Despite the decline in sales, Zynga has no immediate cash concerns. In fact, the $1.3 billion allows the company to make some aggressive M&A moves. Shares are trading around $2.6, which is pretty near their lowest value in the last two years. The ex-cash market capitalization of Zynga is around $700 million or $0.8 per share.
Revenues has been in a decline due to the severing of ties with Facebook Inc (NASDAQ:FB) and the shift of gaming to handheld devices. Zynga missed seeing this shifting trend, which is one of the primary reasons behind its revenue decline. Despite these setbacks, the company is still not out of the game. The master stroke of the company management has been keeping operations efficient. This ensures that Zynga Inc (NASDAQ:ZNGA) has plenty of cash to spend on the development of new games and branch out into mobile.
The market has discounted Zynga so brutally due to its evolving relationship with Facebook. This perception is misplaced because Facebook is just not in the business of making games, and this break-up was an eventuality. Zynga is still the largest provider of social games on Facebook and would continue to be so for quite some time. This move only allows the company to focus on smartphone gaming and legal poker. The company has already launched its real poker’ application for the UK and is lobbying to get online gambling legalized in the United States.
Zynga is essentially trading for $0.8 per share, if we discount the cash. If we take into account that company’s operations are still generating quarterly cash flows, of around $25 million and FCF in the range of $40 million, it’s a bargain at $0.8. At these valuations, Zynga Inc (NASDAQ:ZNGA) is an excellent speculative bet in the technology sector. The stock essentially has zero downside and enormous upside for the legalization of online gambling and the company’s potential to eventually create another blockbuster game.
The article The Safest Speculative Bet originally appeared on Fool.com and is written by Mohsin Saeed.
Mohsin Saeed has no position in any stocks mentioned. The Motley Fool recommends Facebook. The Motley Fool owns shares of Facebook. Mohsin 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.