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Zynga Inc (ZNGA), Giant Interactive Group Inc (ADR) (GA): Digital Gaming Investment Opportunities

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Mark PincusThe global video games industry was valued at just over $71 billion in 2012. Global sales growth remained more or less static at 1% in value terms last year, but it is expected to grow $30 billion in the coming years (2012-2017). Some $15 billion of this forecast revenue is expected to come from digital gaming. This will be the most exciting area for investment going forward.

The video games industry now faces fresh challenges from the popularity of digital games, which can be played on other devices such as smartphones and tablets. In order for console manufacturers to succeed in this new competitive environment, they must capitalize on the growth of digital gaming.

World video games hardware, software and digital games, value size versus growth rate 1998-2012



Source: Euromonitor International

Digital games are played by more than half the American population and more than a billion people globally. Digital games on online social networking websites such as Facebook and mobile devices have grown especially popular. Among digital games, online games, facilitated by gaming platforms, have become increasingly popular. Players seem to favor the opportunity to challenge and compete with one another as an individual or as group.

Asia is an especially interesting region, where players spend many hours per day gaming. I am going to present three companies that I believe are great investments going forward.

The first is Zynga Inc (NASDAQ:ZNGA).

Zynga Inc (NASDAQ:ZNGA) develops, markets, and operates online social games as live services on the Internet, social networking sites, and mobile platforms in the United States and internationally. The company provides online social games such as FarmVille, CastleVille, CityVille, Zynga Poker, Words With Friends, Draw Something 2 and some other names. The games are available on Facebook and other social networks, and mobile platforms, as well as through Zynga.com.

Zynga Inc (NASDAQ:ZNGA) is having a hard time right now, and it is hard to believe that everything will be great going forward. Despite all the negative articles you read, I think the stock is worth a gamble.

The refocus on its struggling social games business could be a game changer in the end. Pursuing real-money gambling in the United States would likely have taken a lot of time and resources and may never have come to fruition. So far, only Nevada, Delaware and New Jersey have legalized gambling on games of chance.

Zynga Inc (NASDAQ:ZNGA)’s new CEO, former Microsoft Xbox head Don Mattrick has the daunting task of making Zynga Inc (NASDAQ:ZNGA) a money making machine that gamers feel comfortable with.

The second company, Giant Interactive Group Inc (ADR) (NYSE:GA), offers investors a healthy dividend yield of almost 5%. Giant Interactive Group Inc (ADR) (NYSE:GA) is a leading online game developer and operator in China in terms of market share, and focuses on massively multiplayer online role playing games, or MMORPGs. Currently, Giant Interactive Group Inc (ADR) (NYSE:GA) operates multiple games, including the ZT Online 1 SeriesZT Online 2, Giant OnlineXT OnlineThe Golden LandElsword, Allods Online and World of Xianxia.

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