Zynga Pinning Hopes on Online Gambling

The giant Social Games company Zynga is apparently in talks with a number of Online Gambling companies in order to evolve from a purely Social Games provider into a provider of gambling games online.

According to reports Zynga has been in talks with the cream of the crop in terms of online gambling. Companies like GTech and Playtech have apparently been in discussion with Zynga in order to provide them with the infrastructure they require to make the move to providing real online gambling to players.

GTech for those who do not know are providers of Lottery and gambling game infrastructure and Playtech are one of the largest gambling software providers in the world.

The news of Zynga seeking to make its online gambling debut preceded a second quarter earnings report which showed a loss of $22.8 million dollars during the quarter. This reported loss triggered a massive drop in share price effectively wiping out 35% of the stocks value.

What does all of this mean? Well it could mean that Zynga are pinning its hopes on real gambling products such as online poker to revive both its earnings and its share price. After all Zynga did make its name on Facebook with its Zynga Poker product, why would it not transcend from that platform and become a viable platform online.

This move would not be without its challenges. The world of Online Poker has contracted. Many smaller online poker operations have shut down due to competition and network rules on players.

Zynga we think would find the going tough in the Online Poker market. The reason for this is that traditionally Social Game users play Social games because they are generally free. If money is involved the dynamic changes.

Zynga also face the challenge of competing with the well established Land based Casino companies in the US who have already either transitioned to the online gambling space or are busy doing so. Although it has been a remarkable success in the Social Games sphere we think that Zynga will find it a lot tougher in real Online Gambling markets. The competition is a lot more cut throat and less forgiving.

If we were betting people, and we are, we would advise against buying Zynga shares as this is one market we don’t think they will have the kind of dominance in that they are used to. The Online Gambling market is saturated with experienced operators who have already tied up alliances and have strategic alliances in place.

At best we think Zynga would be a middle of the road product that will eventually be bought out by one of the larger gambling companies.