Technical Analysis by Rajiv Singh
Bitcoin’s lower transaction fees may prop up Zynga’s declining revenue
Bitcoin has managed to bag the headlines yet again in the new year after Zynga Inc. (NASDAQ:ZNGA), a leading provider of social gaming services, is testing the feasibility of allowing online players to make in-game purchases using Bitcoins, according to TechCrunch, which reported the news. In this regard, Zynga has forged a partnership with BitPay, a startup company that is touted to be the “PayPal of the Bitcoin World” and is backed by the Founders Fund and Li Ka-shing. As a result, online players of FarmVille 2, CastleVille, ChefVille, CoasterVille, Hidden Chronicles, Hidden Shadows, and CityVille will now be able to use Bitcoins to make in-game purchases. Following this interesting development, Bitcoin’s value has crossed $1,000 on the Mt.Gox exchange, according to Bloomberg.
Last 5-day price movement for Mt. Gox (USD)
Will Zynga be able to shore up revenues with Bitcoin?
Zynga has had its fair share of woes in the recent past and has been struggling to make profits since Q3 of 2011. Zynga is also experiencing a continuous decline in the number of active users. This is mainly attributed to the intense competition that the company has been facing in the recent past from bigger gaming players like EA Sports and Disney, which have recently entered the social gaming space, and newer experiences from other publishers like King.com and Supercell. As shown below, Zynga’s Q3’2013 results showed that its daily active users (DAUs) fell from 60 million to 30 million.
However, with its Bitcoin-based payments, Zynga is looking to provide the best gaming experience to its users and thereby increase its user base over the next few months. What’s more, Zynga is expected to increase its revenue since Bitcoin-based payments charge a lower transaction fee as compared to other currencies like the dollar.
Zynga’s users currently access the company’s gaming platforms through Facebook, Zynga.com, Apple iOS, and Google Android. Among mobile users, Zynga has a huge business on iOS devices. Hence, extending Bitcoin acceptance among iOS users could pose a huge hurdle, considering that Apple has recently said that it does not support Bitcoin-based transactions.
Increasing acceptance of Bitcoins
Despite the controversy surrounding Bitcoins as an alternative payment option, many companies are now gravitating towards the Bitcoin, giving in to the herd mentality. For instance, Victoria’s Secret has recently signed up with Gyft, an application that lets users buy gift cards with Bitcoins. Overstock.com plans to start accepting Bitcoins over the next few months. Moreover, a Bank of America (NYSE:BAC) report last month stated that Bitcoin could emerge as a strong competitor for other online money payment providers.
How far will Bitcoin’s value rise?
The price for one Bitcoin on 19 November 2013 was $541 and it crossed $1,200 by end of November. After being hailed as a revolutionary financial and monetary tool, Bitcoin’s value is back to $522 on 18 December 2013 after the People’s Bank of China decided to ban third-party payments of Bitcoin. And now, again, Bitcoin’s value is rising as more number of merchants are accepting Bitcoin payments. Showing startling resilience, Bitcoin is indeed generating positivity about the usage of digital money in current times after law enforcement and securities agencies said in US Senate hearings that Bitcoin could soon emerge as a legitimate means of currency.
WSA’s View on Zynga
In light of recent efforts towards Bitcoin-based payments, lower transaction fee, and Zynga’s ongoing efforts to focus on the mobile segment, WSA revises Zynga’s Q4 revenue estimate to $195 million, slightly higher than the high-end of Q4 2013 guidance of $185 million. Based on the DCF valuation technique, WSA values Zynga at $3.45. We expect Zynga’s valuation to change if it manages to get a new face for its gaming portfolio, which is very likely considering its past gaming innovations. Third-quarter releases like Fairy Tale Twist, Ninja Kingdom, and Hit It Rich have already been able to attract a considerable number of users, helping Zynga to enhance its user base in the upcoming quarters.