Zynga's (ZNGA) all-in bet on legalized online gaming just might pay off after all.
As discussed on Breakout last month, the former kings of Farmville are hoarding the more than $1.5 billion in cash in hopes of surviving long enough to get a seat at the table of the huge potential market for online gambling in the U.S. With UltimatePoker.com up and running in Nevada and similar sites on the way in New Jersey, Zynga's move may not be as much of a long-shot as it once seemed.
The U.S. gambling market is estimated to be $380 billion, of which only $3 billion is legalized. The government is going to figure out a way to tax the rest. The question is whether or not Zynga will capture its share as gaming is slowly legalized.
Jon Najarian, co-founder of OptionMonster.com, says Zynga's track record and management gives it an edge. "Anybody that can get people to buy virtual farm animals can probably get a piece of that $380 billion," he says, adding "I like Zynga's chances."
Maybe. So far Zynga got aced out of online poker in Nevada and has put up a poker site in the UK that's virtually indistinguishable from dozens of others. As Najarian concedes, the company has to step up its game to distinguish itself from other table gaming and sports books that will be online as more states follow New Jersey and Nevada.
Najarian made a great call on ZNGA during his last visit, scooping them up below $3; more than 10% below where shares are trading today. He's doubling down now.
"I think it could be over $5 by the end of the year and if any breakthrough happens before the end of the year it could be closer to $10."
It's hard to say for sure but it doesn't seem like Najarian is bluffing.