Zynga: Real Money King

| About: Zynga (ZNGA)

Zynga (ZNGA), a social gaming company, has been making efforts to revive itself. Back in October 2012, the company had announced a cost reduction plan by cutting employees, games and moderators as detailed in this article. However, the thing that has excited investors the most is Zynga's plan to enter real money gaming. The potential in social gambling is a game changer and has large upside for the company.

Reasons to Buy
In October, Zynga announced their exclusive partnership with Bwin.Party (OTC:PYGMF) to offer real money online Poker and Casino games in the U.K. market. Last month, the company filed a preliminary application to run real-money gambling games in the state of Nevada.
Zynga has an extremely strong balance sheet, with $1.32 billion in cash and only $100 million in debt. This equates to $1.69 per share. With ZNGA trading at $2.42, it is trading at no premium to book value. With other stocks like (888), whose sole focus is on gambling and gross profits, which sit at $148M, it shows how profitable entering into gambling will be. Pokerscout shows the 7 day average of poker players, with 2500 for 888 and 118,000 people for ZNGA. With only 10 percent (conservative) of current ZNGA Poker players converting to real money, they would have one of the largest poker sites in the world.

Envision IP has analyzed Zynga's recent patent holdings. Zynga now has 89 US patents and 36 patent pending applications. The recent patents all relate to gaming and gambling, which shows the direction Zynga is headed. 7559838: A game of chance allowing users to place wagers. 6843724: A gaming device ability to connect to a slot machine. They acquired over 30 patents from Walker Digital regarding online gambling and gaming, which also offers protection from competitors and potential for litigation or licensing of the patents to existing companies.

Zynga, at its current value, is also a buyout target for other gambling, internet and social gaming companies. With its stock price peaking at $15.91, and now trading near its all time low of $2.09, it is providing a great entry point for investors. The company has been reducing costs, acquiring new IP and starting to enter online gambling. There could not be a better time to enter with all the possible upside coming this year for Zynga. I see very minimal risk and great reward investing. With Zynga's giant cash holdings and the potential for online gambling, and a potential buyout if things turn sour, I do not see how the stock will ever travel below the $2 mark.

Summary & Conclusions

Zynga has already launched two landing pages in Zynga Poker & Zynga Casino, which will become home to 180 casino games and a large poker site on the BPTY network. The acquisition of the patents from Walker Digital indicates Zynga is shifting a lot of attention to real money gaming. The company is headed in the right direction as I believe they will have lots of success in their real money gaming operations. There is not one analyst recommending to sell Zynga which indicates the upside coming in 2013 for the company. Keep an eye out for earnings on February 5th which will give a good preview for the direction of the company for 2013.

Disclosure: I am long ZNGA, OTC:PYGMF. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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