In the worst case scenario that every product Facebook Inc (NASDAQ:FB) develops is a failure, the company could resort to cutting costs while revenue grows. This would grow the company’s earnings.
I have no idea how fast Facebook will grow its revenues. Analysts estimate that revenues will grow by 32.10% in 2013, and followed by 26.40% growth in the 2014 fiscal year. This growth is based purely on the company’s advertising business. We have no way of knowing the effects of product extensions and new products, however. For all we know, Facebook Inc (NASDAQ:FB) could develop a ground-breaking product that would alter outwards looking forecasts significantly.
This is a stock that appeals to growth investors only.
Zynga is a train wreck
No one on Wall Street believes the stock will turn around in 2013. Zynga Inc (NASDAQ:ZNGA)’s biggest problem is that its user engagement statistics have been on a consistent downtrend. This is compounded by a lack of imagination in game development. It took me less than an hour to get bored with CityVille, and no I didn’t buy any in-game cash.
Mark Pincus, the CEO of Zynga Inc (NASDAQ:ZNGA), believes that it is in the middle of a transition year. He is banking heavily on mobile as its next frontier. Every game that Zynga Inc (NASDAQ:ZNGA) develops hits a saturation point. The barrier of entry for developing games on the mobile platforms is almost non-existent; almost any independent group of app developers can create games that are similar to Zynga’s.
To add insult to injury, analysts are projecting that the company will report a 27.60% decline in sales year-over-year. The hoped-for outcome is that the company is able to turn around the Titanic at 80 mph. This is the complete opposite of a growth stock. We are talking about a value investment that has a higher probability of failing, and therefore investors should avoid the stock.
Conclusion
LinkedIn Corp (NYSE:LNKD) has the clearest growth strategy of the three companies. It has both revenue, and net income growth. LinkedIn grew its business with logical product extension, and international expansion. The company is the most superior investment of the three.
Facebook needs some work. Facebook Inc (NASDAQ:FB) is heavily dependent on new product ideas for growth, but if it fails at that, it can always cut costs. Making it a reasonable investment opportunity.
I would avoid Zynga Inc (NASDAQ:ZNGA), because user engagement levels are on a consistent down-trend. The company’s product strategy is failing in the market place. Distributing the games on an alternative platform like mobile will not generate any substantial improvement in demand.
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Alexander Cho has no position in any stocks mentioned. The Motley Fool recommends Facebook and LinkedIn. The Motley Fool owns shares of Facebook Inc (NASDAQ:FB) and LinkedIn Corp (NYSE:LNKD).
The article Will Zynga, Facebook, and LinkedIn Exist in One Year? originally appeared on Fool.com.
Alexander 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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