After Changing Its Facebook Inc (FB) Deal, Does Zynga Have a 30% Downside?

In case you missed it, Facebook Inc (NASDAQ:FB) and Zynga Inc (NASDAQ:ZNGA) tweaked their current contractual arrangement last week, giving the social network the ability to develop its own games internally. With the move, Zynga is now free to stimulate “growth by cutting costs and focusing on mobile,” as CRO Barry Cottle said in an article by Bloomberg. While we haven’t seen exactly what the social gaming company’s plans are going forward, at least one analyst thinks buying in would be a “risky bet.”

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In an interview with CNBC this afternoon, Ken Sena of Evercore Partners wasn’t too bullish about Zynga’s recent Nevada gaming license application, which had investors feeling quite cheery today. Even though shares of ZNGA rose more than 7% in Thursday trading, Sena holds a $1.70 price target on the stock; it currently trades close to $2.50. That represents a downside of approximately 32% using this number.

Though he didn’t mention the Facebook Inc (NASDAQ:FB) side of things, Sena did have quite a bit to say about Zynga’s gambling prospects, sharing that:

“We really looked at it on a global basis, and there just are not a lot of countries where online gambling is legal, and there are a few states […] And where it is legal, it tends to have punitive taxes and it tends to favor sort of the brick-and-mortar legacy casinos because they provide more jobs and more tax revenues, so we see this as a long shot […] You’re also looking at a business that’s very risky, and you can have regulation sort of pull the rug out from under you at any time, and those stocks tend to trade at very low multiples too, which I think that investors don’t give credit to.”

On the plus side, Sena mentioned that he didn’t see Zynga as an outright short sell, but that he would tread cautiously at the moment. In our opinion, betting on the social gaming company because of a long shot gambling endeavor isn’t the best play, as we’d be far more excited to see specifically how the company can develop mobile in a post Facebook Inc (NASDAQ:FB) era. Let us know your thoughts on Zynga below, and if you’re buying in, or waiting on the sidelines at the moment.