What Does the Future Hold for Facebook Inc (FB), Zynga Inc (ZNGA) and Groupon Inc (GRPN)?

Page 1 of 2

As can be seen in the stock charts of recent Internet IPOs, much of the early hype has been lost. However, two, Groupon Inc (NASDAQ:GRPN) and Facebook Inc (NASDAQ:FB), have managed to recover much of the lost value through showing signs of a “second life.” What does the future of Groupon hold? And how does it compare to Zynga Inc (NASDAQ:ZNGA)? This and more below.

Facebook Inc (NASDAQ:FB)Why Groupon Has Doubled in Value

After a failed IPO, Groupon has tried to diversify away from the core business. Groupon is now eying the acquisition of CommerceInterface, which will strengthen its e-commerce position. Groupon already used CommerceInterface’s services for its online sales, so this form of vertical integration is seen as a way of expanding margins. As a channel management software developer, CommerceInterface represents a key piece to the puzzle in getting Groupon to think “outside the box” and adopt a sustainable business model.

Their “special deal” sister website, Groupon Goods, is expected by Evercore to gross $2.5 billion in FY 2013–150% more than the same period last year (2012). The service currently has over 40 million users. Groupon’s management announced that they became the official partner of the MLB in daily deal tickets and box seats partner. It is this kind of long-term focus that I believe will greatly benefit the firm in terms of its relevance in major media outlets.

The company’s strategy of diversifying already appears to be paying dividends with the stock up more than double from the lows. At a free cash flow yield of 8.5% and no debt, Groupon is well positioned to continue its rise. EPS is forecasted to grow at a rate of 27.1% over of the next five years–more than enough to make the stock undervalued by over 25%. While the stock is risky due to its weakening core business, I believe the diversification strategy makes sense amidst all the proliferation of smartphones and tablets. Since this is a very speculative stock, I recommend buying now rather than later. That is to say: Do not miss the opportunity, as shares are priced fairly low given the expected growth.

Is Zynga Dead in the Water

Zynga, the social game developer, is ready to launch new online gambling games in the UK in 1Q 2013. They are trying to get paperwork done for a gambling business in Nevada, and they released three free games on Facebook: Elite Slots, Zynga Slots and Zynga Poker to potentially build up pent-up demand. They even entered a deal with Synacor that will place Zynga’s games on the homepages of past pay-TV users.

Some are acting like Zynga has been left to rot by Facebook Inc (NASDAQ:FB). Here’s the issue the market is worried about: Facebook Inc (NASDAQ:FB) essentially tore up its contract with Zynga to allow for new social networking game developers. Further, the proposal of a sliding scale royalty fee, wherein smaller game developers would get a greater share of the profit, throws a wrench into the relationship. Shares have plummeted 85% from the 52-week low and never really recovered since.

Page 1 of 2
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The Highest Grossing Musicals on Broadway

The Most Successful Reality TV Stars

Cheapest Cities to Visit in the US

Most Expensive Summer Camps

Most Expensive Animals in the World

Most Expensive Specialty Crops in the World

Movies That Took Ages to Make

The Longest Hollywood Films Ever Made

Most Expensive Concert Stages

The Richest Bands of all Time

10 Most Corrupt Countries 2013 List

10 Countries with the Highest Quality of Life Index

Most Expensive Mattresses in the World

5 Smallest Countries by Land Area

The Ultimate Heartbreak Songs

Richest Teenagers in the World

10 Most Haunted Places in America

10 Best Places to Retire in Florida East Coast

Top 10 Places to See Before You Die

Top 8 Countries in the World Where Justice Prevails

10 Richest States in America

15 Wealthiest Countries in the World

Richest Singers in the World

Most Expensive Tasting Menu in New York City

Most Expensive Baby Items in the World

Most Expensive Hotel Suites in Vegas

Most Expensive Brunch in New York City

Most Expensive Beef Cuts in the World

25 Best Colleges to Get a Job

Top 10 US Supermarkets

The 25 Most Dangerous Cities in the World to Visit

Most Expensive Xbox Games

Top 11 Cities Where Billionaires Live

Top 10 Most Charitable Companies in America

Most Expensive Seafood in the World

The 10 Wildest Conspiracy Theories

The 10 Best Job Markets in the US

Top 10 Accounting Scandals of All Time

The 25 Biggest Cities in the World

Top 10 Best Paying Virtual Jobs

Most Expensive Leather Shoes in the World

Top 6 Things to Buy in March

The 10 Most Stressful Jobs in America – 2014 List

Top 10 Jobs for Introverted People

Top 10 Honeymoon Destinations in the World

Top 10 Highest Paying Jobs in the World

Most Expensive Day-Care in New York City

The 10 Cheapest Places to Retire Abroad

Top 10 Most Expensive Luxury Cars in the World – 2014

Killer Small Business Ideas

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!