Facebook Needs to Place Your Bets
Karen is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
You’re sitting on Facebook’s (NASDAQ: FB) board of directors trying to figure out some way to turn around the company. Advertising revenue continues to fall and Limited Run now claims that 80% of their Facebook ad clicks were fraudulently done by bots. Per Facebook’s latest 10-Q filing, their fraudulent accounts now number 83 million. Inside investors, including PayPal Co-Founder Peter Thiel and venture capital firm Accel Partners, have dumped their stock shares, collected their millions and disappeared from Facebook's view.
Even your own employees are abandoning this sinking ship. The company has lost some major heavyweight employees, including Ethan Beard, Director of Platform Partnerships, Jonathan Matus, Mobile Platform Marketing Manager, and others.
So given all these problems, including your stock’s share price hitting new lows almost weekly, what’s the most intelligent, cost-effective solution to reinvent Facebook? Through online gambling, of course! Facebook is partnering with online gaming company Gamesys so British users can gamble online through Facebook’s site. The social media giant added Gamesys’ Bingo Friendzy app to their site, and Facebook plans to launch a Zynga powered real cash poker app next year.
Although it sounds absurd at first blush, developing their social gaming revenue may end up saving Facebook. Online gambling earned $144 billion last year, and Goldman Sachs estimates U.S. online gambling could be worth at least an additional $12 billion. Thanks to gaming company Zynga (NASDAQ: ZNGA), Facebook’s getting in on the ground floor should (when) state governments open their doors to online gambling.
Zynga’s spending $75,000 this August on state and federal lobbying to convince lawmakers that internet gambling should be legal. When Zynga first flirted with the idea of rolling out cash gambling games back in January, their stock broke out of the $7.00 range and jumped to a high of $14.55 in February. Zynga CEO Mark Pincus recently affirmed that the company plans to roll out their first online gambling game in the first half of 2013.
The numbers reveal how desperately Zynga needs online gambling revenue. Current profit margin stands at -41.73%. ROA: -17.23%. ROE: -40.52. Net income for 2010 at $90.595 million degenerated into a $404.316 million net loss for 2011. The current stock price is an anemic $3.17. The one bright spot is the companys’ $1.22 billion cash surplus against $100 million of debt.
Facebook's financials continue to disappoint. The company reported a loss of $157 million and earned $51.18 billion this quarter. The stock recently broke through the $20 barrier and now trades in the $19 range, which marks a steep drop from the IPO high of $48.00. Facebook needs to legalize online gambling every bit as much as Zynga.
But neither company has caught up to Apple (NASDAQ: AAPL). In 2010, Apple quietly added online gambling site Betfair, a downloadable app that works for U.K. and Irish Apple users, to the Apple Apps Store. But until now, Apple has refrained from taking a cut of the gambling revenue, a policy, however, they may soon decide to revisit.
With California and New York all but declaring bankruptcy, Facebook and Zynga are betting that states will soon legalize online gambling. At this point, it may be the last chance for states and companies alike to stop their free fall into further financial ruin.
kprogers has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple and Facebook. Motley Fool newsletter services recommend Apple and Facebook. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.