How to position
There is no way to know whether or not Zynga Inc (NASDAQ:ZNGA) can turn around. There is no guarantee that Don Mattrick can turn around Zynga, and until we get solid data that indicates the company could be on the right track, we should consider other investment opportunities. The two businesses I have in mind are Facebook Inc (NASDAQ:FB) and Netflix, Inc. (NASDAQ:NFLX).
The two companies don’t have anything to do with gaming, but have working business models in both the mobility and internet space that offer better upside.
Netflix is on the rise
Netflix has a lot of growth potential. The company’s partnership with Dreamworks Animation Skg Inc (NASDAQ:DWA), The Walt Disney Company (NYSE:DIS), and The Walt Disney Company (NYSE:DIS) will give it the movie collection it needs in order to expand its international streaming segment. The company’s collection of both foreign and domestic films is far superior to any other competitor in the marketplace currently. Netflix has further growth potential as Microsoft Corporation (NASDAQ:MSFT) predicts that there will be at least 4 billion internet users by 2020. This means that Netflix’s total addressable market will grow to 4 billion people. The company’s $8/month price point is cheap enough for both emerging and developed markets.
Analysts remain pretty optimistic about the company. The company’s contribution margin has gone up consistently over the past several quarters, which will contribute to the company’s earnings growth significantly. The company is projected to grow its earnings by 375% in the current fiscal year, and 121.7% in the year following that.
Facebook a safer bet
Going forward, I believe that Facebook may eventually launch some successful products going forward. Recently, the company’s launch of Instagram Video lowered activity on Vine (which is owned by Twitter). Facebook also launched hash-tagging, which is keeping the company competitive in the social space. Some have argued that the company’s strategy of adding on features to its pre-existing social network is gimmicky. But let’s be honest. It’s nice having a place to be able to e-mail, share blog posts, pictures, and videos seamlessly within a single location on the web.
Source: Facebook
The company frequently adds features. This helps keep users engaged, and has resulted in an up-trend in the average revenue per user. The company was able to grow average revenue per user from $1.21 in the first quarter of 2012 to $1.35 in the first quarter of 2013.
The company’s business model works. Analysts back this assumption by forecasting the company to grow earnings by 28.26% per year over the next five years.
Conclusion
Zynga Inc (NASDAQ:ZNGA) may be able to turn around under the guidance of Don Mattrick; however, a lot would have to go right for this company’s turnaround to materialize. That being the case, investors should consider investing in alternative likes Netflix and Facebook. Both companies are likely to grow based on the product strategy, and underpinning economics of digital media and social networking.
Alexander Cho has no position in any stocks mentioned. The Motley Fool recommends Facebook and Netflix. The Motley Fool owns shares of Facebook and Netflix.
The article Zynga Might or Might Not Turn Around, so You Should Consider Alternatives originally appeared on Fool.com.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.
