Will Zynga Inc (ZNGA)’s Latest Plan Make or Break the Company?

Page 2 of 2

This “hurry up and wait” approach may not serve the company well, however. Zynga’s already making significant cuts to its workforce, and it may not have the time to wait for online gambling to expand in hopes of becoming a major player in the emerging industry.

Established competition

The big problem with the move into online gambling  is that Zynga won’t be the big dog in the fight.

With Facebook, Zynga enjoyed being one of the largest game developers on the site. It was all but ensured millions of  loyal players every time it released a new game. With online gambling, it will face competition from well-established companies in the gambling field, such as MGM Resorts International (NYSE:MGM).

MGM Resorts International (NYSE:MGM) already has some experience in online gaming, developing a social game in 2011 as a means of increasing interest in its casino properties. It has already partnered with Bwin.party Digital Entertainment Plc (LON:BPTY) to develop an online gambling presence as well. MGM Resorts International (NYSE:MGM) also has an advantage in having established casinos in Nevada, the first state to legalize online gambling in the US; according to Nevada law, any company offering online gambling services must also have a physical presence in the state before it can use real money in games.

MGM isn’t the only competition that Zynga will face, either. Other major casino operators such as Boyd Gaming Corporation (NYSE:BYD) and Caesars Entertainment Corp (NASDAQ:CZR) are also making moves into the online arena. With both name recognition and well-known brands (such as Caesars Entertainment Corp (NASDAQ:CZR)’ “World Series of Poker” brand), it will be hard for Zynga to really break out on its own in the field. And unless a federal law legalizing online gambling is passed, Zynga may well have to partner with one of these companies just to be able to enter the field at all… assuming that the company has anything to offer that the casinos can’t get elsewhere.

The bottom line

It’s possible that online gambling could be a major book for Zynga, but for now it’s just not worth betting on. Despite cutting costs through layoffs and launching sequels to popular games including “Draw Something,” the company isn’t in a good place right now and doesn’t appear overly stable. Zynga has enough cash to keep itself afloat for now, and it might even manage to turn things around in the future. But I wouldn’t recommend investing in it, since even with its current low price point ($2.79 per share as of this writing) there isn’t much at the moment to indicate that it will see significant recovery.

John Casteele has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.
John is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

The article Will Zynga’s Latest Plan Make or Break the Company? originally appeared on Fool.com is written by John Casteele.

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

Page 2 of 2