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TheStreet Open House

Life After Facebook: Will Online Gambling Be The Future Of Zynga?

NEW YORK, January 23, 2013 /PRNewswire/ --

As the partnership between Facebook and Zynga turns grim, Zynga shifts its gears and expands to include online gambling in its portfolio. Will turning into a gambling company change the fate of company?

Zynga Inc. (NASDAQ: ZNGA) [ Full Research Report] [1] is now planning its next steps after its partnership with social networking site Facebook Inc. (NASDAQ: FB) [ Free Research Report] [ 2 ] fell through in the middle of 2012. Zynga's shares dropped after Facebook revised its contract with Zynga, indicating that Zynga is now subject to the same terms as other game developers in the social network. Furthermore, after Zynga's CFO left for Facebook and after its treasurer left for Twitter last year, it was announced last week that Zynga's Director of Engineering Dali Kilani has left the company to serve as VP for Engineering for iFeelGoods, a rewards start-up company. Amidst these developments, Zynga now plans to move towards offering real-money gambling apps aside from social games.

Zynga's most recent move is the launch of CoasterVille early in December. However, CoasterVille has garnered only 1M Monthly Average Users (MAUs), as compared to Zynga's more successful games like FarmVille2, with 10M MAUs. While Zynga remains as the top social game developer, King.com's Candy Crush Saga has also threatened FarmVille2's reign after briefly taking the top spot in the MAU rankings.

It is for this reason that Zynga is now expanding its portfolio to include gambling apps. It has recently signed a partnership with Bwin.Party Digital Entertainment Plc. (BPTY) to offer real-money gambling games in the United Kingdom. The company has also applied for a Preliminary Finding of Suitability from the Nevada Gaming Control Board, the first step towards offering real-money gambling games in that state. Will this move towards offering real-money gambling games be Zynga's hope for future growth?

Zynga's shares rose 7 percent after Zynga announced that it was making steps towards acquiring a gambling license in Nevada, signaling that this move is met with approval. However, if Zynga truly wants to rise back up, it must earn revenue not just from one state, but also from all over the country, something that is not likely to be legal within the next five years, according to Doug Creutz, a Cown & Co analyst. That is why the company is turning to other parts of the globe where online gambling is legal, as it waits for the activity to be legal nationwide.

Zynga's next steps are crucial as the company drifts further away from Facebook. The company has assigned Sean Kelly, an experienced mobile game developer, to lead the company's expansion from desktop to mobile. The company has also hired Maytal Olsha, a former executive at 888 Holdings, a company that runs real-money gambling sites in Europe and other regions where gambling is legal. Lastly, the company has begun to develop games like Sports Casino and Elite Slots, games that simulate online gambling. These are the concrete steps the company is taking in order to move towards offering real-money gambling games.

Zynga recent announcement of a repurchase program authorizing selling of up to $200 million of its outstanding stock is a sign that the company believes its shares are undervalued at current levels. However, those who are buying shares are driven only by the belief that Zynga can turn things around. As the company is scheduled to discuss its fourth quarter and full year 2012 results on February 5, 2013, it is exciting to see what Zynga's plans are to climb out of its predicament.

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