Zynga is not going to pursue a licence for real-money gaming in the US, the company confirmed in its Q2 results announcement yesterday.
“While we continue to evaluate our RMG products in our UK tests, we are making the focused choice not to pursue a licence for real-money gaming in the United States”, chief operations officer David Ko said in the Q2 earnings call that followed.
Ko said the “change in strategy” had been shaped by the need to stay focused on “the biggest opportunities that leverage our DNA in social and free to play.”
When pressed by analyst Arvind Bhatia of Sterne Agee why the company just didn’t “keep it on as a consideration over the coming quarters and then test it out in the US”, Ko added that the company had not been “executing” against “the social gaming, free-to-play opportunity which continues to grow.”
Zynga - whose Texas Hold’Em Poker is the largest online poker game in the world with close to 27 million monthly actives worldwide - had been widely expected to pursue real-money licensing in its main US market, with a view to eventually attempting to convert its huge social and free-to-play audience on Facebook.
Ko’s comments in relations to the disappointing performance of Zynga Poker in the quarter however made it crystal clear he saw little opportunity in a real-money sector showing clear signs of decline, stating that while Zynga Poker had been hit by competitors “closing the gap” and the illegitimate market in poker credits:
“Performance is also being impacted by declines in web poker as users shift more quickly to mobile, and more casual, social casino games such as slots.
“The upside is that the mobile poker market overall is growing and we see growth opportunities at more casual level on the social casino spectrum on both web and mobile.”
The senior management’s strategic U-turn also suggests they weighed the available evidence in relation to conversion rates from social to real money play, and decided they did not present a signficant enough oportunity. Further, that the type of regulation in the US that would allow Zynga to pursue such an opportunity in earnest is so far away that it does not need to be in the real-money space yet.
Three individual US states have passed enabling legislation for online gambling – Nevada, New Jersey and Delaware – but US-wide federal regulation still looks a distant possibility at this time. Zynga had applied for a Nevada licence.
Bwin.party’s revenues from the recently launched Zynga Plus poker and casino real-money platforms it provides in the UK are likely to be incremental at this time. However, Zynga’s decision regarding the US could herald a premature end to the companies pursuing real-money opportunties together in other regulated markets.
Investors were however less than enthusiastic about Zynga’s decision, the share price falling nearly 14% in after hours trading.
