Can Zynga Inc (ZNGA) Survive Without Online Poker?

The great investment thesis behind Zynga Inc (NASDAQ:ZNGA) was that it would eventually turn its play-money Zynga Poker game into a wildly lucrative online poker business, rivaling even the most established players in gaming. There was a time when an idea like that wasn’t too far-fetched. Zynga Poker has around 36 million users every month on Facebook with around 6 million of those on the site every day. The problem is that online poker isn’t legal here in the U.S., so this huge user base hasn’t translated to a significant profit.

ZNGA Net Income TTM Chart

ZNGA Net Income TTM data by YCharts.

First-quarter revenue dropped 18% and the fickle nature of online-game players has begun to hurt Zynga Inc (NASDAQ:ZNGA). Without the legalization of online poker in the U.S., it’s hard to see how the company can develop a sustainable business or become a market darling again.

Online gaming isn’t here
Zynga Inc (NASDAQ:ZNGA) has begun offering real-money online poker in the U.K., but it’s under a partnership with bwin.party. The problem is that it isn’t really a differentiated product ,and online poker is already a well-established business in the U.K.

Zynga Inc (NASDAQ:ZNGA)

In the U.S. there’s a world of opportunity in online poker but little political will to make it happen. States like Nevada, Delaware, and New Jersey have legalized or outlined their plans for online poker, but a federal bill is likely years away. In the meantime, Zynga hasn’t announced plans to compete in the jurisdictions making online poker available.

Even if a federal bill does pass, there’s no guarantee Zynga Inc (NASDAQ:ZNGA) would win. Online poker is all about gaining a critical mass of users, and it’s a uphill battle. MGM Resorts International (NYSE:MGM) and Boyd Gaming Corporation (NYSE:BYD) have already partnered with bwin.party for a U.S. online gaming venture. Bwin.party is one of the largest real-money online poker companies in the world, and with PokerStars likely shut out of the U.S. in the near future, this would be a formidable opponent. Caesars Entertainment Corp (NASDAQ:CZR) has also had its eyes on online poker for some time, and with the World Series of Poker brand, it has a big draw for players. Caesars thinks so much of online poker that it’s spinning off its “growth” assets, and online games are a key part of the new company.

Even in a best-case scenario, can Zynga Inc (NASDAQ:ZNGA) be taken seriously against those opponents? Would real, big-money players even entertain the idea of playing on Zynga?

Zynga is in trouble
Without online poker, Zynga is in trouble. Management expects revenue to fall from $264 million in the first quarter to between $225 million and $235 million, another bad sign for Zynga Inc (NASDAQ:ZNGA) stock. The only value the company has is $1.3 billion in cash and marketable securities. But with 18% of the company’s workforce being cut and losses expected to return in the second quarter, I don’t see a lot of upside for investors.

Even if online poker were a reality, it would be an uphill climb for Zynga — but without it, the company is sunk.

The article Can Zynga Survive Without Online Poker? originally appeared on Fool.com and is written by Travis Hoium.

Fool contributor Travis Hoium has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

The Top 10 Most Expensive Digital Cameras to Snap Stunning Shots With

The 10 Highest Quality Fast Food Restaurants In America Today

The 8 Best Halloween Decorating Ideas to Spook Up Your House

10 Marvel Women that Should Get a Movie Right Now

The 20 Best Remixes of Popular Songs that Will Make You Forget the Originals

7 Most Expensive Cities in the World

5 Least Expensive Cities in the World

10 Celebrities Who Believe In Scientology

10 High Margin Food Products to Build a Business Around

The 10 Most Expensive Clothing Stores in the United States to Get Decked Out At

The 5 Biggest Kickstarter Scams That Swindled Backers’ Donations

The 10 Most Expensive Boarding Schools In the World

50 Crazy Facts About Japan You Won’t Believe

Top 10 Least Expensive Hybrid Cars to Save the Planet With

The 10 Biggest ‘Gate’ Controversies in History

The 10 States with the Highest Nursing Shortages Leaving Their Hospitals Depleted

The 10 Best Value Investment Blogs that Every Investor Must Read

The 6 Cheapest Boarding Schools in Europe 2015

The 5 Most Expensive Cars To Insure in the World

The 10 Most Common Genetically Modified Foods

10 Self-Made Billionaires Who Came From Nothing

The 10 Most Expensive Cities to Live in North America

The 13 Most Expensive Headphones in the World to Represent

The Top 20 Wealthiest Soccer Teams in 2014

4 BuzzWorthy Cannabis Stocks And Some Smoking Derivative Plays

The 10 Healthiest Fast Food Chains in America to Dine At

The 5 Most Expensive Cat Food Brands You Can Spoil Your Kitty With

The 6 Best eCommerce Platforms for Small Businesses

The 10 Worst Mistakes an Entrepreneur Can Make

The 5 Most OP Characters in League of Legends to Carry Games and Crush Foes With

The 5 Best Foods to Eat Before Running that Will Help You Pound the Pavement

10 Glaring Plot Holes in The Walking Dead that a Zombie-Filled Bus Could Drive Through

The 5 Biggest Celebrity Stoners Who Love Their Reefer

The 10 Most Overrated Movies Of All Time by Out-of-Touch Critics

Top 6 Least Expensive Cruise Destinations For 2015 that Will Take You to Paradise

10 States with Lowest Substance Abuse Rates in America

The 14 Most Watched TV Finales Ever

The 10 Best Selling Role Playing Games of All Time for PC

10 Most Influential Papers In Economics

Top 8 Biggest Charities in the US

10 Worst Celebrity Career Moves Ever

Top 10 Best Paid Tennis Stars in the World

Top 6 Cities For The Ultra Rich to Live in Comfort

10 Cities with High Demand for Nurses

6 of the Worst Greeting Card Messages Ever Crafted

How to Make Money in ArcheAge and Build Your Empire

10 Foods To Eat To Lower Cholesterol Levels

The 10 Most Hated Television Characters of All Time

The 30 Worst Halloween Costume Ideas Ever Brought to Horrible Life

10 Vocational Skills in Demand Today with Jobs Waiting to be Filled

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!