Zynga Inc (ZNGA) Is Zapped: Look at This Company Instead

Advertising makes up about 87% of Pandora’s sales. The rest comes through premium Pandora One subscriptions. Pandora One is Pandora with no ads and better sound quality, and it costs $4 per month. But it has plenty of competition in Spotify, Grooveshark, Sirius XM Radio, and even iTunes. And again… you can use its products for free without ever having to cough up a penny. I love music, and I want to love Pandora. I could see some users becoming addicted to it, the way you might to a favorite radio station or TV show or computer game. But if it’s not making money now – with 175 million registered users – will it ever?

Pandora generated $138 million in revenue last year, but like Zynga Inc (NASDAQ:ZNGA) and many of the other social media companies, it failed to turn a profit

On the other side of the fence stands Facebook Inc (NASDAQ:FB) with over 1 billion monthly active users all over the world. Facebook’s public filings suggest that’s half the Internet users in the world. So far, Facebook Inc (NASDAQ:FB)’s massive web traffic has been good for $1.7 billion in total profit. That’s a great start. If the company’s market cap was 15 or 16 times annual earnings (instead of around 45 times today), I would buy the shares. But, this stock trades at an exorbitant valuation of around 12 times price-to-sales and around 45 times earnings. This pricing implies an estimated annual growth of approximately 25% year-over-year. That’s simply unrealistic.

The Fool thinks social media

The social media space has become crowded with companies that generate lots of internet traffic…but very few profits. Facebook, on the other hand, is much more promising in that sense. Wait for its stock to become cheaper and invest accordingly.

The article Zynga Is Zapped: Look at This Company Instead originally appeared on Fool.com and is written by Shmulik Karpf.

Shmulik Karpf has no position in any stocks mentioned. The Motley Fool recommends Facebook. The Motley Fool owns shares of Facebook. Shmulik is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.