The social gaming company Zynga Inc (NASDAQ:ZNGA) stock has performed miserably since the company went public. Its IPO in 2011 was a disappointment, and the new games that were supposed to push the stock fell short of expectations.
People have criticized the company in the past, saying that Zynga Inc (NASDAQ:ZNGA) copies games from other companies, and throws its marketing team in full force to capture the audience that might have moved to the original creator. Now the company vice president Dan Porter publicly admitted that the company does copy.
However, Zynga Inc (NASDAQ:ZNGA) shares have rallied recently amid speculations that the company may be an acquisition target of Yahoo! Inc. (NASDAQ:YHOO). The struggling Internet search company has offered free online games for a long time now, so the speculations were not a big surprise. Unfortunately, Zynga’s core Facebook Inc (NASDAQ:FB) gaming business doesn’t seem lucrative anymore. So, what does Yahoo want from the company? A potential online gambling business.
Online gambling is a business where one person’s loss is really another person’s gain. H2 Gambling Capital, an analyst firm said that online gambling business was valued at about $34 billion, growing at an annual rate of 8 percent. The mobile gambling business was worth $4.4 billion.
Though online gambling represents just 10 percent of the total gaming business, there is enough room to grow and Yahoo! Inc. (NASDAQ:YHOO) is desperately searching for new ways to grow.
The Federal and state authorities have restrained online gambling activities; however, given the high potential of tax revenues, analysts say that legislatures are unlikely to suppress the digital gambling. In 2006, the government passed Unlawful Internet Gaming Enforcement Act that pushed many companies out of the business.
But the trends are changing. A number of states have legalized online gambling, including New Jersey, Nevada and Delaware. Zynga Inc (NASDAQ:ZNGA) is already positioning itself in the online gambling market in the United Kingdom.
Macquarie Equity Research said in its latest report that Zynga Inc (NASDAQ:ZNGA)’s stock is up 67 percent since the beginning of this year, including 10 percent gain on Monday. It said the stock is driven by Yahoo speculation and possibility of online real-money gaming. However, analysts think that Zynga is unlikely to be acquired by Yahoo! Inc. (NASDAQ:YHOO) anytime soon, as Mark Pincus is reluctant to sell the gaming company at this time.
Another factor that should be noted is that, says Macquarie, the long-term opportunity for online gambling business is still unclear, both in terms of potential size and timing. And the real-money gaming is unlikely to contribute to Zynga Inc (NASDAQ:ZNGA)’s 2013 earnings. It’s too early to say anything about the online gambling business.
Zynga Inc (NASDAQ:ZNGA) shares were down 3.97 percent to $3.78 at 10:25 AM EDT.
