With shares of Zynga (NASDAQ:ZNGA) trading at around $2.54, is ZNGA an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:
C = Catalyst for the Stock’s Movement
Have you ever been snow tubing? If not, you walk to the top of the hill with your tube, exciting about what the near future might bring. Then, you sit on your tube and go down the hill. There are several bumps along the way, but it’s a straight ride down. The adrenaline is pumping and you hope not to crash. If you’re a Zynga investor and you have never gone snow tubing, you at least have a pretty good idea what it might feel like. If you still haven’t caught on, take a look at ZYNG’s chart since its IPO.
Before we get to the good news that will end up being bad news, let’s take a look at some good news that is in fact good news. The industry has figured out that free download games where gamers pay for virtual goods or currency is the most effective monetization method. Slots, take-turn games, and simulator games offer the best results. Of course, Zynga will have an opportunity to profit off this trend. This will be in addition to advertising revenue.
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Now let’s get to the big news, which is real-money gaming. Zynga has already submitted papers to the Nevada Gaming Control Board. Zynga will also offer real-money games in the United Kingdom in 2013. So far, this looks like incredible news. However, the vultures are already circling from above.
Facebook (NASDAQ:FB) and Zynga might be friends now, but that won’t be the case in the future. Facebook is making it plainly obvious that it won’t need Zynga because it will offer its own games that will be just as impressive, if not more so. Facebook is just letting Zynga pave the way right now.
Facebook will also offer real-money games in the United Kingdom through 888 Holdings. Yeah, Game Over! For those of you not familiar with 888 Holdings, its reach is enormous on an international level.
And Facebook isn’t the only problem. Zynga wants to get approved for online poker in Nevada. If that happens, what do you think larger companies like Wynn Resorts (NASDAQ:WYNN), Las Vegas Sands (NYSE:LVS), and Caesars Entertainment Corporation (CZR) will do? South Point Hotel, Casino, and Spa is currently planning on its online poker room launch in Nevada, which should take place soon. Once it’s running, other casinos will follow This is in addition to former online poker rooms that are constantly trying to work their way back to the United States market.
Before establishing any opinions on what the future holds for Zynga, let’s take a look at some important numbers.