Some of Zynga's top talent is running away from the company as stock rises on hopes for gambling legislation.
Zynga Inc (NASDAQ:ZNGA) saw some of its top talent depart the company recently in order to start their own gaming company. Some of the company’s former employees started a social gaming firm called Bee Cave Games. According to a release today the company managed to raise $1.4 million in financing for games development. The company will concentrate on the development of gambling games.
That’s exactly the business model that has investors flocking to the company in today’s markets. Online gambling is one of the avenues that investors hope Zynga Inc (NASDAQ:ZNGA) can take advantage of going forward. One recent report suggested that the company could see $200 million revenue per year from the market.
The company’s stock soared more than 12 percent today on the news that New Jersey Governor Chris Christie had outlined a frame for legislation that would legalize online gambling in the State. Zynga Inc (NASDAQ:ZNGA) was one of the many that benefited from the news but despite its seemingly strong position, there are huge risks associated with the company.
Zynga Inc (NASDAQ:ZNGA) will certainly attempt to take advantage of the market but there will be competition, and at least some of that competition is going to come from the company’s own former employees. Apart from former Zynga staff, one of our hot stocks today was Caesars Entertainment Corp (NASDAQ:CZR), a firm also likely to benefit from gambling legalization.
Bee Cave games, which was founded by former Zynga staff Erik Bethke, Nimai Malle and Jeremy Strauser, is getting into the gambling market as well. The company already has a beta version of its first game Blackjack Casino available on Facebook. Mobile versions of the game are under development according to the release.
The startup problem has always affected tech companies that are trying to establish themselves. Once they reach a certain size engineers have enough money and experience to want to start their own companies. Zynga, which operates in such an unstable market anyway, is particularly under pressure.
Gambling games are extremely repeatable, and success will be in marketing and the service delivery rather than game design for the most part. Zynga Inc (NASDAQ:ZNGA) has no particular moat in either of those areas, bar the Zynga Poker title, meaning that it is not really a better bet than any other firm.
If there is an online poker book coming, Zynga Inc (NASDAQ:ZNGA) is going to be a part of it; however, shedding talent as it is and facing dire competition means that investors had better be wary of the social gaming company.