The legalization of online gambling in New Jersey gave a boost to shares of Caesars Entertainment Corp and Boyd Gaming Corp, on expectations that this will revive business in Atlantic City, the second-biggest U.S. gaming destination.
The companies, which together account for more than 60 percent of Atlantic City's gaming revenue, would benefit from new gaming rules that give preference to existing New Jersey casino operators in issuing online gaming licenses.
New Jersey Governor Chris Christie on Tuesday approved online gambling for the state's 9 million residents in a bid to boost state revenue and regain customers who have chosen to gamble in Pennsylvania and New York.
Shares of Caesars Entertainment, which runs four New Jersey casinos -- Bally's Atlantic City, Caesars Atlantic City, Harrah's Resort Atlantic City and Showboat Atlantic City -- rose nearly 6 percent in early trade, before paring some gains to trade up 2 percent at $12.37 on the Nasdaq.
Shares of Boyd Gaming, which operates the Borgata Hotel and Casino resort, were up nearly 4 percent at $6.74 in afternoon trade. They had risen as much as 6 percent earlier in the day.
"We think (online gambling in New Jersey) is going to be beneficial not only to our company and other operators but it will also help expand and possibly reinvigorate the market by introducing games to potential new customers," said Gary Thompson, a Caesars Entertainment spokesman.
Morningstar analyst Chad Mollman, however, said the impact of the new legislation was already built into Caesars' stock, which has doubled since November.
Mollman cautioned that it would take 18 to 24 months for online gambling to impact the company's results.
"(The delay) has to do with New Jersey regulations, they need to get a license. It is going to take time for operations to logistically run," Mollman said.
Most of the other stocks that benefited from the New Jersey announcement were online gaming companies that have the technology to launch these services in the United States.
Shares of UK-based bwin.party, the world's largest listed online gaming group, closed up 8.9 percent at 153.91 pence on the London Stock Exchange on Wednesday.
It was one of the top gainers on Britain's mid-cap FTSE 250 index during trading hours, with volumes double its 90-day daily average.
Shares of 888 Holdings, a partner with Caesars Entertainment, closed up 4.3 percent at 158.5 pence.
Social gaming company Zynga Inc's shares were up 5 percent at $3.53 on the Nasdaq.
Zynga was one of several companies, including casino games makers SHFL Entertainment Inc and International Game Technology, that have been preparing for the launch of online poker after the Justice Department ruled in 2011 that only online betting on sporting contests was illegal.
Gavin Isaacs, the chief executive of SHFL, which holds an online poker license for Nevada, said he expects the revenue impact from online poker in the United States to be marginal in the current year, even if it were to start tomorrow.
"I think the bigger impact for us will still be from tables," Isaacs said.
But the floodgates are opening.
Nevada became the first U.S. state to legalize online poker last week.
And the California and Mississippi legislatures might do the same in the next year, Mollman said.
(Reporting by Siddharth Cavale and Aditi Shrivastava in Bangalore; Editing by Saumyadeb Chakrabarty)