Why Zynga Will Crush 'Candy Crush Saga's' King Digital

NEW YORK (TheStreet) -- Candy Crush Saga maker King Digital may be scheduled to begin trading on the New York Stock Exchange (ICE) following an expected IPO this week, but investors may want to take advantage of Zynga's (ZNGA) recent price dip instead.

Yes, I understand the bullish thesis for King Digital and the addictive properties of Candy Crush Saga. My wife showed me how it's played and monetizes users.

I wouldn't spend any time -- let alone money -- playing Candy Crush Saga, but my opinion of the game doesn't factor into my evaluation of King Digital as an investment.

What I see is a company with a dependency on one game for 78% of bookings and more than 70% of its daily traffic. King Digital offers a lot of games, and as we can all see, it takes only one monster hit to strike gold -- for a while at least.

Our own Antoine Gara has already written about how King Digital's IPO is riskier than it may seem and raised questions about the company's reliance on one game that could be a fad.

WATCH: King Digital Hopes Investors Level Up to Buy IPO

In my view, Zynga offers a better risk-to-reward ratio as an investment.

Interest in getting a piece of Candy Crush Saga is naturally creating comparisons between King Digital, Zynga, Glu Mobile (GLUU), and others. Many are quick to point out that King Digital is profitable while Zynga and Glu Mobile are not.

Examining a company's financials is necessary and prudent, but limiting your opinion to past financial results is akin to driving using your rearview mirror.

Zynga is in transition with a new CEO and is changing its focus toward mobile and new games. No one knows to what degree the changes will affect the share price. What we do know is that the company hasn't reported earnings per share of more than 1 cent in the last six quarters and that the share price (recently about $5.00) reflects extreme pessimism.

Pessimism is understandable, but for investors who can look past where Zynga has been and focus on where it is now and where it's headed, there is a compelling bull thesis.

Zynga has a $4 billion market cap, no material debt, more than $1 billion dollars in cash ($1.25 per share), the No. 1 play-money poker site in the world, and an online gambling license from the U.K. This is a combination for explosive profit potential, but most investors haven't figured it out yet.

The company recently announced that the play-money social casino slots game Hit It Rich! now features Ted, the R-rated teddy bear with a sailor-inspired vocabulary. This follows the release of Riches of Olympus, another play-money slots game.

Play money isn't the same as no money, though. Both games allow players to spend real money on virtual coins, in the same way that Candy Crush Saga allows players to buy more turns. If that were the end of the story, there wouldn't be much to tell.

Play-money games are just the prelude to the real hidden value of Zynga. Zynga's leadership in play-money poker equates to a ready and willing list of users who will make the move to real money as soon as regulations and the company move forward. Zynga isn't working alone: Facebook (FB) allows users to bet real money on poker in the U.K.

Since January, I've offered several profitable trade ideas to gain exposure before the rest of the market catches on. I also updated RealMoney Pro on Monday with an option trade strategy after shares fell to less than $5 .

Zynga publicly announced and advised me that it's not pursuing real-money gaming. I don't believe it, and you shouldn't either. Sun Tzu's  classic The Art of War says, "Without deception you cannot carry out strategy..." I believe the company is keeping its cards close to its chest before it prepares its next move forward.

Real-money online poker is Zynga's No. 3 game in terms of revenue, and it doesn't include real-money casino games. Real-money gaming can easily scale to become 10-20 times (or more) as valuable to revenue and earnings as it is now.

There is simply too much money on the table for the company to ignore real-money gaming even if it wanted to, and I don't think for a minute it wants to let another company take it from them.

All Zynga needs is greater experience and an improving regulatory environment to maximize return. Along with the already available real-money games, the play-money Hit It Rich! and Riches of Olympus ensure a strong user base that can be monetized when the time is right.

Online gambling is gaining traction in several states and at the federal level. Don't expect the flood gates to open overnight, but they don't need to for investors to get a piece of the action.

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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