Last Month's Best-Performing Tech Stocks

Why did Zynga, Yelp, and Facebook shares have double-digit percentage increases in February? Will those gains continue in the future?

Mar 3, 2014 at 10:30AM

February financial reports brought good tidings for a trio of tech companies. Zynga (NASDAQ:ZNGA)  was up over 48% thanks to news of a mobile acquisition and an IPO filing from competitor King. Yelp (NYSE:YELP) shares rose over 31% following a positive earnings report and a partnership with Yahoo! (NASDAQ:YHOO). Facebook (NASDAQ:FB) shares finished the month up nearly 28% following a stellar fourth-quarter and a multi-billion dollar app purchase.     

What were the details that drove these companies higher, and what's next?

Clumsy Ninja Zynga

Source: NaturalMotion

Zynga acquires mobile superstar 
The social gaming company was scheduled to report fourth-quarter earnings in the first week of February, but jumped the gun by a week. However, an important bit of news within was enough to carry Zynga's gains on into the month. 

Zynga announced the acquisition of mobile gaming company NaturalMotion, which produced the popular titles CSR Racing and Clumsy Ninja. NaturalMotion's Euphoria game development engine was used to create Clumsy Ninja, as well as some of the top console titles in recent years, including Red Dead Redemption and Grand Theft Auto IV.  

The NaturalMotion acquisition offset the fact that the fourth-quarter still had some weak metrics. Daily active users were down 52% year-over-year and monthly active users were down over 62%. Zynga's web revenue is overly dependent on three games. But, another positive distraction came when competitor King's IPO filing showed that the Candy Crush Saga creator is more dependent on even fewer games.

Zynga still needs to work on its user retention problem, but February was the best month for the company since it went public.   

Yelp bags another partner
The online review company reported fourth-quarter revenue of $70.7 million, a 73% year-over-year increase. Net loss for the quarter shrank from $0.08 in 2012 to $0.06 in 2013. For the full year, Yelp's average unique monthly users grew 39% and active local business accounts grew 69% to 67 thousand.  

Yelp competes with free online review services such as those found in Google search results. But, Yelp has had success forming partnerships and already appears in Apple Maps and Microsoft's Bing search results.Plus, February added a partnership with Yahoo! to embed the former's reviews into the latter's search results, according to the Wall Street Journal. The action would look similar to how Google integrates its own review system in relevant searches. Financial details for the Yelp-Yahoo! deal were not disclosed. The deal is more important to Yahoo!, which needs to keep up with Google, than to the partner-happy Yelp. 

Facebook soars on mobile and a pricey acquisition
Facebook had a great February thanks to its fourth-quarter report at the end of January. Revenue grew 63% year-over-year to $2.59 billion, with over 90% coming from advertising. More than half of that ad revenue came from mobile. This fact is notable because mobile is notoriously difficult to monetize and Facebook has hit a few bumps with its applications. 

One of the company's remaining weak points remains user growth in emerging markets. But, the social networking giant took a large, expensive step toward solving that problem with the $19 billion acquisition of WhatsApp.

The texting application is more popular overseas than domestically. Both companies claim WhatsApp will remain ad-free and cheap, at less than one dollar per year, but what the buy really gives Facebook is user data on customers not currently within the fold. Plus, more data means better targeted advertising on Facebook's own platform, which should lead to more revenue. 

Foolish final thoughts 
Facebook has proven it can monetize mobile, while Yelp will continue to sign up partners. Time will tell how Zynga and Facebook will utilize their acquisitions to patch weak spots in their businesses. Yelp's partnership with Yahoo! was likely lucrative, but also means more for the search engine company than for Yelp.  

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Brandy Betz has no position in any stocks mentioned. The Motley Fool recommends Facebook, Yahoo!, and Yelp. The Motley Fool owns shares of Facebook. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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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