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Zynga's Last Desperate Gamble

Let's face it, Zynga (NASDAQ: ZNGA  ) fans. You're just waiting for the day when FarmVille and Zynga Poker are replaced by FarmYourWallet and regular poker, with real money and everything. Real-money gambling has been held up as Zynga's path to glory for months, especially after it's become evident that "social" games on Facebook (NASDAQ: FB  ) are not a viable long-term business model. Well, it's time to place your bets. The company finally filed paperwork in gambling haven Nevada to determine its eligibility for real-money gaming markets.

A report in AllThingsD says that the application process could take up to 18 months, with licensure taking another two to three months after that. Can you hold on for that long? It's only taken Zynga about nine months to drop from a market cap of nearly $11 billion to a market cap of about $2 billion. Since 2011's third quarter, Zynga's revenue has been flat, its net income has been consistently negative, and its free cash flow has gone from a small positive trickle to raging rapids of red ink.

Eighteen months is a long time. It's less time than Zynga's Mafia Wars 2 has been available on Facebook. The game, announced in September 2011, will be shut down at the end of this year. When a friend of mine pointed out the shutdown, my first comment was, "I didn't know they made it in 3D." His response: "Neither did anybody else." The game has fewer than 300,000 monthly users. That's a pretty brutal statistic for a game whose predecessor still has over a million monthly users despite being one of Zynga's earliest and most primitive games.

Let's not forget that online gaming isn't exactly a wide-open frontier. International Game Technology (NYSE: IGT  ) and Bally Technologies (UNKNOWN: BYI.DL  ) have had online gaming licenses since June. By the time Zynga gets anywhere with its application, the two companies are likely to have a two-year head start and a roster of well-heeled casino operators using its technology. Meanwhile, Zynga has to deal with a legacy, built up since it was a wee start-up clinging to Mark Zuckerberg's whale of a social network, of unfair designs in its poker games. If given the option between playing on, say, Ceasar's Entertainment's (NASDAQ: CZR  ) poker network and Zynga's, how many serious would choose the one that's generated so many complaints?

Today, Zynga's up on the hope that someday it might become a legitimate online gambling operation instead of just a purveyor of digital farming implements. If that happens, Mark Pincus might be able to move past labels like "worst CEO of the year." But 18 months is a long time in an industry where user attention spans are measured in minutes. Can you hold on that long? Can Zynga?

There's a lot to consider about Zynga's future, and the Fool's tech analysts have put together an exclusive set of premium research reports to help you understand this fast-moving company from all angles. If you're looking for a deeper dive into the company's gambling initiatives or are just interested in whether social gaming can recover from a weak year, you'll find answers in our research service. Click here to subscribe today.

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