Zynga (ZNGA - Free Report) recently ventured into online real-money gambling through the launch of ZyngaPlusPoker and ZyngaPlusCasino games in the United Kingdom. Zynga will be offering the games in partnership with Gibraltar-based real-money gaming operator Bwin.Party for players aged 18 and above.
Zynga’s move is largely seen as an effort to boost top-line growth as revenues from its social games continue to remain sluggish. Zynga expects to launch the social version of real-money games on Facebook (FB - Free Report) and mobile in the UK through the remainder of 2013.
According to data available from market research firm H2 Gambling Capital, global gambling industry’s total gross win is expected to grow 5.6% to $417.0 billion, of which 8.1% comes from online sources. This is expected to increase approximately 10% by 2015. We believe that this provides a huge growth opportunity for Zynga over the long term.
Zynga is expected to expand its game offerings into other European countries such as Belgium, Italy and Denmark, where online gambling is permitted, in 2013. Moreover, Zynga has significant growth opportunities in the domestic online gambling market. Although online gambling remains illegal in major parts of the United States, states such as Nevada and Delaware have already legalized online gambling.
In Dec 2012, Zynga filed an application with the Nevada Gaming Control Board for an online gambling license in the state. The whole process of granting license is estimated to take approximately 15-18 months to complete.
We believe that Zynga will utilize this time to build strategic partnerships with casino operators in the state. The company has sizeable cash balance ($1.7 billion at the end of fourth quarter), which will also help it to pursue acquisitions in the sector. These partnerships and acquisitions will help Zynga to gain an immediate foothold in the online gambling market post license win.
Nonetheless, we believe that uncertainty over the license grant considering legal hassles will remain an overhang on the stock going forward. Moreover, Zynga is also expected to face stiff competition from established casino operators such as International Game Technology (IGT - Free Report) and Bally Technologies in the near term.
Currently, Zynga has a Zacks Rank #3 (Hold).