Zynga Shares Rise 5% In After-Hours On Real-Money Games Launch Tomorrow

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Zynga’s shares are up by 5 percent in after-hours trading on news that the company is launching its first real-money games in the U.K. tomorrow.

The company is bringing ZyngaPlusPoker and ZyngaPlusCasino to U.K. players tomorrow through a partnership with bwin.party, one of the world’s biggest real-money gaming operators. At first, the games will be downloadable or on the web, but Zynga plans to bring them to Facebook and mobile platforms later in the year.

They could come to U.S. players later, but only as state or federal laws will allow. A handful of states, including Nevada and New Jersey, have passed legislation to allow online gambling. Under financial pressures from a long period of slow economic growth, about a dozen or more states are also considering pushing legal online gambling forward.

But many of these laws favor existing land-based casinos ahead of companies that are purely online. Zynga might be pressured to partner with a casino there to make it work, even though they filed an Application for a Preliminary Finding of Suitability from the Nevada Gaming Control Board last December.

As for the launch tomororw, Zynga’s U.K. arm and bwin.party plan to launch games that could include as many as 180 other casino titles like roulette and blackjack over the year. The poker title is basically an online poker room, while the casino title has about 160 familiar betting games.

Zynga already has a very successful Poker title on iOS and Facebook that uses virtual currency. Zynga Poker was the company’s very first social game, the highest grossing app of 2012 on the iOS app store chart, and Zynga’s second-highest grossing title last year behind FarmVille. The Zynga Poker title generated 19 percent of Zynga’s online game revenue last year, or $217.4 million alone, according to its annual report.

So if the company were able to add real-money gaming, which would increase average revenues per user substantially, it could change the character of Zynga’s business fundamentally.

The thing is that real-money gaming is incredibly competitive in the U.K. Even though revenues rise per user, so do marketing costs as real-money gaming companies are pressured to spend an order of magnitude more to lure the most lucrative players. Total revenues may rise, but it doesn’t mean profits increase proportionally.