What’s next on Zynga’s shopping list
Zynga still has $1.28 billion in cash and $100 million in debt. It could conceivably buy a hit game again, but based on the declining users of Draw Something almost immediately upon the deal’s closing Pincus must have felt some buyer’s remorse (like the stockholders).
As key executives and game developers flee the golden cage that is Zynga, one might wonder if Pincus should pull a reverse Marissa Meyer of Yahoo! and make the employees work from home. A company like Google Inc (NASDAQ:GOOG) can afford these kind of perks with the kind of money it makes, but Zynga can’t afford to keep overpaying for games that don’t end up being accretive and outrageous perquisites.
The gaming sector’s hard day’s night
Glu Mobile Inc. (NASDAQ:GLUU), the leader in 3D freemium games for mobile, suffers many of the same challenges as Zynga but is performing better, beating on top and bottom line on its last 10-K filing on March 15 with margin expansion and a smaller loss per share than the year ago period. Q4 EPS came in at – $0.11 and revenues at $20.8 million. Glu Mobile has no debt and is only down 21.00% over 52 weeks.
Analysts prefer Glu Mobile Inc. (NASDAQ:GLUU) going forward with the majority recommendation at Outperform with an upgrade to Outperform on March 18 from Northland Capital. Glu Mobile never had the same dependence on Facebook, and its head start in mobile gives it an advantage over Zynga Inc (NASDAQ:ZNGA). Caution though, short interest in Glu Mobile is even higher at 23.10% than at Zynga with 16.50%.
Electronic Arts has also been suffering with its CEO John Riccitiello’s resignation on March 18, preannouncing an earnings disappointment; and speaking of PopCap, its Bejeweled producer just jumped ship along with several other EA alumni to an indie game publisher. What next?!
However, Electronic Arts has a positive P/E of 32.36 and a PEG of 1.47. It has the popular SimCity, Madden, and Medal of Honor franchises, and its mobile offerings are outperforming rival Activision Blizzard, Inc. (NASDAQ:ATVI).
Game over
The whole gaming sector has had trouble lately, and it’s best to just stay away. The big gamers like EA are just too difficult to game here. If you think online gambling will be the savior of Zynga Inc (NASDAQ:ZNGA) and Glu Mobile Inc. (NASDAQ:GLUU), you should see who they partner with first. As long as spendthrift Pincus and his privileged minions run Zynga I would prefer Glu Mobile Inc. (NASDAQ:GLUU).
The article True Confessions of High Tech Hijinks originally appeared on Fool.com and is written by AnnaLisa Kraft.
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