The great investment thesis behind Zynga was that it would eventually turn its play-money Zynga Poker game into a wildly lucrative online poker business, rivaling even the most established players in gaming. There was a time when an idea like that wasn’t too far-fetched. Zynga Poker has around 36 million users every month on Facebook with around 6 million of those on the site every day. The problem is that online poker isn’t legal here in the U.S., so this huge user base hasn’t translated to a significant profit.
First-quarter revenue dropped 18% and the fickle nature of online-game players has begun to hurt Zynga. Without the legalization of online poker in the U.S., it’s hard to see how the company can develop a sustainable business or become a market darling again.
Zynga has begun offering real-money online poker in the U.K., but it’s under a partnership with bwin.party. The problem is that it isn’t really a differentiated product ,and online poker is already a well-established business in the U.K.
In the U.S. there’s a world of opportunity in online poker but little political will to make it happen. States like Nevada, Delaware, and New Jersey have legalized or outlined their plans for online poker, but a federal bill is likely years away. In the meantime, Zynga hasn’t announced plans to compete in the jurisdictions making online poker available.
Even if a federal bill does pass, there’s no guarantee Zynga poker would win. Online poker is all about gaining a critical mass of users, and it’s a uphill battle. MGM Resorts and Boyd Gaming have already partnered with bwin.party for a U.S. online gaming venture. Bwin.party is one of the largest real-money online poker companies in the world, and with PokerStars likely shut out of the U.S. in the near future, this would be a formidable opponent.
Caesars Entertainment has also had its eyes on online poker for some time, and with the World Series of Poker brand, it has a big draw for players. Caesars thinks so much of online poker that it’s spinning off its “growth” assets, and online games are a key part of the new company. Even in a best-case scenario, can Zynga poker be taken seriously against those opponents? Would real, big-money players even entertain the idea of playing on Zynga?
