Zynga Gambles On Psychology

| About: Zynga (ZNGA)

In the fields of PokerVille, it's plowing time again.

Down more than 63 percent from its all-time high in March, Farmville maker, Zynga, Inc. (NASDAQ:ZNGA), is primed for growth. Current cash on hand and annual revenues at the online gaming company are now above the $1 billion mark. Debt is zero. Zynga describes itself as:

The world's leading social game developer with 292 million average monthly active users, or MAUs, in 175 countries.

Shares of the San Francisco-based company are flirting with all-time lows, as its stock continues to face headwinds related to the expiration of its IPO lockup period. The company's close relationship to the Flopbook IPO recently brought share prices to a nadir. Zynga accounts for 15 percent of Facebook's revenues.

Basic Human Psychology

When a college buddy wants you to connect with his Zynga Mafia team or when a soccer mom asks you to purchase a virtual tractor for her garden on FarmVille, you might consider buying Zynga's stock in addition to joining the online clubs.

This gaming company remains a long-term investment, because its services are addictive; and like most addictions, they're hard to break. Actor Alex Baldwin was so addicted to Zynga's Words with Friends that he was removed from an American Airlines flight. Since people tend to replay games and play games for long periods, Zynga platforms are perfect for pinpointing advertising markets. Add gambling to the mix, and Zynga is a beast.

States Need Online Gambling

PokerWorks.com reports:

The general opinion is that when one state finally makes the move and legalizes online gambling, all the rest will fall [in line].

It is going to occur. [State governments] need the revenue," said Richard Bronson, chair of U.S. Digital Gaming, which helps states implement legal gambling.

For the past year, the state of California has been working on various forms of legal online gambling legislation. According to Investor's Business Daily:

Tax revenue for online poker could top $5 billion in 10 years, estimates U.S. Digital Gaming. If gaming platforms were linked to social sites, revenue could nearly double to $9 billion.

Currently, Zynga is in talks with Wynn Resorts, Ltd. A partnership between the two companies would be the first licensed and legal site offering real money poker games online. Zynga currently has 35 million ZyngaPoker players. Zynga tells its advertisers that, "Targets get engaged. You get results. And everybody wins." If online gambling passes, everybody will win.

Especially the house of Zynga.

Disclosure: I am long (ZNGA).