There are a couple of stocks out there here everybody wishes he had invested in years earlier, dreaming of the big money one would have made. Stocks like google, apple or SAP have made those rich that owned them at the right time. So how can you find companies like that in a early stage? Of course, many similar candidates fail, be it in the beginning or in a later stage like yahoo or myspace.
Facebook was valued close to 100 billion at its IPO, although it was unclear when and how the profits will be made to justify this valuation. Nevertheless it is an interesting benchmark for other internet companies.
Zynga as a company has been around for about five year. It has build up an impressive user base, roughly a third of facebooks. The range of products might be not everyones taste, but they are very successful and get the players online on a regular basis. Frequently, Zynga publishes new games, while some have already become classics after years of successful placement in the market.
The operating business already generates a nine-digit profit, which is – at least for 2011 – eaten up by massive investments in R&D and new products. The ability to generate profits, however, have been shown.
Innovative internet companies are not only valued by their financials. It is a lot about the uniqueness, the competitive advantage and what might be five years down the road. So what is it for Zynga? The browser games the company builds and operates allow them a very direct, low-latency interactive connection to a massive user base, of which, at any given time, a large number is online. Upon releasing new features within the game, the company gets direct feedback from their customer base within minutes. This ability to interact with ist customers allows Zynga to understand the consumers in a way that no other company has access to. All this, of course, is not reflected in the financials, yet. It is also not a topic Zynga would like to speak in public, their customers would not like the idea of being abused for market research. We will have to see how the company will be able to capitalize on this ability to do market research, but of course, this is also true for facebook.
The current market value of Zynga is a little over one billion USD, about 1.5% of facebooks and little more than many smaller, less known start-up companies. The story gives room for Zynga to become a google for market research, optimizing entire industries with their market insights and generating massive profits. Time will show whether the story becomes reality, but here is the opportunity to buy in at a bargain price and participate in something big.
Stocks to own: Zynga
Jun 30, 2012