This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Zynga Gamble a Worthy Bet

Stocks in this article: ZNGA EA ATVI CACQ CZR IGT FB UBS

NEW YORK (TheStreet) -- After Zynga's (ZNGA) robust earnings report, the online game maker shares catapulted higher. I think the stock is at the very beginning of a journey upward. I first posted my bull thesis in Real Money Pro in an update including what price to buy at and a one-year price target of $10 or more.

The analysts following the company are holding the window of opportunity open for you. TheStreet's Chris Ciaccia reported some comments from several analysts in his Jan. 31 piece on Zynga's surge. According to Ciaccia, BMO Capital Markets rated the company as a hold with a price target of $3.50, underperformance predicted from Credit Suisse with a $4 price target, and Jefferies was somewhat neutral with a market perform $4 price target.

Not listed in the article is my favorite, by Sterne Agee almost a month ago, that sent shares racing lower on Jan. 16. The analyst can be forgiven for incorrectly estimating the fourth-quarter results. Ten days later, Zynga made every squeezed short seller holding wish they covered into the fall.

While all analysts use the best metrics available and calculate earnings estimates, Sterne Agee and the rest fail to understand that next quarter and comparative bookings overall are not the way to value Zynga.

The company is more accurately valued as an online real-money poker and gambling site. Instead of comparing Zynga to Electronic Arts (EA), Activision Blizzard (ATVI) and others in the multimedia and graphics software industry, investors should begin comparing and analyzing Caesars Acquisition Company (CACQ), Caesars (CZR) and International Game Technology (IGT).

Granted, most of the revenue as of the last earnings release is generated from non-gambling games, with most of these players arriving through Facebook (FB), but there is no reason to think it can't morphing from a caterpillar of miserable performance into a gorgeous profitable butterfly. In the span of two short quarters, online gambling already matured into about 25% of Zynga's game revenue.

UBS (UBS) recently upgraded Zynga to a buy with a $6 price target. While I give UBS credit for the upgrade, the motivation appears to miss the mark. Stabilization of core operations, new management and cost reduction measures are highly encouraging, but where are references to the incredible growth and earnings potential?

1 of 2

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 17,804.80 +26.65 0.15%
S&P 500 2,070.65 +9.42 0.46%
NASDAQ 4,765.38 +16.9840 0.36%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs