Will Zynga Find Friends Outside Facebook?

| About: Zynga (ZNGA)

Zynga Inc. (NASDAQ:ZNGA), the creator of popular online games including FarmVille, Words With Friends, and Scramble With Friends, has more than 240 million monthly active users. Most users play free versions of the games with available fee-generating add-ons from their Facebook (NASDAQ:FB) account. Zynga has over time expressed its interest in developing its own social media platform specifically designed for online gamers, to be able to better control the distribution and marketability of its user base.

Facebook and Zynga have been tightly bound together since both firms became public and revenue information for each firm came to light. Zynga has been described by analysts as being handcuffed by the bigger Facebook, who ultimately has much greater negotiating power. Facebook sets how much Zynga can make from the users who play their games over Facebook's platform. Over time, Zynga has begun to launch games over various other social media sites, but has failed to force Facebook's hand in developing a more strategic partnership. From the outside it seems as if, Facebook has been treating Zynga more like a client, allowing the firm to use its platform to reach its members, rather than as a partner or a joint venture. Neither firm has done extremely well since their IPO's, FB fell from its issue at $38 to $17.55 and currently trades under $28, while Zynga trades near $2.50 after opening for trade at $11 less than one year ago.

Trading at $2.45, Zynga has a market cap of $1.9 Billion. Zynga's enterprise value has fallen more than 75% since its IPO, which may seem enticing to a firm who may want to integrate Zynga's enterprise and assets (games) into their own. Global leaders with extra cash that might look for an acquisition include FB themselves, who paid $1 Billion for Instagram or Google (NASDAQ:GOOG), who continues to try to dominate the internet world-wide and had $6.22 billion in cash as of Q3 2012.

As Zynga continues to seek revenue outside of Facebook's bind, the firm has recently filed its application for a gaming license in Nevada. If Zynga is able to revolutionize the online gambling community by creating its own social media platform or aligning with existing offshore gaming firms or existing casinos, more options may be available for Zynga shareholders to recoup losses or for traders to speculate based on potential avenues for revenue.

If Zynga is able to develop online gambling over the coming years or if it is perceived to be able to, another source of external buyers for the firm could include the gaming community itself. Wynn Resorts (NASDAQ:WYNN) and Las Vegas Sands (NYSE:LVS) each have been investing heavily into new frontiers outside of Las Vegas and other gaming communities around the US. They have each invested heavily overseas including in China, so why not online if it is able to be done? Each firm also has over $2 Billion in cash. The added community online could also develop greater synergies for the casino companies by growing its base of clients, and by driving online clients to Las Vegas and elsewhere by using marketing and promotional and reward products easily distributed through the online channels since Zynga already has customer information.

Although FB and ZNGA may be having a lovers' quarrel and the honeymoon phase of their relationship seems to have run its course, ZYNGA is still young and attractive and could develop an even stronger relationship with another firm if interests are in a better alignment.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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