Facebook squeezes Zynga’s bottom-line
Facebook Inc (NASDAQ:FB) may be the biggest threat to Zynga Inc (NASDAQ:ZNGA). The social network demands 30% of all spending on games on the platform, which means that each $1 of revenue adds only $.70 to Zynga’s top-line. Facebook gets the better end of the business model, earning a royalty on apps it doesn’t have to pay for. Zynga wants to ditch the Facebook platform, but doing so is easier said than done. Facebook Inc (NASDAQ:FB) offers access to more than a billion global users – marketing that is tough to pass up.
Zynga Inc (NASDAQ:ZNGA)’s casual games won’t keep the company afloat. It needs real money gaming, and it needs it now.
Quarter over quarter, monthly active users have plummeted to 197 million from 253 million. Every single game Zynga owns is slowly providing less and less to the top-line, as you can see from a chart in the investor relations presentation:
Now is no time to run from real money gaming. Zynga should be heavily investing in its free poker app, Zynga Poker, which maintains leadership in its category. The company needs to continue to drive free players to the app – an asset it can tap for millions of dollars in advertising and royalty revenue when real money gaming comes back to American shores.
Zynga Inc (NASDAQ:ZNGA) should slash its workforce to a level necessary to maintain its existing non-Poker games and invest every dime it has into collecting as many free money poker players as it can. If real money poker comes back in the U.S., Zynga would be the biggest takeover target on Wall Street for any big casino operator.
I’m astonished by Zynga’s cut and run strategy, especially since a new CEO, Don Mattick, took the helm to lead the struggling enterprise. Zynga Inc (NASDAQ:ZNGA) investors who sent the company’s shares up more than 10% on the announcement of his hiring are naturally reflecting their disdain for the company’s new direction by sending shares down more than 13%.
Without Poker, Zynga is just another struggling technology company fighting in a much too competitive market where excess profits are difficult to find. Now that Zynga has completely thrown away the idea of real money gaming, investors should throw this stock out of their portfolio, too.
Jordan Wathen has no position in any stocks mentioned. The Motley Fool recommends Facebook. The Motley Fool owns shares of Facebook Inc (NASDAQ:FB).
The article Zynga Is Toast Without Real Money Gaming originally appeared on Fool.com.
Jordan is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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