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Zynga And Online Gambling: What Will the Future Bring for the Company?

Jun 28, 2014


Experts believe real-money gambling could be the solution for Zynga’s financial troubles.

If you’re on Facebook, you must have heard about Zynga or at least one of its games. The developer is best known for FarmVille, Bubble Safari, Mafia Wars, Café World and other such games, but it also runs a popular online and mobile casino game operation called Zynga Poker.

However, Zynga online gambling is not as popular as some shareholders would like it to be and financial experts strongly advise that the company focus more on real-money casino software, rather than free social games. Otherwise, the firm could be heading down a dangerous slippery slope.

Poor management?

Zynga’s current chief operating officer, Don Mattrick, was hired a year ago to take over after founder Mark Pincus gave up the reins of the social gaming company.

While Zynga’s shares have dropped more than 21% over the past six months, the board approved the CEO’s $57,814,391salary at its last meeting. Mattrick’s job is the second best paid in the whole Bay Area, despite Zynga’s disappointing performance. Shareholders did have a few questions and concerns, but eventually they approved all motions and re-elected the board of directors.

Since Mattrick took over, the stock has been pretty volatile. Following a 50% selloff from its highs in March, stocks recently plunged 10 %. In addition, shares dropped almost 44% over the past three months and have tumbled more than 16% since the beginning of this year.

At a recent technology conference, the CEO admitted that Zynga is having some financial difficulties. “We’re nowhere near where we should be,” he said.

Financial forecast: cloudy

Analysts have mixed opinions about the future of the social gaming firm, but most of them say there is no need to panic just yet. Out of 30 specialists polled by the Financial Times, 21 advised investors to hold their positions in the company; five said Zynga would underperform this year; two said buying shares was perfectly safe and only one analyst thinks investors should start selling their shares.

Looking at the financial reports released by the software developer, it becomes clear that revenues saw a year-on-year drop of 31.84% from $1.28 billion to $873.27 million. However, the company net income grew.

The first financial quarter of 2014 brought Zynga revenues of $161.36 million, reflecting a 10% increase compared to the same period last year. The large majority of analysts polled by the financial newspaper agree that the second quarter will bring $190 million in revenue, while the third quarter is expected to bring an even bigger revenue of $212.9 million.

Experts say Zynga will make $801 million in revenue during this fiscal year and grow to an estimated $963 million by 2015.

Why Zynga needs online gambling

For a long time now, Zynga has been flirting with the idea of expanding its online gambling operations and joining the ranks of proper real-money casino game companies. With the latest trends showing a significant growth in iPhone gambling and in-game purchases across iOS-powered mobile devices, this could be the solution to all of the company’s financial problems.

The firm holds a UK license to provide real-money gambling and company reports show that Zynga Poker is currently the largest free-to-play online game in the world, generating 21% of the company’s total revenues. The poker game makes nearly 25% more revenue than FarmVille 2.

Last year, Zynga sent in its application to the Nevada Gaming Control Board, asking for a local license. But the company’s management later decided to withdraw its application and focus on free social casino games instead. But Facebook users located in the UK have the option of playing for money, which shows Zynga does have a strategy to increase its profits.

Going into online and mobile gambling could truly transform the company and attract a new category of clients. However, big strategy changes don’t happen overnight. And with analysts advising against selling shares, it looks like investors can rest assured that their money is safe.

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