Zynga Inc (NASDAQ:ZNGA) is a leading provider of social gaming services. It has gained vast popularity on the social networking site Facebook through games such as “Farmville,” which has approximately 40 million registered users. EA directly competes with Zynga Inc (NASDAQ:ZNGA) in the social gaming space through its popular “The Sims” franchise. The company generates the highest percentage of its revenues through games such “Texas Hold’Em Poker” at around 40%, this is followed by new games developed for platforms such tablets and smart phones at around 46%. The remaining revenues are split between games such as “FarmVille,” “CityVille” and “CastleVille.”
The company is gradually shifting its focus towards real-money gaming as its core business is suffering due to a steep fall in active users. This has resulted in Zynga Inc (NASDAQ:ZNGA) focusing on online gambling, which presents a huge opportunity for the gaming company. The online gambling industry is massive outside of the U.S. and presently stands at $32 billion. The online gambling industry is expected to grow at a rapid pace, implying that even a marginal gain in market share for Zynga could bring a strong upside to its present trading price. Investors must keep a close eye on how Zynga develops its business around online gambling.
Take away
Although Electronic Arts Inc. (NASDAQ:EA) performed remarkably during the previous fiscal year, it is going through a transitional phase. This may lead to a slowdown as the changing trends in the industry will reduce the dependence of gaming companies on the sales of consoles as their primary source of revenue. EA has strategically shifted its focus towards the digital platform as the landscape of the gaming industry is expected to go through a complete shift.
Recently, the company sealed a multi-year licensing deal with The Walt Disney Company (NYSE:DIS), allowing it to develop innovative games for various platforms based on the iconic “Star Wars” franchise. This is expected to bolster demand, as is the launch of the new Xbox which is just around the corner. The company certainly operates in a highly competitive environment, though with strong fundamentals and various growth opportunities its stock certainly has a strong upside.
The article What Makes Electronic Arts a Buy? originally appeared on Fool.com and is written by Ashit Gulati.
Ashit Gulati has no position in any stocks mentioned. The Motley Fool recommends Activision Blizzard (NASDAQ:ATVI). The Motley Fool owns shares of Activision Blizzard. Ashit is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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