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Zynga starts UK online casino game; shares jump

Published: 14:05 03 Apr 2013 EDT

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Zynga (NASDAQ:ZNGA), the maker of FarmVille and other games, said it will run poker tournaments and casino games online in the U.K. 

 

Desktop and web versions of the games, ZyngaPlusPoker and ZyngaPlusCasino, are available starting Wednesday, the San Francisco, California-based company said in a statement on Tuesday. Mobile and Facebook flavours are promised to arrive later this year. 

The games will be powered by Bwin.Party Digital Entertainment Plc (LON:BPTY), the Gibraltar-based real-money game operator that reached a partnership with Zynga last year. Bwin will provide the gaming license as well as security measures, such as fraud detection.

Shares of Zynga, which has a market value of $2.78 billion, rallied 15 percent to 3.55, its highest level since March 19, at 1:34 p.m. in New York on Wednesday. The stock soared 30 percent this year through Tuesday.

Zynga has been seeking new ways for growth since Facebook Inc. (NASDAQ:FB) distanced itself from the gaming company last year. The company has posted full-year losses in the past two years.

Zynga's early hit FarmVille started on the social network, but then Facebook threw open its doors to other games makers and ended its exclusive relationship with Zynga

Zynga generates revenue currently by selling virtual goods within its games -- for example, a gun in “Mafia Wars” or a brick oven in “ChefVille.”

The new offerings have sparked mixed reactions from analysts. 

Brian Pitz, a Jefferies analyst, warned Zynga's move could have a minimal financial impact on the company for now, noting that the two games are only for the U.K. — a small market for Zynga — and only online, not on key Facebook or mobile platforms.

On the other hand, Zacks Equity Research said it believes the step "provides a huge growth opportunity for Zynga over the long term."

Zachs cited data available from Manchester, U.K.-based market research firm H2 Gambling Capital, showing global gambling industry’s total gross win is expected to grow 5.6 percent to $417.0 billion, of which 8.1 percent comes from online sources.  This is expected to increase approximately 10 percent by 2015. 

According to Zachs, Zynga is expected to expand its game offerings into other European countries such as Belgium, Italy and Denmark, where online gambling is permitted, in 2013. Moreover, Zynga has significant growth opportunities in the domestic online gambling market. Although online gambling remains illegal in major parts of the United States, states such as Nevada and Delaware have already legalized online gambling.

The U.S. market for online gambling may reach $7.4 billion a year by 2017, according to H2 Gambling. New Jersey, Nevada and Delaware had passed laws as of early March letting residents play in their states.

Zynga took a step toward online betting in the U.S. by filing for a preliminary finding of suitability for gaming in Nevada. It could take the game maker 12 to 18 months to become eligible for real-money gambling in the state, Zynga said in December.

Zynga has 17 "hold", 2 "strong buy", two "under perform" and one "buy" analyst recommednations, according to data provided by Thomson/First Call.

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