The analyst in this story thinks Zynga could capture a 10% interest in a 1 -3 billion dollar mar, this translates into 100 -300 million dollars! Upgrades coming
SAN FRANCISCO (MarketWatch) — In the movie “The Color of Money,” Paul Newman tells us why people gamble on everything from the Super Bowl to how long it will take for a traffic light to change.
As pool hustler Fast Eddie Felson, Newman laid it on the line: “Money won is twice as sweet as money earned.”
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Paul Newman, The Color of Money
That philosophy might also be behind recent heavy betting on Zynga Inc. ZNGA -0.57% , built on a hunch the online social gaming company is about to cash in on moves to legalize Internet-based gambling in Nevada and New Jersey.
On Wednesday alone, Zynga’s shares climbed almost 5%, to $3.52 a share, a day after New Jersey Gov. Chris Christie signed into a law a bill that lets Atlantic City casinos run Web sites that allow betting on games such as blackjack and poker.
New Jersey’s move came five days after Nevada Gov. Brian Sandoval signed a similar bill legalizing interstate gambling online, which could take everyone a step closer to making Internet-based gambling, especially poker, accessible nationwide.
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And since Sandoval signed off on Nevada’s online gambling law, betting on Zynga has surged. The company’s stock is up more than 20% in less than a week.
For now Zynga, best known for its games “Farmville”, “Cityville” and “Zynga Poker,” can’t crank up the slot machines and take actual online bets in the U.S. [It is, however, set to launch so-called “real money” poker online in the UK via a partnership with Bwin.Party Digital Entertainment in the second quarter of the year]. But that isn’t stopping investors, or industry analysts, from betting Zynga will eventually see a payoff from the nascent market for legalized online gambling.
On Wednesday, Joseph Stauff of Susquehanna Financial Group said Zynga is “likely to attract strategic interest over the next year” as a U.S. online gambling asset. He points to the fact that the company already has about 15 million U.S.-based online poker players, many of whom could be converted into paying gamblers if the opportunity arises.
“We view significant value in its U.S.-based stable of players where scale is necessary,” Stauff said, in a research note. “And only Caesar’s and Zynga have ‘current’ databases of online players.”
Stauff also called that potential opportunity for Zynga “significant” because most casinos claim a “rake,” or percentage, of all the money put into poker pots of between 5% and 10%.
Of course, since gambling is the subject, the odds on Zynga being able to offer legalized online betting are not set in stone. The New Jersey law, for instance only allows bettors that are physically present in the Garden State to gamble online. And the law legalizes only the online gambling services of Atlantic City casinos.
Then again, the law signed by Gov. Sandoval sets up Nevada to enter agreements with other states to make online poker available, and it will charge companies a $500,000 licensing fee to offer gambling over the Internet.
And since anyone could at least theoretically pony up the cash for such a license, analyst Michael Pachter of Wedbush Securities said the potential for many players to get into the market may hinder Zynga’s ability to immediately become the king of legal gambling online. Pachter estimates that between all the other major online poker sites like PokerStars, Party Poker and Bodog, and existing casinos, “the market will be fragmented.”
“I think that the opportunity is $1 billion to $3 billion annually, but don’t see them capturing much market share,” Pachter said. “Ultimately, I think Zynga ends up with less than 10% of category.”
Still, given how investors have piling on Zynga of late, it seems the sweetness that could come from a winning bet on the company is one many are willing to make.
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