Zynga Inc (NASDAQ:ZNGA) shares have been under-performing since its IPO, as the company has failed to produce a profit even though the company earned around $150-200 million in revenue. Zynga has launched some new titles such as Zynga Poker, Words with Friends and Farmville, but still could not generate profits. However, a report from Seeking Alpha by Sneha Shah argues that the stock is worth a closer look because of several factors discussed below.
A mobile dominated company now
Zynga needs a big hit title to generate a momentum, which could come soon as the company has a number of games in the making. Words with Friends earned a massive player base, and there is a dire need of just another title to upgrade the ratings on Zynga to Buy, says the report. As of now, shares are trading far below its all-time high of $14 and 52-week high of $5.9. The gaming market is seeing aggressive growth across the globe with the rise in the sales for smart phones and tablets.
In the third-quarter, Zynga achieved a milestone as its mobile bookings surpassed the non-mobile bookings for the first time. Mobile bookings surged more than 110% year over year, indicating that Zynga has achieved its target of becoming a successful mobile company, similar to tech-giants like Facebook, Google and others, whose revenue are largely related to mobile.
During the earnings call, Zynga noted that the company has exhibited its capacity to grow its cross-platform capabilities with mobile constituting 55% of total bookings compared to 50% in the second-quarter.
Zynga attractive at current price level
Shah notes that the current valuation for Zynga is not expensive, and the company has a lot of cash on its balance sheet. The more than $1 billion in cash could be used for acquisition or development of other strategies. “The stock also has a limited downside given the cash,” notes the report.
The report also lists down a couple of risks associated with Zynga Inc (NASDAQ:ZNGA) such as declining MAUs and an expected loss in the fourth-quarter.
The social game maker has failed to earn a profit and has been in a transition period over the past few years. So although the stock may appear risky, with the fast growing mobile game market, the game maker seeing upside in core franchises and cash in reserves, Zynga seems a “good bet at the current price though for investors with a high risk appetite only.”