Smartphones and mobile computing are the wave of the future. In Q1, 2013, only 76.3 million PCs were shipped while 216.2 million smartphones were shipped. For the first time, more smartphones were shipped than basic feature phones. Computers continue to shrink, and consumers want to read their email, check the news, and watch videos from their handheld device. Zynga Inc (NASDAQ:ZNGA) is handling the transition to mobile computing very poorly and it looks like the company may be digging its own grave.
ZNGA Total Return Price data by YCharts
Zynga Inc (NASDAQ:ZNGA) makes a number of arcade-like social games where users can play and compete with their friends. The world’s transition to mobile computing has a great impact on Zynga Inc (NASDAQ:ZNGA), because its games are social in nature. Traditional gamers focus on strong graphics and realistic computer generated physics. They are happy to stay with powerful consoles and PCs, but Zynga’s target market of non-traditional gamers are different.
Zynga Inc (NASDAQ:ZNGA)’s Q1, 2013 quarterly filling shows that year over year, its number of average daily users has fallen from 65 million to 52 million. Its number of average monthly users has fallen from 292 million to 253 million. Crucially, the number of players who made at least one payment during the month fell from 182 million to 150 million. The company is a disaster in the making with an earnings before interest rates and taxes (EBIT) margin of (6.4)%, a profit margin of (9.8)%, and a return on investment (ROI) of (6.1)%.
Relative to other tech companies, Zynga is an exceptionally poor performer
Making the transition to mobile has been challenging for a number of companies, but others have been able to successfully position themselves for growth. In 2010, Google Inc (NASDAQ:GOOG) acquired the mobile advertising network AdMob for $750 million. AdMob helped Google boost its mobile offerings and ensure that it can control the mobile ecosystem from its Android operating system (OS) to the ads users see.
Google’s Motorola acquisition hasn’t been as profitable. Motorola posted a $271 million dollar GAAP operating loss in Q1, 2013. In the long run, Google Inc (NASDAQ:GOOG)’s purchase of Motorola will give Google leverage in the manufacturing side of mobile computing. While Motorola isn’t currently helping Google’s bottom line, Google has cash to spare. It has a ROI of 17.9%, EBIT margin of 25.3%, and profit margin 26.3%.
Facebook Inc (NASDAQ:FB) has also struggled with mobile, but even Mark Zuckerberg’s creation has executed better than Zynga Inc (NASDAQ:ZNGA). Recently, Facebook revamped its social product and started to display ads to its mobile users. It recently bought Parse, a hosting company for a host of mobile apps. Facebook also purchased the mobile photosharing app Instagram. This app helps people to share their photos with their friends. Facebook Inc (NASDAQ:FB) paid a pretty price for Instagram to ensure that users’ photos stay within the Facebook ecosystem.
Facebook is nowhere near as profitable as Google Inc (NASDAQ:GOOG), but it is in a much better position than Zynga Inc (NASDAQ:ZNGA). Facebook Inc (NASDAQ:FB) has an EBIT margin of 9.4%, but its ROI is only 0.1% and its profit margin is 0.3%.
Conclusion
Zynga Inc (NASDAQ:ZNGA)’s future is bleak. The company isn’t profitable and is bleeding users. Until things change, Zynga is best avoided.
Google Inc (NASDAQ:GOOG) is profitable and it has made a number of strategic acquisitions to achieve a strong position in the mobile sphere. While its Motorola acquisition still isn’t making money, investors can be rest assured that Google has the resources and expertise to use Motorola as a strategic weapon to gain leverage over other smartphone manufactures. Facebook Inc (NASDAQ:FB) isn’t very profitable, and for the time being, investors would be better off sticking with Google Inc (NASDAQ:GOOG).
Joshua Bondy has no position in any stocks mentioned. The Motley Fool recommends Facebook and Google Inc (NASDAQ:GOOG). The Motley Fool owns shares of Facebook Inc (NASDAQ:FB) and Google.
The article Mobile Is Destroying This Company, But Others Are Doing Better originally appeared on Fool.com.
Joshua 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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