Online-Gaming Market About To Heat Up? Zynga Inc, Las Vegas Sands Corp., Glu Mobile Inc.
Tony Sagami: Casinos are increasingly cropping up all over the country, with states like Pennsylvania, New Jersey and Ohio looking to boost their revenues by adding, or providing more, local options for gamers.
To remain far ahead of its potential new competition, Nevada is now placing its bets on a new state law that is designed to shake up the gambling industry across the entire country.
Anytime there are big, disruptive regulatory changes, you should look for a way to profit from them … especially when they open up a new frontier of opportunity like Nevada’s bold new bet that, for many people, is already starting to pay off.
Casino revenues have been on the upswing in Nevada after belt-tightening consumers started coming back to the table. Gaming establishments across the state brought in almost $950 million in the month of December alone — up more than 23% year-over-year.
This made online-gaming stocks a good gamble in the past few months, with familiar Vegas Strip names like Caesars Entertainment Corp. (NASDAQ:CZR) and Las Vegas Sands Corp. (NYSE:LVS) stair-stepping their way higher as a result.
To keep that business intact, Nevada’s latest bet is designed to secure its place as the gaming capital of the world.
Plus, the state aims to open up this lucrative business to millions of people who don’t have to book a flight and hotel to Vegas, Reno or Tahoe — or even get in a car, for that matter — to rendezvous with Lady Luck.
‘The New Frontier’
“This is a historic day for the great state of Nevada. Today I sign into law the framework that will usher in the next frontier of gaming in Nevada,” Nevada Gov. Brian Sandoval said in late February.
That was when the Nevada legislature unanimously approved the legalization of online gaming.
Since then, New Jersey has also authorized Internet wagering, which adds legs to the Nevada initiative.
Sure, online gaming has been around almost as long as the World Wide Web itself. And you probably don’t go a full week without someone sending you an invitation through social media to join them in a game, even if real money isn’t at stake.
What is groundbreaking about this new law is that it makes online gambling not only legal within the state, but it also allows Nevada to negotiate agreements with other states to bring new gamers online.
Yup, gamblers in Maine, Florida, North Dakota … you name it … may soon be able to gamble online if their state signs up.
I expect we’ll hear about plenty more states rolling the dice with Nevada, because …
The Online-Gaming Market is Already Booming
According to analysts at Goldman Sachs, the legalization of online gambling in the U.S. could be worth about $12 billion. Morgan Stanley estimates that more than 170 million people are already playing simulated casino games on social networks.
Even-more-telling is the stampede of companies filing online-gambling permits with the state of Nevada.
A.G. Burnett, the chairman of the Nevada Gaming Control Board, said that 20 companies —casinos, social networks, equipment manufacturers, and software vendors — have applied for online-gambling licenses.
You can bet that even more companies are going to jump on board. More importantly, somebody is going to make a mountain of money from online gambling.
That “somebody” can be you!
First, the big Las Vegas casinos are going to benefit from — not be harmed by —online gambling. The reason is that the Nevada Gaming Commission will likely require the online casino entities to license “‘virtual tables” from existing casinos.
That’s extra revenue with very little investment or work.
More importantly, online gaming is going to expand the size of the pie. This is set to be a long-term positive for all the big Las Vegas casinos like Wynn Resorts (NASDAQ:WYNN), Harrah’s (which is in the Caesars family) and Las Vegas Sands.
However, the biggest winners won’t be the old, established Las Vegas casinos, but the new, nimble, Internet-based casino operators.
Here are some of the companies that could make a mountain of money from legalized online gambling.
- International Game Technology (NYSE:IGT)
- Bally Technologies (NYSE:BYI)
- SHFL Entertainment (NASDAQ:SHFL)
Bally, IGT and SHFL (formerly Shuffle Master) have already received licenses from the Nevada Gaming Commission to operate online gambling in Nevada.
Plus, IGT bought online game developer DoubleDown Interactive in January 2012, and just might have the best online platforms because of it.
IGT has jumped more than 11% year-to-date.
- WMS Industries (NSE:WMS) has a library of online slot machines. However, it just signed a licensing agreement with Sky Betting & Gaming, the online betting and gaming division of BSkyB Group (a UK television company). Its SkyVegas.com site is one of the most-popular online gambling sites in the world outside of the U.S.
- Melco Crown Entertainment (NASDAQ:MPEL) is one of the largest casinos in Macau (which is extremely profitable by the way) and has paired up with the very popular “Poker Stars” television series and will open a live poker room in the City of Dreams casino in Macau. Extending that relationship to an online venture in the U.S. would not be a big stretch.
MPEL is up nearly 12% year-to-date.
2 Potential Home Runs:
The law was just passed, so it will take time to see who actually comes out on top. But two companies that I think stand to gain the most are Zynga and Glu Mobile.
Zynga Inc (NASDAQ:ZNGA) is the biggest maker of online social games, which are mainly accessed through Facebook. In 2012, Zynga signed a joint-venture deal with Bwin.Party Digital Entertainment to offer real-money gambling in the U.K.
Zynga has already applied for a license with the Nevada Gaming Commission. But it could take 12 to 18 months before it can offer online gambling in the U.S.
Glu Mobile Inc. (NASDAQ:GLUU) is a company that most investors have never heard of, but it creates and sells online games for mobile phones.
Glu is one of the biggest names in the mobile-gaming space, and I expect that mobile gambling will ultimately be much-bigger than online gambling accessed by a personal computer.
Why do I say that? According to AppShopper.com, four out of the top 10, and eight out of the top 25, selling iPad games are casino/poker games. For iPhones, there are seven casino/poker games in the top 75 selling apps.
If you’re more of an ETF investor …
BJK is trading just below its 52-week high and is up nearly 5% year-to-date.
You should also take a look at Market Vectors Gaming ETF (NYSEARCA:BJK), which is the only gambling ETF available. It is heavily weighted toward Asian casinos with big positions in overseas companies like Sands China, Galaxy Entertainment, Genting Berhad and SJM Holdings.
It also has substantial positions in Las Vegas Sands, Wynn and MGM Resorts International (NYSE:MGM).
I’m not suggesting that you rush out and buy any of these stocks tomorrow morning. As always, timing is everything so I suggest you wait for my signal in The Asian Century.
However, make no mistake about it: Online gambling is here and it will be a hugely profitable industry. Invest in the right companies, and you can easily hit the jackpot.
Uncommon Wisdom (UWD) is published by Weiss Research, Inc. and written by Sean Brodrick, Larry Edelson, and Tony Sagami. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended inUWD, nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in UWD are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical in as much as we do not track the actual prices investors pay or receive. Regular contributors and staff include Andrea Baumwald, John Burke, Marci Campbell, Selene Ceballo, Amber Dakar, Roberto McGrath, Maryellen Murphy, Jennifer Newman-Amos, Adam Shafer, Marty Sleva, Julie Trudeau, Jill Umiker, Leslie Underwood and Michelle Zausnig.
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