Zynga begins to move away from Facebook and into online gambling

A report from equity research firm Evercore Partners cited that Zynga’s marketing costs on Facebook through paid channels is becoming more expensive. Zynga’s expenditures in traditional marketing are becoming less beneficial because of low lifetime customer value (LCV) on the users. Analysts also cited that Zynga’s ability to attract new casual game users on a cost-effective rate through Facebook platform is becoming negative, as the social networking giant becomes a more established marketing channel.

According to Evercore Partners, Zynga’s plan to enter the online gambling business is favorable for the company. Analysts from the research firm projects that the real-money gaming is worth more than us$ 135 million, and they assumed two things: 1) applies trailing 6x EBITDA and 11x P/E online gambling operator multiples to forward Zynga Inc online gambling estimates 2) assumes Zynga has 50 % chance of reaching top three operator level status internationally. Based on its assumptions, Evercore Partners believed Zynga’s stock value will gain 4 percent to 6 percent, or us$ 0.12 to us$ 0.17 per share, on the current stock price of the gaming company.

Evercore Partners compared the actual revenue per user (ARPU) generated from a casual gamer and online gambler. Based on the research firm’s study, leading online gambling companies generate us$ 31 actual revenue per user (ARPU) on poker games, while us$ 36 ARPU on casino games. On the other hand, Zynga’s actual revenue per user (ARPU) on casual games is only us$ 7.

The research firm noted that Zynga’s lower casual gaming ARPU is significant in considering the long-term strength of its business structure. Analysts noted that only 2 percent of casual gamers actually pay for “virtual goods.” It is difficult for the company to justify its traditional marketing costs.  Analysts explained that out of those 2 percent of casual gamers marketed to try its games, only 0.4 percent seeing Zynga’s ads might become actual paying users, which is not enough to support its traditional marketing costs.

The research firm estimated that Zynga’s online poker opportunity is approximately $150 million in annual revenue and us$ 30 million in EBITDA, based on the company’s actual poker players who are eligible, and possibly willing to play for real-money. Zynga Poker has the largest number of total players (36 million) worldwide, based on data compiled by the Evercore Partners.

On the other hand, Evercore Partners estimated that Zynga could generate us$ 140 million in annual revenues and us$ 30 million EBITDA in international online casino. Zynga has 26 million active casino users.

Analysts estimated that Zynga will generate approximately us$ 300 million in revenues and us$ 60 million in EBITDA in online gambling, if the company becomes one of the top-three online gambling operators in legal international markets for poker and casino games.