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It has been a while since I last looked into Zynga (NASDAQ:ZNGA) and the current market landscape surrounding it. My last article I wrote for Seeking Alpha, I recommended it was an opportune time to buy Zynga's stock and shortly after it rallied 20% in the following days. I will now provide you with more insight into ZNGA and its current targets and future catalysts.

Current Outlook

Since I last looked into Zynga, Morgan Stanley downgraded shares to underweight and Piper Jaffray downgraded their price target on Zynga from $3.50 to $3.25. While Morgan Stanley believes real money gambling has great potential opportunity for Zynga, they believe it will take until 2014 for them to capture the market, hence the reason for their downgrade. Zynga's stock tanked in early June when news came out that they were laying off 18% of their workforce, dropping 50 cents or 15% in less than an hour. Such news put the stock in a downward cycle as it headed down another 50 cents, bottoming out at $2.50, where it currently sits, from $3.50 at the beginning of June.

In the online real money gambling space, the first company that received approval to open a poker site in Nevada, Ultimate Poker has launched. They have not been able to capture substantial market space, however, with just 300 average users playing real money cash tables. While they have a head start on Zynga with their approval to open, they have struggled since opening due to a lack of a pre-existing user base as well as being relatively unknown to the market. Meanwhile, Zynga averages over 65,000 users playing Zynga Poker, who buy chips that have no real monetary value. This speaks volumes for the popularity of Zynga's online poker. Also in the news, a federal bill known as The Internet Gambling Regulation, Consumer Protection and Enforcement Act of 2013 has been introduced that could legalize real money gambling through all of the United States of America, which could only further help Zynga gain market share. Zynga has also recently announced that is has acquired Spooky Cool Labs, a studio with many real money gaming veterans, who develop high quality social slot games for Facebook (NASDAQ:FB) and iOS. The founder of Spooky Cool, Joe Kaminkow, is ranked in the top 10 most influential people in history of slots, therefore known as a legend to some users.

Zynga has shown positive signs, showing net cash position of $1.57 billion at the end of Q1, equal to about 72% of Zynga's current market cap. The stock is trading on pure cash value, valuing the company at almost $600 million less than half of its cash pile. With news out recently that Zynga's games will be pre-loaded onto all Acer (OTC:ACEIY) PCs, it is starting to provide some relief to this heavily hit stock.

Technical Analysis

The reason I have previously recommended buying Zynga at lows and selling into rallies upward to the $3.50-$3.60 level is that in the short-term we can capitalize on the volatility and news moving the stock while waiting for international launch of their full real money gambling products. Even with the market currently entering in correction mode, ZNGA is trading almost at cash value and any further downside below $2.50 is not likely, which is a key support level. The RSI has always been a good indicator (noted in green on the chart) and it put in a nice bullish engulfing candle yesterday off of the support. A great entry point would be buying on weakness today or as close as possible to support at $2.50.


(Click to enlarge)

Conclusions

With Zynga positioning itself to get a large chunk of the upcoming online gambling space in 2014-2015 when legislation comes into place, they should be ready to launch and be a top competitor. Buying Zynga at these very cheap prices after the stock fell 30% in June will provide for a good long-term position at a bargain. There is not much downside you can experience at these prices and buying now should lock in very large future gains for you.

Source: Zynga: A Long-Term Investment