Launch Of Real Money Gambling On Facebook Could Be A Game Changer For Zynga

Jul.16.13 | About: Zynga (ZNGA)

Zynga Inc. (ZNGA) is taking yet another step in establishing its real money gambling business, with the launch of real money gambling apps on Facebook (NASDAQ:FB). Real money gambling on Facebook could turn out to be game changer for the San Francisco-based company, which maintains that social gaming remains its heart and soul. Not surprisingly, ZNGA shares popped in trading on Wednesday on reports of the launch of the apps, and extended their gains in early trading on Thursday.

Real money gambling on Facebook

At a gaming summit in Barcelona, Spain, Zynga is expected to unveil its ZyngaPlusPoker and ZyngaPlusCasino apps that will be available on Facebook in the U.K., according to VentureBeat. Zynga has already launched its gambling sites in the U.K. in April this year, with ZyngaPlusPoker and ZyngaPlusCasino. The launch of U.K. real money gambling site came after the company entered into a partnership with Bwin.Party (OTC:PYGMF), a U.K.-based online gambling company, last year.

With the launch of real money gambling apps on Facebook, Zynga has taken the next step in establishing its online gambling business. Speaking to VentureBeat, Sean Ryan, Head of Zynga's game partnerships at Facebook, said that social gaming continues to be the company's heart and soul. However, online gambling is going to be a growth driver for the company going forward.

The U.K., where real money online gambling is legal, is a test market for Zynga. Online gambling, which Ryan said is a logical extension for fans of Zynga games who want to bet their own money, represents a huge opportunity for Zynga. In 2012, online real money gaming market was worth $30 billion, according to H2 Gambling Capital.

Zynga's real money gambling apps are expected to be available on Facebook in the U.K. within a month. The company plans to follow this up with a mobile version soon. With the Facebook version, Zynga's real money gambling games will be more accessible to general population in the U.K. Of course, if the company's U.K. venture is successful, it will be encouraged to expand its online gambling business. Given the increasing popularity and size of the online gambling market, I expect Zynga's test venture in the U.K. to be a huge success.

Online gambling could be a game changer for Zynga

While Zynga is one of the most popular social media companies, it has failed to generate the same level of interest on Wall Street ever since its IPO. In fact, since its December 2011 IPO, Zynga shares have fallen more than 63%. The reason behind this drop is simple, investors have been concerned about the company's ability to generate revenue.

While ZNGA's social games have been popular, it has struggled to monetize them. However, with online gambling, Zynga has taken the next logical step in its expansion. Zynga has a huge advantage over other online gambling companies, given that its games are already popular with the general population.

With the Facebook version of its real money gambling games, Zynga can reach an even wider audience. I believe that social media and mobile version of ZNGA's real money gambling games will be a game changer for the company. Not surprisingly, shares have been gaining momentum ahead of the expected launch of the apps. At last check, Zynga shares were up 2.06%, $3.46 in early trading on Thursday. Since the announcement of partnership with Bwin.Party in October last year, ZNGA shares have gained nearly 56%. What's more, this is just the beginning. If the online gambling venture in the U.K. is successful, Zynga shares could see further upside.

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Zynga doing it right

By entering online gambling, Zynga has taken the right decision. As I said, Zynga's social games are very popular, and this gives the company a huge advantage over other online gambling companies as it already has a recognized brand. With online gambling, ZNGA has found a way to monetize its popular games.

The company is also eyeing the U.S. market for online gambling, where it is looking to take advantage of newly-approved laws in New Jersey and Nevada. Late last year, Zynga filed its initial application with the Nevada Gaming Control Board for a gaming license in the state.

Zynga's expansion into online gambling will be a key focus area for newly appointed CEO Don Mattrick, who took charge from founder Mark Pincus earlier this week. Zynga will certainly benefit from Mattrick's extensive experience in developing, building, and managing profitable entertainment businesses.

Zynga has been the most successful social gaming company; however, until recently Wall Street did not see much potential in the company as it failed to monetize its social games. With online gambling, Zynga has found a way to boost its top-line growth. The company has partnered with one of the largest online gambling companies in the world as it tests its new business model in the U.K. The launch of Facebook and mobile versions are likely to further boost Zynga's online gambling business. Given all these factors, I am bullish on the company.

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.