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Zynga Remains Incredibly Cheap

Zynga is the most popular play money poker site, and as new markets open (the whole world is waiting for Zynga) to real money, so will revenue and profits. We don't know how long it will take for more states to approve online gambling, but consider the delay part of the reason why shares are trading as low as they are right now. Zynga is growing non-poker online gambling, and within 24 months I expect online gambling to comprise over 50% of revenue and bottom line net.

In the meantime, last quarter's numbers were strong. The company generated bookings of $147 million and adjusted Ebitda of $3 million. On an adjusted Ebitda basis, the company produced a full-year profit. The Words With Friends franchise revenue grew 33% sequentially, the best in its five years online.

According to Zynga's press release, it expects the first quarter of 2014 will pivot towards a turnaround and by the second quarter the company will begin growing again. With cost savings and expanding gambling, I don't see a reason why shareholders shouldn't expect a return to profitability in the second quarter and 2014.

The company experienced an 8% user growth in mobile poker, and overall, the casino business is growing. A new mobile slots game titled Hit It Rich became available near the end of 2013. Hit It Rich is the number one free iOS download in the casino category. Mobile slots are popular and Zynga is delivering its next slots game titled "Riches of Olympus" in a couple of weeks.

It may take the market considerable time to figure it out, but that's to your advantage as it allows accumulation of shares while still cheap. I added shares before the announcement and after. I think when the company begins announcing new online gambling markets Wall Street will take notice.

At the time of publication, Weinstein is long Zynga.

Follow @RobertWeinstein

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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