With the states of New Jersey and Nevada recently embracing the gaming regulations handed down by Congress and federal law, the online casino market seems to be an attractive bet for any gaming enterprise looking to get in early. This was the rationale, at first, behind Facebook gaming giant Zynga’s entry into the platform. After all, with the relaxation of legislation from “no online gaming,” to “regulation of online gaming,” there are almost certainly more US states to follow in the footsteps of Vegas and Atlantic City. Zynga is specifically a social network gaming site that has found tremendous success on Facebook, and seemed poised to translate that success to online gambling. So why, all of a sudden, has Zynga decided to pull back its horses?
Zynga’s Chief Operating Officer, David Ko, attributes the withdrawal to Zynga’s desire to focus more on its core precepts; apparently, venturing into online casino gaming runs the risk of spreading the San Francisco company too thin. However, Digital World Research Analysts paint a somewhat different picture of Zynga’s reasoning. “[The US online gaming market is] a space that will likely become crowded, expensive and with big incumbent players from Las Vegas getting involved soon,” says lead analyst P.J. McNeally.
Perhaps both points-of-view have a measure of truth. Zynga, after all, has already branded itself with the social network crowd, which consists of distinctly casual gamers, as opposed to the seriously-invested online casino gamer. They clearly want to stay with what’s working, and sometimes that means embracing your cold feet. Nonetheless, their stock price took a dip at the announcement of the pull-out, dropping to the 12-15 percent range and trading at $3 per share.
The stock price dips have prompted both layoffs and upper management transitions, from CEO and founder Mark Pincus’ shift to chairman, to the acquisition of Microsoft Xbox overseer Don Mattrick as the new CEO in July 2013. The change caused a rise back in the stock price, as expected.
Of course, Zynga may choose to resume the chase to establish itself in online gambling in the future, especially given the significant decrease in sales that they’ve experienced from one year to the next – a whopping 31 percent drop in revenue, to $231 million. This is far from catastrophic, but it does suggest that the competition is heating up, and Zynga might want to reconsider dropping the extra stream of revenue that early entry into the online casino gaming space might provide.
In the future, it seems like it would only be harder to break into it, given the barriers to entry of the Las Vegas and New Jersey behemoths. Much of the losses are likely temporary, though, given that Zynga has well over a billion-and-a-half dollars in investments and cash at its disposal. The social medium has paid well for them over the long term, and perhaps they would do well to stick with that proven business model.