There are many different reasons that investors buy stocks. Sometimes, you buy shares for growth and income. Other investors buy for superior growth, still others buy a company because it seems like it’s turning around. Maybe the easiest stocks to choose are the companies where the value of their assets is so valuable, that a buyout by a larger company seems like a certainty. The nice thing about buying asset rich stocks, is you know that there is a floor under the stock price based on the value of their hard assets. This is exactly the situation with Zynga Inc (NASDAQ:ZNGA).
Earnings Don’t Matter. Wait…What?
I know what you’re thinking, how can you say that earnings don’t matter? You are partially right, I’m overstating a bit to say they don’t matter at all, but honestly to know the value of Zynga Inc (NASDAQ:ZNGA) is to look at two figures, their cash, and their users.If you look at Zynga’s larger peers, you see companies like Activision Blizzard, Inc. (NASDAQ:ATVI) and their huge franchises like Call of Duty and World of Warcraft.
While Zynga Inc (NASDAQ:ZNGA) certainly doesn’t have the scale of Facebook, they estimate that Farmville 2 alone has about 40 million players. Granted these players don’t have to pay anything, but this still represents 239% more players than both Battlefield Premium and World of Warcraft combined!
While Zynga Inc (NASDAQ:ZNGA) has struggled with daily active users down 21% recently, the company estimates more than 200 million people play their games.
Yes I’m Suggesting Investors Consider Buying Zynga (as a buyout candidate)
I know that some would say I’m crazy for suggesting buying stock in a company that is losing players. I know that their revenue was down more than 18% in the last quarter, and net income plunged 80%. However, I also know that the remaining players represent a valuable commodity, and that is the potential for digital sales. Activision gets about 53% of its sales from digital channels, and Electronic Arts get nearly 60% of sales digitally. While 85% of Facebook’s revenue is advertising based, the company is always looking to diversify their revenue stream.