Is Zynga (ZNGA) A Buy?
The Dynamic Wealth Report
December 19, 2011
by Robert Morris, Editor
One of the most highly anticipated IPOs of the year happened late last
week. Shares of Zynga (ZNGA), the self-styled world leading social game
developer, began trading publicly for the first time on Friday.
The company raked in a whopping $1 billion from the IPO.
They issued 100 million shares (14% of the company) at an IPO price of
$10 per share. Zynga plans on using the IPO proceeds to acquire
additional start-up mobile game developers.
-------------Sponsor-------------
Where Can You Turn $300 Into $1.3 Million Right Now?
Our own small-company specialist, Robert Morris, has found a
way to 'sniff out' tiny penny stocks on the verge of a major breakout. And
the timing for this has never been better.
You see, the system takes advantage of an obscure SEC regulation that
sends penny stock prices through the roof.
We've seen some stocks gain 852%... 5,450%... even 17,496% in no time
flat.
Click here
for the details...
-----------------------------------
Now, whenever a company is able to raise a billion dollars through an
IPO, it's a huge success. But Zynga shares did not see any follow
through once the shares opened for trading. After briefly moving up to
$11.50 a share, the stock plunged to a low of $9.00.
The stock ended up closing at $9.50, a surprising 5% below the IPO
price.
Not the big first day pop many analysts and investors were expecting.
After the strong first-day showings from other web IPOs this year, many
believed Zynga would follow suit. You may remember LinkedIn (LNKD) more
than doubled in price on their first day of trading. And more recently,
Groupon (GRPN) surged 31% in their opening debut.
Investors had been salivating over the prospective IPO for months.
You see, Zynga is the creator of some of the most popular and most
successful video games available on Facebook. So, the IPO has been
viewed by many as the first opportunity to invest (albeit indirectly) in
the social media juggernaut.
Of course, Facebook is currently valued at around $100 billion and
rumored to be planning a $10 billion IPO for sometime in 2012.
If you use Facebook, you've probably seen, played, or heard about
Zynga's games. They're the masterminds behind incredibly popular titles
like CityVille, FarmVille, Mafia Wars, Words With Friends, and
Zynga
Poker just to name a few.
How popular are Zynga's games?
According to the company's prospectus, Zynga has the largest player
audience on Facebook with more monthly active users than the next eight
social game developers combined. They've launched the most successful
social games in the industry in each of the last three years. And the
company has generated over $1.5 billion in cumulative revenue and over
$2 billion in bookings since the company's founding in 2007.
That's a pretty solid track record of success.
Of course, the key to Zynga's early success is no doubt their dominating
presence on Facebook.
Right now nearly all of the company's revenue is generated from players
accessing Zynga's games through Facebook. But that's no small thing.
Remember, Facebook has over 800 million members worldwide. And they're
adding over eight million new members every month.
You don't have to look very far to find evidence of the company's
success. Just take a look at the company's performance over the first
nine months of 2011.
Revenues have more than doubled over the prior year period to $829
million. And the company's pulled in more than $30 million in net income
so far this year. That's right, unlike the other hot web IPOs this year, Zynga is already turning a profit.
And the outlook going forward is very bullish.
At least one market analyst is projecting huge growth ahead for Zynga.
Gartner recently said they expect Zynga to generate revenues of over
$11.4 billion... by 2014! That's a projected eleven-fold increase in
sales over just the next three years.
So, should you buy Zynga right now?
No question about it, the shares are carrying a lofty valuation at
current prices. With a market cap of $2.7 billion, ZNGA is trading at
2.7x sales. And they're carrying a hefty forward P/E ratio of 59x the
2012 estimate of $0.16 per share.
Both metrics are quite a bit higher than those of leading video game
maker Electronic Arts (ERTS).
However, if Gartner's estimates turn out to be anywhere close to
accurate, Zynga shares are dirt cheap. Using Gartner's 2014 revenue
projection of $11.4 billion, you get a projected price to sales ratio of
just 0.23x. That's quite a bit lower than ERTS' price to sales of 1.74x.
In fact, if we use ERTS' price to sales ratio as a guide, ZNGA could be
worth more than $70 per share by 2014.
Based on this outlook, I'd suggest establishing a small position in ZNGA
today. Then wait and see what happens. If the shares start to fall, look
to add to your position at lower prices. This will help lower your cost
basis and set you up for bigger potential profits.
Profitably Yours,
Robert Morris
***Editor’s Note*** Tech companies, like Zynga and
LinkedIn, always garner tons of press. But the real story behind
these companies is much more exciting than anyone could imagine.
To show you what I mean, our top analyst just released a free report
entitled, "How To Cash In On The Coming ‘Tech Stock’ Boom of
2012".
You can get it free here.
Share This Story:
Print
Page
Bookmark Us
Home | Whitelist Us |
Terms of Use |
Privacy Policy |
Contact Us | Security |
Site Map