logo
  Join        Login             Stock Quote

Zynga (ZNGA): A Game Worth Playing?

 December 07, 2012 02:38 PM


(By Kevin Donovan) Let's play a game called Trades with Friends.  We'll give you $1.69 for $2.49.  No deal?  How about, you keep the $1.69 and the potential to get another two bucks in a year's time.  That's the possible upside we see in shares of Zynga Inc. (ZNGA), the online social game developer.

Here's why:

  • The ratio of cash (the $1.69) to Zynga's share price is inordinately high, in our view, at about 68%, reflecting the relative lack of confidence in the company's growth outlook.  This compares with about 25% for most comparable companies and …
  • ….book value per share is $2.37.  The share price closed Thursday at $2.49….
  • ….which leads us to think the market is undervaluing growth prospects, given the company's preparation for "real money gaming" (RMG) in the U.S. and the possibility of acquisition by an outsider.

[Related -Zynga Inc. (ZNGA) Q2 Earnings Preview: Shareholders Hoping for Bad Data]

Make no mistake; this trade is RMG, too.  Zynga has traveled steeply southward since its initial public offering late last year at $10 year and a brief pop north of $15, as the chart below shows.

  ZNGA Stock Chart

Source: Finviz.com

But we think the stock price has probably priced in all the bear arguments and could appreciate significantly from current levels, particularly if RMG in the U.S. becomes a reality.  Zynga already has partnered with a U.K. gaming operator for RMG there, though the company has declined to offer guidance about that venture.  In the U.S., Zynga filed an application with the state of Nevada for a license to offer on-line RMG, but approval could take up to 20 minutes.

[Related -Candy Crush: About to Crush Investors?]

The stock took a beating recently on news its relationship with Facebook had been altered to allow Zynga to offer games on other sites, including its own, but also letting Facebook enter agreements with other game makers. 

Meanwhile, there is also speculation that Zynga could be an acquisition target (see here), as bigger companies look to buy a cheap gaming platform.

Put it all together – the cash, the RMG potential, the possibility of acquisition – and we think Zynga is a game worth playing.

Zynga Inc. develops, markets, and operates online social games as live services on the Internet, social networking sites, and mobile platforms. The company offers its online social games under the CityVille, Zynga Poker, FarmVille, CastleVille, FrontierVille, Mafia Wars, Words with Friends, Hidden Chronicles, Zynga Bingo, Scramble With Friends, Slingo, and Dream Heights names. Its games are available on various platforms, including Facebook and other social networks, as well as mobile platforms, such as Apple iOS and Google Android worldwide. The company was formerly known as Zynga Game Network Inc. and changed its name to Zynga Inc. in November 2010. Zynga Inc. was founded in 2007 and is headquartered in San Francisco, California.
iOnTheMarket Premium
Advertisement

Advertisement


Post Comment -- Login is required to post message
Name:  
Alert for new comments:
Your email:
Your Website:
Title:
Comments:
 

rss feed

Latest Stories

article imageBuffett's Market Indicator Flashes Red, Prepare To Sell

With each passing month, it's becoming evident that the current bull market has slowed from a gallop to a read on...

article imagePBoC joins other major central banks with unconventional monetary policy action

Softer than expected economic growth in China (see discussion) has finally spurred the PBoC into action. read on...

article imageA Buyback Boost?

Are stock buybacks the only thing keeping this bull market read on...

article imageGold Slides On Perfect Storm For Dollar

For all the anticipation surrounding the delivery of the Fed’s statement in the run-up to the September read on...

Advertisement
Popular Articles

Advertisement
Daily Sector Scan
Partner Center



Fundamental data is provided by Zacks Investment Research, and Commentary, news and Press Releases provided by YellowBrix and Quotemedia.
All information provided "as is" for informational purposes only, not intended for trading purposes or advice. iStockAnalyst.com is not an investment adviser and does not provide, endorse or review any information or data contained herein.
The blog articles are opinions by respective blogger. By using this site you are agreeing to terms and conditions posted on respective bloggers' website.
The postings/comments on the site may or may not be from reliable sources. Neither iStockAnalyst nor any of its independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. You are solely responsible for the investment decisions made by you and the consequences resulting therefrom. By accessing the iStockAnalyst.com site, you agree not to redistribute the information found therein.
The sector scan is based on 15-30 minutes delayed data. The Pattern scan is based on EOD data.