Is this Company Playing No Limit with its Future?
Margie is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Facebook (NASDAQ: FB) recently introduced bingo, to its British site. “Bingo Friendzy” as the app is named, is a venture with Gamesys, a large provider of British gambling software. Though you must be of 18 years of age to play, as is British gambling law, the app still features cute furry animals on its Facebook page.
The deal is that Gamesys will manage the app while Facebook promotes it, and slot machines will be arriving "within weeks." Zynga (NASDAQ: ZNGA), Facebook's "longtime" partner, has announced that it will introduce real money versions of poker and bingo for its players as well, something they have been dying to do for some time (and preparing for as well). In fact, according to this article in Business Week, "Zynga Inc. hired Maytal Olsha, a former online-gambling executive, as its chief operating officer of new markets, ahead of the game maker’s plans to offer real- money wagering next year."
So Facebook is now in the gambling business. Although Mark Zuckerberg has repeatedly told investors that only the long run concerns him, and urges investors to look beyond the results of the most recent quarter, the simple truth is that the U.S. stock market operates on a much shorter timeframe. The problem for Zuckerberg is the fact that many of his employees have stock options vested at $24 a share. These options are, of course, substantially under water.
Stock, I'm sure, was the primary reason that so much talent defected from Google (NASDAQ: GOOG), Microsoft, and other large tech companies. I seriously doubt that many of them jumped ship because they believed in Facebook's ethos. Even looking only at the long run, in order to retain your talent the short run does matter. Raise the short term stock price, or risk losing his talent back to Google and Softy. That is the unfortunate dilemma that "Long Run Zuck" is faced with.
(Note: If Google were to enter the gambling business, promoting it on Google+, it would run directly in the face of the company's mission: "Do no evil." Now back to our story ...
Having introduced gambling to his British market, it's certainly a logical step that the same will take place back across the pond, here in the United States. The challenge- currently U.S. law prohibits gambling. However, the ban of Internet gambling is breaking down. The U.S. government is losing tax revenue, and the Obama administration has already opened the door for individual states to set their own laws. Nevada has already passed poker legislation, and it is also being considered in California. There's no doubt in my mind that other states will soon follow suit. When will it become legal? No one knows for sure, but the additional tax revenue at a time when almost all states are mired in debt, will prove to be irresistible.
I'm anticipating in the future, that in addition to bingo, Facebook might become the largest poker network in the world; featuring huge pools of players in gigantic no limit hold'em poker tournaments. I'm not sure if Zuckerberg will push all in, and allow a full-fledged poker site with high stake cash games, or even individual tables as it would detract from the "cute, cuddly" image that I believe Facebook is striving for. However, the amount of revenues they would take in from hosting the tournaments might be too tempting to pass up, assuming Mark wants to keep his talent, which will require bolstering his sagging stock price.
The U.S. legalizing poker is not so much theoretical for me, as much as a question of when. So, based on Facebook's recent actions in the United Kingdom, I anticipate that many of you, sometime in the future, will be trying your luck playing no limit tourneys via Facebook.
The mere possibility of these additional revenues, which will have very high profit margins, bolsters the underlying support in terms of buying stock at these levels. I don't think that Zuckerberg intended for Facebook to become a gambling site, he has stated over and over that he is committed to the social benefits that Facebook will give the world. The decision to go down this road is merely pragmatism on his part.
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margiecfl has no positions in the stocks mentioned above. The Motley Fool owns shares of Facebook. Motley Fool newsletter services recommend 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.