Ahead of Tuesday’s big event from Zynga (NASDAQ:ZNGA) — called “Zynga Unleashed” — investors piled into the stock in anticipation of some big needle-moving news. But unfortunately, not much of substance was unleashed. As a result, the stock gapped down from $6.16 to $5.58 on Wednesday afternoon.
So, to get the excitement back, Zynga really needs to do something bold. That means something like getting serious about online gambling.
It’s true that Zynga has had a meteoric rise. Founded just five years ago, the company is now a powerhouse in social gaming, with over $1 billion in revenues. A key part of the strategy has been the development of a sophisticated analytics system. Essentially, it constantly changes games to better maximize players’ experience and Zynga’s revenue opportunities.
But there’s a big problem: Zynga has been on a dry spell. The company needs to get some big hits.
However, at yesterday’s event, it announced several titles that lacked much pizzazz. They really seem to be a rehash of old ideas. Take a look at The Ville. All in all, it looks mostly like a knock-off of Electronic Arts’ (NASDAQ:EA) The Sims Online. Why does the world need another version? Could it be enough to get the stock in the bull mode?
Probably not.
Instead, Zynga should focus on its main strength: gambling. According to Appdata.com, Texas HoldEm Poker is the No. 3 title, with monthly active users at a staggering 33.7 million. And that game was Zynga’s first!
OK, so with the world’s largest gaming site, it seems like a slam-dunk to partner with a casino like Wynn Resorts (NASDAQ:WYNN) or Las Vegas Sands (NYSE:LVS). These companies don’t have the DNA to create online games for smartphones or social networks like Facebook (NASDAQ:FB). But they do have gaming licenses and huge bases of paying customers. Oh, they also have thriving businesses in China.
Keep in mind that it also looks like the U.S. may allow online gambling. Early this year, the Justice Department provided an interpretation of the Wire Act that seems to say only sports betting is prohibited.
Shouldn’t Zynga CEO Mark Pincus pursue this market aggressively? I think so. If anything, online gambling should greatly expand Zynga’s revenue potential. As of now, the company relies on the “freemium model,” meaning it gives away its games and tries to sell digital items that go with them. But only 1% to 2% of the user base take that step.
Just think if 10% or 20% of them started to gamble? No doubt, it would be a jackpot — and perhaps the key to getting Zynga’s stock back on track.
Tom Taulli runs the InvestorPlace blog IPO Playbook, a site dedicated to the hottest news and rumors about initial public offerings. He is also the author of the upcoming book How to Create the Next Facebook: Seeing Your Startup Through, from Idea to IPO. Follow him on Twitter at @ttaulli or reach him via email. As of this writing, he did not own a position in any of the aforementioned securities.
