Social game developer
) recently signed a partnership deal with
), a cloud-based television services provider. Synacor's
cloud-based platform enables cable, satellite and telecom
companies to deliver entertainment services and apps to their
subscribers across multiple devices. The partnership will enable
subscribers to directly access Zynga's home page, games and
in-game currency beginning 2013.
Social games, which are mostly free-to-play, primarily earn
revenue from the sale of in-game currency that is used by players
to purchase virtual items, power-ups and energy while playing.
Zynga currency (also called credit) is used in most of its games
Words With Friends
Although the financial terms of the deal were not disclosed,
such as revenue sharing of the in-game transactions between the
two companies, we believe that the increasing usage of in-game
currency will boost Zynga's top-line growth going forward.
The partnership comes at an opportune time for Zynga. The
company recently lost its exclusivity to
), which is a serious setback, considering the fact that the
social networking platform has been its primary source of revenue
over the last few years (currently 85.0% of Zynga"s traffic and
92.0% of its revenue). The Synacor deal will not only reduce
Zynga's dependence on the Facebook platform but will also expand
its customer base going forward.
Synacor has a strong clientele of approximately 45 cable,
satellite and telecom companies that include names such as
Verizon and Charter. Its service reaches approximately 24 million
households who have access to high-speed Internet. We believe
that the partnership will allow Zynga to reach a sizable audience
over the long term.
Lately, Zynga has been criticized for the lack of new and
diversified gaming content, which is failing to attract new
users. We believe that increasing penetration will attract new
game developers, which will improve gaming content over the long
term. We believe that the deal will also promote Zynga currency
as a suitable alternative to Facebook Credit for many game
developers, thereby boosting in-game transactional revenue going
Over the last 12 months, Zynga has been entering into
partnership deals in order to gain momentum in the social,
free-to-play and casual gaming market. In October 2012, Zynga
entered into a partnership deal with Gibraltar-based online
gambling company bwin.party to offer real-money poker and
casino-style games in the U.K.
In May, Zynga teamed up with American Express and created a
new platform called Serve. In June 2012, the company announced a
new network (Zynga with Friends) and also started providing
programming tools to third party developers to publish online
mobile games. Zynga also announced partnerships with
) and Atari.
However, we note that growth from these partnerships will take
some time to materialize. In between, its games continue to lose
popularity and money amid stiff competition from established
players such as
). Further, the revised terms with Facebook (despite all Zynga
initiatives to reduce exposure) will remain an overhang on the
stock in the near term.
We remain Neutral on Zynga over the long term (6-12 months).
Currently, Zynga has a Zacks #3 Rank, which implies a Hold rating
in the short-term (1-3 months).
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