Zynga’s shares are way up this week based on speculation that Zynga could expand into online gambling after the U.S. opened the door to possible legalization, according to a new research note by Sterne Agee’s Arvind Bhatia.We wrote that Zynga could have a billion-dollar opportunity if it expanded into online gambling based on the performance of other online gambling companies. Some recent changes in laws could open the door for online gambling games on platforms like Facebook, which represents a golden opportunity for the now-public social gaming company.
Bhatia, however, said that online gambling is a long-shot. Here’s what he wrote in the research note:
(Zynga) shares have been up 15% in the last week, in part, we believe, from speculation ZNGA may have an opportunity in online gambling if it is legalized in the US. We think this is a long-shot and highly speculative.
Based on Appdata, Daily Active Users (DAU) for Zynga’s games on Facebook in 4Q were down 6% to 51M from 54M in 3Q. This means ZNGA will need to convert an increasingly larger percentage of users into payers in order to grow.
Bhatia has set a price target of $7 for Zynga, and said it needs to expand its number of paying users if it wants to continue growing.