Why Zynga Shares Zoomed Again

Is this meaningful or just another movement?

Feb 4, 2014 at 2:14PM

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Zynga (NASDAQ:ZNGA) popped 10% today after UBS upgraded the online social games company from neutral to buy.

So what: Along with the upgrade, analyst Eric Sheridan boosted his price target to $6 (from $4), representing about 34% worth of upside to yesterday's close. While contrarians might be turned off by Zynga's massive earnings-related pop last week, Sheridan thinks there's more room to run given the strong growth and margin enhancement tailwinds continuing to work in its favor.

Now what: According to UBS, Zynga is also a particularly timely opportunity.

"What leads us to upgrade now? 1) We believe that Q1 '14 & FY '14 guidance from the recent earnings call will turn out to be conservative due to stability at the core Zynga properties (monetization/usage); 2) NaturalMotion (while inorganic growth) is one of the leading iOS game developers & has seen tremendous success with its CSR Racing and Clumsy Ninja franchises ... and 3) Zynga EBITDA margins (& FCF generation) is likely to materially improve from trough levels (effect of 18 months of core cost cutting & the leverage from NaturalMotion bookings growth) as EBITDA margins return to the 20%+ level in 2015 and beyond," noted Sheridan.

With the stock now up about 100% from it 52-week lows and trading at a price-to-sales of four, however, I'd wait for a much wider margin of safety before betting on Zynga's still-uncertain growth prospects.

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4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

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KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

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Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.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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