With gaming stocks like Activision Blizzard (NASDAQ: ATVI) worth nearly $60 billion and Electronic Arts (NASDAQ: EA) close two-thirds of that at around $40 billion, what should value investors buy instead?
Zynga (NASDAQ: ZNGA) is starting to stabilize on the markets. At a market cap over around $3 billion, Zynga is making inroads in its new mobile gaming market.
After unwinding its reliance on Facebook and “Farmville” years ago, Zynga is finding success with many game titles. This includes Dawn of Titans and Zynga Poker. It ended the year with EBITDA growing from 489 million to $138 million year-over-year. Zynga has $700 million in cash, or $1.89 a share, or a price / book of around two times. This is several multiples below that of EA and ATVI.
Headwinds with Dawn of Titans
After spending lots of time developing and testing Dawn of Titans last year and previously, the game launched with some success. That momentum is shifting downward as Zynga forecasts a drop in bookings year-over-year.
Expenses will rise due to higher operating (and mostly marketing) expenses. This will be offset by lower R&D.
Zynga said that Dawn of Titans is undergoing a transition. Growth will depend on the success with core mobile live services. Until then, Zynga Poker, CSR2, and Words with Friends 2 will continue with the positive momentum from the fourth quarter.
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