Zynga struggles to stay afloat until online gaming is legal in the US.

There are stormy seas ahead for Zynga until the US officially comes out with a Federal bill that will allow online gaming on a countrywide level. It’s not going to be enough for Zynga to go state by state over several years to accomplish what they are set out to do and that is make themselves and the shareholders lots of money. The publisher of such popular games as “Farmville’ and “Words with Friends” is still plodding along, but even investors are surprised that people still play those games.

The numbers speak for themselves as now just 253 million monthly users are still playing the games; it was doing much better last year with 331 million during the last quarter of 2012. Even though Zynga has been marketing an online casino in the UK it is still desperately wants US federal government to pass an online gaming bill sooner than later. Experts expect the Feds to pass a bill one day; the question is when? With daily active users continually coming down by 20% they might be running out of time waiting for this to happen. Seems every year the player count is coming down as players get tired of the same old thing and move on to newer games.

The numbers show that even the top games are losing money with the top two games “Farmville2” and “Zynga Poker” indicating declines of 8% and 9% over the last quarter. Even the list of top seven games in the portfolio are decreasing in player count as well including, Bubble Safari, ChefVille, Words with Friends, FarmVille, Zynga Slingo, Bubble Safari Ocean, and Castle Ville. One important focus for Zynga and could be a saving grace is mobile games.

Some of the major moves and strategic alliances Zynga has made include teaming up with Bwin.Party and launching real money gaming in the UK with “Zynga Plus Poker, and “Zynga Plus Casino”. It also hired away from 888.com one of their top executives, Maytal Ginzburg who will be spearheading many of the online gaming initiatives they will be putting in place. Now they can get on the fast track by offering more play for money casino type games with a UK license and gaming partner like Bwin. The next step will be to continually launch branded online slots games with products like Farmville and Castleville that are seen as good steps towards long-term growth for the company. The social gaming expertise they have combined with a solid pubic gaming company should pay some dividends in the near future. The question is how much and is it enough for investors to stick around?

Zynga has also taken the first steps and applied for online gaming licenses in both Nevada and New Jersey where it’s now legal. With the US opening up it’s estimated that the market could generate up to $7 billion or more over the next seven years. But the way the US online gaming laws are being constructed, it sounds like it would be best for Zynga to team up with an established land-based casino that will make it easier for them to get licensed and rolling quickly.

Then there is the competition that will be cropping up everywhere since everyone is now getting onto the social gaming bandwagon in a hurry. There are lots of new and innovative games coming off the presses in all corners of the globe and they will be bringing their technology to the US as well. One of the more prominent players entering the social gaming space is Caesars Entertainment who has developed a working relationship with social and mobile game maker Playtika. Caesars has also purchased Bingo Blitz enabling them to diversify into different demographic markets and compliment their other popular property the World Series of Poker brand. Other companies are now paving the way to come into the US market now like PokerStars, 888.com, William Hill and a whole host of others that will be bring social games right along with them. It won’t be an easy task for Zynga as these companies have a long history in gaming and have established online gaming brands globally as well and know how to convert players.

It’s not all doom and gloom for Zynga as they do have $1.65 billion on the balance sheet and paid down its long-term debt of $100 million. This should give them the ability to continue attract investor money to grow. Either way Zynga will have to ride out the storm until the US Federal government comes out with a bill and then they can prepare for another battle and that’s the stiff competition that will be coming faster than a slots reel spinning a winning combination.

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