Facebook Looking To Beat Zynga At Online Gambling

| About: Facebook (FB)

On Wednesday morning, I wrote an article talking up Zynga's (NASDAQ:ZNGA) prospects for online gambling. The social gaming giant just launched papers with the Nevada Gaming Control Board to legalize real money gaming in the state. The gaming giant also is rolling out real money games in the United Kingdom in the first half of 2013. However, Wednesday's announcement by Facebook (NASDAQ:FB) appears to be showing the competition Zynga will face.

Facebook announced that it is partnering with 888 Holdings to offer real money games on Facebook to residents of the United Kingdom. Users 18 years or older in the UK will be able to play games and cash out their winnings. 888 Holdings is publicly traded in the UK and got a nice boost to its share price on the announcement Wednesday.

888 Holdings already offers games on Facebook, but currently at a freemium model. The company will offer bingo, casino, and slot games. Notable from the announcement was any mention of poker. The popular card game is sure to be the target of Zynga's upcoming launch in the United States, if approved.

The move by Facebook follows up an earlier partnership with Gamesys. In August, Gamesys was the first company to use the Facebook App Center for real money gaming. Gamesys offered over 90 bingo and slot games back in August.

Online gambling is a great opportunity for Facebook. The social giant currently offers thousands of games on its network. By offering gambling, it will take a certain percentage of revenue earned by British gambling companies. The revenue diversifies Facebook away from advertising and revenue from Zynga's popular games. Facebook will also be watching the Zynga request with the Nevada Board closely to decide if it should venture into the United States.

The move by Facebook into the British area that Zynga is exploring could be part of the reason why the relationship between the two internet giants has become strained. The two companies are trying to rely on each other less and it appears Facebook thinks it can do anything Zynga does better on its own.

Facebook reports fourth quarter earnings on January 23rd. Analysts on Yahoo Finance are expecting the company to report $0.15 in the fourth quarter and $0.52 for the fiscal year. In its two public quarters, the company met earnings and beat earnings by 9%.

Shareholders of Facebook have had a wild ride since the company's IPO. Shares are still down 27% from their first day of trading. In the last month, shares are up an astounding 39% as investors begin to get back into the social media stock. The move into gambling represents another huge opportunity for Facebook and should reward shareholders along the way. A pullback in Facebook should be a good buying opportunity with new price targets coming in from analysts in the $30-$35 range.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in ZNGA over 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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