When it comes to Zynga (NASDAQ:ZNGA), investors only seem to care about one thing right now: real-money gambling.
The company’s Facebook (NASDAQ:FB) business has faltered, and Zynga still is trying to find ways to get traction with mobile games. But when it comes to real-money gambling, Zynga could be in an ideal position.
Good thing. Nevada just legalized it.
ZNGA shares have shot up nearly 20% in two trading days both on the news that Nevada gave a green light to real-money gambling over the Internet, and on the hope that other states — such as New Jersey, which has made moves in that direction — eventually will follow suit.
Zynga had applied for a gaming license in Nevada, which could be approved within a year or so. The company also previously struck a partnership with Bwin.Party Digital Entertainment, a provider of real-money gambling in Britain.
The U.S. market likely is the largest opportunity. Yes, other operators — including Glu Mobile (NASDAQ:GLUU) and Caesars Entertainment (NASDAQ:CZR) — are gunning for it, but Zynga could be the biggest beneficiary. Its Zynga Poker franchise has a staggering 26.4 million monthly active users, according to AppData.com, and it’s not unreasonable to think Zynga could get part of its user base to convert to real-money gambling.
BMO analyst Edward Williams thinks the revenue opportunity for online gaming could be “in the billions.”
If so, Zynga’s stock — which currently is inexpensive at a low 1x enterprise-value-to-sales ratio — could have much more room on the upside.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of “How to Create the Next Facebook” and “High-Profit IPO Strategies: Finding Breakout IPOs for Investors and Traders.” Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
A long-time follower of the IPO scene, back in 1999 Tom started one of the first sites in the space called WebIPO. It was a place where investors got research as well as access to deals for the dot-com boom. Tom also wrote the top-selling book, Investing in IPOs. In it, he covers all the aspects of analyzing an IPO, such as reading the prospectus, detecting the risk factors and understanding some of the arcane regulations. But don’t worry — if that process is too intimidating for you, thankfully Tom will do the legwork for you right here in the IPO Playbook blog.
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