Zynga Still a 'Risky Bet': Analyst
Although Zynga shares soared on Thursday following the company's announcement that it has filed an application for a Nevada gaming license, one analyst still sees the stock as a "risky bet."
"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," said Ken Sena, an internet analyst at Evercore Partners. "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."
Sena said he has a $1.70 price target on the company's shares along with an "underweight" rating. Zynga's online gambling opportunity represents 20 cents of this valuation. This price target is sharply lower than the $2.50 range that the company's shares were trading around after jumping 9 percent in midday trading.
"There is the potential for more value there so I'm not necessarily saying that this a short, but we still do continue to see this as sort of a risky bet so we are underweight on it," he said.
Sena values Zynga's core business at only 20 cents a share and its hard assets at $1.30. He added that the chance of gambling becoming legalized more broadly in the U.S. is "very slim to none."
"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," he said.
Regarding online gambling in Nevada, he said, "It's something that they're playing up. But I think, in truth, what matters a lot more is that they can just show that they have sort of the resources to build games that people really want to play, and that those games are kind of agnostic by device so that they do translate to mobile."
— Written by CNBC's Katie Little. Follow her on Twitter
Disclosure: Ken Sena does not own Zynga stock.