Buying Zynga Inc (ZNGA) on Potential Catalysts

As the chart above shows, Groupon Inc (NASDAQ:GRPN) has gained significantly since the shift in the CEO position. At the end of 2012, the stock was performing worse than Zynga Inc (NASDAQ:ZNGA), but it has now rallied all the way to positive returns for the last year.

Online gambling

With a successful online poker franchise, investors naturally have hope that Zynga will be able to transition that success into online gambling. The company is partnering with bwin.party to launch online gambling overseas while waiting for clear regulation in the US. The partnership has already launched ZyngaPlusPoker and ZyngaPlusCasino in the UK.

Forbes columnist Nathan Vardi clearly isn’t a big fan of this move. He sees the hiring of Mattrick as a negative in this area and the fact that the majority of existing online poker players are under 18 and come from countries like Indonesia, as further negative signs.

With competition coming from casinos and bigger players in the gaming industry, is there any reason to expect Zynga to succeed in real-money gaming? The one benefit is that games such as poker can have a social impact that Zynga has already conquered, but whether that will transition to success with the big money players is yet to be seen.

Bottom line

Zynga has several catalysts that could push the stock higher though it faces an ever-increasing competitive landscape. Social gaming is more competitive while the user base is eroding. Online gambling is still a crapshoot that could die due to regulatory issues even before running into competitive pressures. With a cash hoard of over $1.5 billion, the company has the balance sheet and possibly the new leadership to usher it back into prominence. Investors should look into adding the stock on dips once this initial excitement over the new CEO wears off.

The article Buying Zynga on Potential Catalysts originally appeared on Fool.com and is written by Mark Holder.

Mark Holder and Stone Fox Capital Advisors, LLC have no positions in any stocks mentioned. The Motley Fool recommends Activision Blizzard. The Motley Fool owns shares of Activision Blizzard. Mark is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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