Think Outside the Street
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Reality just set in. It set in hard.
You can't have a $3.7B valuation without any net profit. Zynga has yet to show any sustainability for profitability.
Having the most popular games on Facebook sounds really great, until realize you just lost $0.03 per share ($22.1M) in Q2. Increasing your MAUs by 34% is fantastic... but only if you can turn those users into profit.
Zynga has now lost $108M over the past two quarters. Here's what they had to say about moving forward:
"We are lowering our outlook to reflect delays in launching new games, a faster decline in existing web games due in part to a more challenging environment on the Facebook web platform, and reduced expectations for Draw Something."
Will Chefville and Farmville 2 really be the panacea they're hoping? Are social gamers even clamoring for Farmville 2? If Facebook begins to lose relevancy ("more challenging environment on the Facebook web platform") what chance do you have, Zynga?
I'm maintaining my downthumb on this one!
I agree with your post. but what if it starts to get cheap enough? like trading for the cash on the balance sheet?
Caballote - there may be a time when ZNGA hits a share price that will trigger a worthwhile technical trade. I'm not particularly interested in those types of trades, though. If you're a day trader, yes - I'd absolutely keep an eye on price and look for a quick bounce if ZNGA gets really cheap.
I tend to approach investing with a longer term approach, and what concerns me with ZGNA (especially after seeing Facebook's Q2 reports) is their viability with FB as their main platform. Something like 90% of their revenue comes via FB.
FB announced it's changing the way it displays games, with the newest at the top, and older pushed down, regardless of popularity. That worries me, since much of ZNGA's revenue comes from it's core, older, popular games.
ZNGA has yet to show it can succeed on mobile. Again, remember 90% of revenue comes from the FB platform, which is increasingly accessed by mobile users. ZNGA has struggled to make mobile gaming work for their most successful games, and that's a concern from a revenue and cash flow standpoint. I know they're working on building up this sector, but I'll wait to see the numbers before I'm a believer.
ZNGA's foray into real-money gambling is something that's actually pretty interesting. They do have an extremely popular poker game, that I can envision being financially successful if they turn it into real-money. Of course since I live in the US, it won't matter to me, but there are plenty of gamblers and FB users throughout the world.
Assuming the stock price continues to trickle down toward the $2.50 or $2.25 mark, I might actually consider switching my stance if they can get gambling to work.
Still though, I can't help but feel like there are better opportunities out there. :)