Gambling is increasingly being used as a source of tax revenue by the states. Now Zynga Inc (NASDAQ:ZNGA) is trying the same Hail Mary pass. Will it work and who else might win this game?
Gambling money
People, for whatever reason, like to gamble. For years in this country that meant a trip to a small collection of areas in which it is legal to play such real-money games. However, seeing the tax revenue that gambling generates, more and more locales have moved to allow gambling.
This has been a big issue for places like Atlantic City and Las Vegas, since their status as gambling destinations has been tarnished by more availability. Now, with online gambling finding increasing acceptance, gamblers won’t even need to leave their homes. In fact, with a mobile connection, one can game anywhere there’s reception!
Hail Mary
Zynga Inc (NASDAQ:ZNGA) is trying to latch onto this trend by offering real-money games in the United Kingdom. The company that helped create the casual game market has struggled as customers appear to have tired of its offerings.
Most of its revenue is generated from in-game purchases made by players using Facebook Inc (NASDAQ:FB). Although it has tried to move beyond this giant social network, it has been a difficult transition. Facebook offered the perfect feeding ground for the company because of its large community. Zynga Inc (NASDAQ:ZNGA) simply can’t recreate that as easily with its own brand.
So, Zynga Inc (NASDAQ:ZNGA) has taken itself from social game company to real-money game company with the release of ZyngaPlusPoker and ZyngaPlusCasino. This is a big change of direction and one that is likely to be even more challenging than social games. Indeed, it’s a sure bet that every gambling related company is looking at the same space, many with much better industry positions than Zynga.
Although the shares advanced on the news, Zynga Inc (NASDAQ:ZNGA) still has a lot to prove before investors should jump aboard.
Partners?
However, real-money gaming could be a huge win for the company’s partners. With regard to gambling, that means Bwin.party Digital Entertainment Plc (LON:BPTY). This tiny company is hosting Zynga Inc (NASDAQ:ZNGA)’s games. According to Bloomberg, it has the gambling license and will handle security measures.
The company earns basically all of its revenues from gaming and it has operations around the world. This makes it a globally diversified play on online real-money gaming. However, taking a step back, Bwin.party Digital Entertainment Plc (LON:BPTY) is, effectively acting as a distribution platform. It looks very much like a pick and shovel company.
Although bwin is building its own games, if it can attract enough partners, it may have a sustainable business as the backbone of a vibrant gaming market. That said, the company has been losing money as it has been focusing on its technology platform. It’s clearly a high-risk play on the real money gambling space, but one that aggressive investors might find interesting.
Facebook?
Facebook Inc (NASDAQ:FB) , meanwhile, has been struggling to turn its treasure trove of customers into the type of top-line growth that investors want to see. It hasn’t been easy, because its free service doesn’t offer the types of up-sell opportunities that LinkedIn Corp (NYSE:LNKD) does. Moreover, Facebook customers have proven extremely sensitive to how their data is used and to changes in their user experience.
If real-money gaming takes off, however, Facebook Inc (NASDAQ:FB) would be in a prime position to benefit. Indeed, the company has a massive network of customers. That proved more than enough to nurture Zynga’s business and virtually create the social gaming business. Gambling is already a big business and it’s a pretty good call that a lot of Facebook users gamble.
All Facebook Inc (NASDAQ:FB) needs to do is become a toll taker, granting access to its customers to outside gaming companies for a fee. The model is no different than an in-game purchase in a Zynga game. This isn’t to suggest that Facebook will turn into an online Las Vegas. However, it does present a massive opportunity to monetize its customers.
Social games have been popular because users opt into them. The games aren’t forced on them like advertising is. Real-money games will be very similar, only they are likely to make a lot more money. This could be a huge revenue generator for Facebook Inc (NASDAQ:FB) that its customers are happy to embrace.
Sin stocks?
So, Zynga is now courting sin stock status. Bwin.party Digital Entertainment Plc (LON:BPTY) is already there. Facebook is a toss-up. However, if bwin can turn itself into a one-stop gaming technology company it could take a small piece of every wager on its system. That same thing is true of Facebook Inc (NASDAQ:FB). This could be a great opportunity for both companies.
Zynga, however, has little to differentiate itself in this push. That doesn’t mean it won’t succeed, only that investors should hold off until it proves the new direction is working.
The article Will Big Bets Save This Gaming Stock? originally appeared on Fool.com is written by Reuben Brewer.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.
