motley Fool
Filed under: Investing
Shares of Zynga popped 11% higher this morning, and it’s easy to see why. Months after announcing a partnership for real-money gambling in the U.K. with Bwin — a company with licenses to operate real-money gaming websites overseas — the first games are hitting the market.
ZyngaPlusPoker and ZyngaPlusCasino will let gamblers wager real money in the virtual casino. It’s obvious what ZyngaPlusPoker offers, while ZyngaPlusCasino offers blackjack, slots, and roulette.
However, lost in today’s buzz about how a FarmVille-themed online slot machine can turn Zynga’s fortunes around, the company’s bread-and-butter social-gaming business has another hit on its hands.
What’s the Phrase is currently the eighth most popular free app download for iOS devices. It’s not topping the chart the way earlier Zynga apps did, including Words With Friends and Draw Something, but give it time. What’s the Phrase has been out for only a little more than a month.
Just as Words With Friends ripped off Scrabble and Draw Something is a Pictionary clone, What’s the Phrase is a Wheel of Fortune knockoff. It has the same viral flavor as earlier Zynga releases, where a player can tap Facebook to find other friends who are playing. The two-player game can also be played with an assigned stranger.
It remains to be seen if the game will grow enough to move the needle, but it’s another reminder that Zynga isn’t going away.
Zynga and Facebook seemed joined at the hip as the two companies raced to go public. Zynga stock crashed once bookings began to slip and executives began to bolt. The exodus hasn’t eased. The CEO of Draw Something parent OMGPOP left Zynga this week. Facebook bounced back as its mobile prospects improved.
However, Zynga is still a force on Facebook. According to traffic tracker AppData, Zynga still draws 232.5 million monthly average users to its collection of games. That’s twice as many players as the second most popular developer on Facebook’s platform.
Still, analysts aren’t impressed. They see Zynga reverting a deficit this year on a 16% drop in revenue. A single new game isn’t likely to reverse those trends, but they should be baby steps in the right direction.
Research with friends
Zynga’s post-IPO performance has been dreadful, and investors are beginning to wonder if it’s “game over” for this newly public company. Being so closely tied to the world’s largest social network can be a blessing and a curse. You can learn everything you need to know about Zynga and whether it’s a buy or a sell in our new premium research report. Don’t even think about picking up shares before you read what our top analysts have to say about Zynga. Click here to access your copy.