If you ask most casual observers about Zynga (ZNGA), they will probably tell you that its future stock growth depends on whether or not online gambling restrictions get eased in more states.
Well, most would probably say Zynga is doomed. That's the dominant narrative when a stock has been beaten down as much as Zynga since its IPO.
However, the stock recently perked up from its all-time lows a few months ago. Here are three reasons for the change:
They met lowered expectation on their January earnings call.
Nevada and New Jersey loosened online gambling restrictions.
A Kara Swisher article mentioned them as a potential acquisition target by Yahoo (YHOO).
There's no doubt that online gambling could be a big positive for the stock. If it happens, it will undoubtedly be a big positive for them -- whether Zynga gets into it on their own or if they only do lead generation for a partner like one of the big casinos.
However, I think the key for Zynga stock this year and next will hinge on two other key points and whether they're able to execute against them.
Job one is to prove to the world that they can keep creating (or buying) hot social games that are perfect for the mobile environment. I think their track record is pretty good so far, but it's still early. The balance of 2013 will tell the tale on this score.
Beyond that, they need to prove out the viability of something they call the Zynga Network. What is that? On the web, Zynga basically layered itself on top of Facebook (FB). That was super-effective. It's hard to believe how quickly they were able to grow by piggybacking that way.
Then mobile came along -- quickly -- and freaked everyone out. How can Zynga have a platform across all mobile devices? How do you give people a common experience across phones? How do you make them want to get a set of experiences out of a Zynga game that's even better than a stand-alone hot mobile game (like Angry Birds or something else) that might exist? That's the idea behind a "mobile platform." They are trying to deliver this on something they call the Zynga Network.
Ultimately, investors will need to see proof of mobile engagement across a number of Zynga games as proof that they have been able to create such a platform. Is there evidence of increasing mobile audience? Is there better retention of gamers?
If Zynga can continue to bring out new games and prove that they can increase their mobile audience, that will be a bigger driver of the stock than any online gambling change in legislation. Watch for this kind of milestone from the company.