Zynga Inc (ZNGA): There Are 1.67 Billion Reasons This Company Is a Buy

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.

Activision proudly states that World of Warcraft with 8.3 million users is the largest subscription based game. Another peer is Electronic Arts Inc. (NASDAQ:EA), who trumped that their Battlefield Premium service has 3.5 million subscribers. You could even look at Facebook Inc (NASDAQ:FB) and their growth of 26% in daily active users as a comparable company.

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.