Online gamer Zynga (ZNGA) took a beating today on news that they would no longer have as cozy a relationship with Facebook (FB). Business with the social media goliath made up roughly 80% of Zynga's revenue over the past several months, meaning this latest development will be troublesome for the already struggling company.
Eric Jackson, founder of Ironfire Capital, says that Zynga supporters are trying to put a positive spin on the news noting it "opens them up to look at other partners. I don't see this as anything but a negative for Zynga and a small positive for Facebook as well."
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If Jackson is right, is there any bullish case to be made for the San Francisco based gamer? "It's trading at its net cash," he points out, "so maybe they'll dream up another hit... It's a hits business and Farmville may be popular today but it's probably gonna be out of fashion six months."
Another possible, though risky expectation, is that Washington could soon legalize online gambling in the U.S. at which point Zynga would be well positioned to take a significant portion of the market share. But as Jackson points out, "why would you tie up your money on a hope and a prayer."
On the other side of the deal sits Facebook. It would appear that Zuckerberg and company are interested in expanding their own gaming footprint, particularly on mobile. The company's most recent earnings call featured plenty of talk minimizing Zynga and maximizing the idea of new gaming partnerships. "They're throwing a lot of stuff at the wall and they're hoping that some of it will stick," says Jackson.
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With Facebook casting away the little guy, can they succeed in the gaming when Google (GOOG) and Apple (AAPL) already have a foothold in the space? Here's how Jackson sums that up:
If you're gonna buy a mobile game you're gonna go to the App Store, you're gonna go to Google Play. Facebook says that they're gonna be a player here and they're gonna be sort of neutral and they're gonna dream up ways, I guess, that you're gonna be able to get online with your Facebook friends that are on their mobile devices. I just think it's a more complex thing. I am more skeptical.
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Jackson adds that to succeed, particularly in mobile, Facebook needs to worry less about gaming and more about being something other than an "app that sits on either Apple or Google."
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What do you think? Is this the beginning of the end for Zynga? Can Facebook make waves in gaming? Let us know on our Facebook page!
