Zynga’s Bet on Online Gambling Attracts Investors, Despite Roadblocks
Zynga (NASDAQ:ZNGA) longs will probably be opening a fancy bottle of wine tonight in celebration of another day of strong gains for the struggling social game publisher. After closing Friday up 7.95 percent, Zynga climbed over 13 percent higher in morning trading on Monday, fueled by investor optimism over the passage of online gambling legislation in Nevada.
Friday’s gains represented a 33.47 percent year-to-date increase on the stock chart for the company — an optimistic run overshadowed by 75.33 percent year-over-year losses. And with just over 8 percent of the float shorted, it’s unclear how much of an effect covering is having on the gains. It’s hard not to retain some pessimism about a stock that during its decline was a poster-child for ill-conceived IPOs and unprovable revenue models within the social sphere.
But through a trial by fire, the company has proven that it isn’t ready to throw in the towel. Real-money online gambling represents a long-term and possibly massive revenue stream for the company. After all, Zynga Poker was the company’s very first game, and remains the world’s largest free-to-play online poker game. The extension into real-money gambling seems natural. Zynga already announced its first real step into the space in October 2012 through a partnership with bwin.party to launch real-money online poker and casino games in the United Kingdom.
Many investors see real-money online gambling as one of Zynga’s few viable options to long-term success. The stakes are high, but unfortunately the odds of success are reduced by tough competition and a byzantine regulatory framework…