Why You Should Still Never Buy Zynga at Any Price

Zynga took quite a beating after its last earnings, but Senior Technology Analyst Eric Bleeker and Chief Technology Officer Jeremy Phillips continue to warn investors against investing in Zynga and its Facebook-dependent business model. Zynga, a supposed growth company, warned investors by slashing bookings for the year, all the way down to around $1.2 billion from guidance that peaked at $1.5 billion just last quarter. That's a dramatic turn, and it shows just how much the company's growth has hit a plateau.

While many analysts claim the company has little downside because it has $1.8 billion in cash and real estate, Eric thinks it will spend this cash on new gambling ventures and buying mobile growth, which rapidly evaporates. The end result? Zynga's cash doesn't present downside protection, because it'll all be needed to buy growth, and the company's not going to fire-sale its real estate any time soon. As Eric and Jeremy see it, Zynga is a company to sell at any price.

Zynga's post-IPO performance has been dreadful, and investors are beginning to wonder whether it's "Game Over" for this newly public company. While Eric and Jeremy have written off the company, investors looking at buying a "falling knife" like Zynga should make sure to do their research before jumping in. You can learn everything you need to know about this company and whether it's a buy or a sell in our new premium research report. Don't even think about picking up shares before you read what our top analysts have to say about Zynga. Click here to access your copy.  

Eric Bleeker and Jeremy Phillips have no positions in the stocks mentioned above. The Motley Fool owns shares of Activision Blizzard and Facebook. Motley Fool newsletter services recommend Activision Blizzard and Facebook. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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  • Report this Comment On August 05, 2012, at 11:37 PM, EvanBuck wrote:

    Absolutely true, Eric. Zynga is not a good stock to buy. The new games that Zynga is coming out with are not going to be much of anything of a boost. Maybe in the short term for a tiny bit it will be a small boost, but in the end it won’t be much. As long as Zynga is almost totally dependent on the catastrophic Facebook IPO for success, it will not prosper.

  • Report this Comment On August 06, 2012, at 1:55 AM, ravens9111 wrote:

    If they get online gambling, it could be worth the risk as a game changer. That's a big question mark. I think they can get the licenses for overseas, but obviously they won't be able to do it in the U.S until it becomes legal. Even then, there would be so much competition it would be impossible to estimate how much market share they could even get. I think GLUU is the better buy at this point, but even they are risky. Truth be told, all of these mobile gaming companies are risky bets. I expect some consolidation in the space. ZNGA could be acquired at the right price by a bigger player such as EA or ATVI.

  • Report this Comment On August 06, 2012, at 10:24 AM, slammer989 wrote:

    The problem with Zynga (and many other web-based and web-driven companies, i.e. Groupon) is that it's easily replicable. Some kid in his basement could come up with a better game tonight and surpass Zynga in an instant. The only Zynga has going for it is the scale that Facebook provides. and even with that...the kid in the basement can still post his app there and...etc.

  • Report this Comment On August 10, 2012, at 4:57 AM, DrGoldin wrote:

    Maybe Zynga should just take its cash and invest in Berkshire Hathaway. Then it would be a solid company.

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