Apple Inc. (AAPL), Facebook Inc (FB) & Zynga Inc (ZNGA): Profiting From Earnings Surprise

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Investing in Facebook Inc (NASDAQ:FB) is like investing in Amazon, it trades more on sentiment and future potential than fundamental valuation. While its hard to put a “fair value” on this stock I could see it going to $40 a share by the end of 2013 as investors switch from a bearish sentiment to a bullish one.

No more gambling?

I had high hopes for Zynga Inc (NASDAQ:ZNGA)’s foray into the gambling market in the US. Management in Zynga’s latest quarter said they were no longer going to do so. I think this was a terribly foolish mistake and is why I am no longer bullish on Zynga. Had Zynga Inc (NASDAQ:ZNGA) gotten into this market it could have added billions to its $1 billion in annual revenue.

Zynga saw daily active users fall 45% year over year and monthly active users was down 39%. The number of paid players dropped 53%, which was only slightly mitigated by those users paying 14% more on average.

Zynga Inc (NASDAQ:ZNGA) posted revenue of $230.74 million, which did beat estimates by a fair margin, but was down big from last year’s $332.49 million. While Zynga’s loss did narrow to $15.8 million from $22.8 million, the huge drop in revenue is very worrying. With revenue decreasing, there is no reason to own shares of Zynga Inc (NASDAQ:ZNGA) and its valuation will plummet.

I don’t see where Zynga Inc (NASDAQ:ZNGA) is going to be able to find the kind of growth to make up for the drop in games like Farmville. Maybe it will be able to push into mobile, but not before this stock drops lower. Bearish on Zynga.

Final thoughts

There have been some surprises this earnings season, from Apple Inc. (NASDAQ:AAPL) selling significantly more iPhone’s than expected to Facebook Inc (NASDAQ:FB) almost reaching its IPO price to Zynga Inc (NASDAQ:ZNGA) making a horrible mistake. I expect, going forward, Apple will start to see excitement build around its Fall product launches, Facebook Inc (NASDAQ:FB) will see analysts and investors become bullish again, and Zynga will see its stock price fall below $3.

The article Profiting From Earnings Surprises originally appeared on Fool.com and is written by Callum Turcan.

Callum Turcan owns shares of Apple. The Motley Fool recommends Apple and Facebook. The Motley Fool owns shares of Apple Inc. (NASDAQ:AAPL) and Facebook Inc (NASDAQ:FB). Callum is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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