Breakout

Bet on a Zynga Rally: Najarian

Breakout

Against all odds and to the surprise of many Zynga (ZNGA) not only still exists as a public company but is also set to report earnings after the close. The Street is expecting a loss of 4-cents on revenues of $184 million. Truthfully anything on the happy side of a disaster coupled with thousands of lay-offs would constitute a moral victory for the former kings of Farmville.

Option Monster kingpin Jon Najarian remains a believer, in part because of Zynga's impressive balance sheet. The company still has somewhere around $1.7 billion in cash and a $2.6 billion market cap by Najarian's count. Ex the cash that puts Zynga's operational value at less than $1 billion for a company that takes in $130,000 every day from gamers.

None of which would matter if not for the fact that Zynga has spent much of the last year stripping out expenses and adding talent. At the end of last month Zynga founder Mark Pincus stepped aside and was replaced in the corner office by Microsoft's former Xbox head Don Mattrick, who was behind the development of the wildly successful XBox Live, a model Zynga hopes to emulate.

Perhaps the strongest argument for Zynga is the presence of a Silicon Valley VC legend.

"How about this: John Doerr," says Najarian of a man who actually may need some introduction outside investing circles. Doerr is mover and shaker at Kleiner Perkins Caufield & Byers, perhaps the most successful VC firm in the world. He was brought on the board as a Director of Zynga in April. Suffice it to say he's not a man given to associating with losers.

The truth is no one cares what Zynga reports tonight in terms of numbers. What the company has to demonstrate is a feasible plan to convince investors it's not just going to burn all its cash on more Farmville sequels and Facebook (FB) partnerships.

For the sake of Najarian's long position Zynga better be able to layout a persuasive road map.

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