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Can These 2 Tech Stocks Continue to Climb in 2014?

We're just a few months into 2014 and Pandora (NYSE: P  ) and Zynga (NASDAQ: ZNGA  ) are already steadily outpacing the market. While a few months of gains isn't much to go on, let's take a look at what these companies are doing right, what advantages they may or may not have, and what hurdles they face going forward. 

Pandora: Up 27% year to date 
Pandora's music streaming service went public in 2011 and has made some investors very happy. The stock is up more nearly 27% this year and up more than 155% since its IPO three years ago. The company captured about 30% of music streaming listeners last month, with iHeartRadio coming in second with just 9%.

Source: Edison Research.

Pandora's advantage over the competition is its massive active listener base totaling about 76 million right now. Last month, those listeners streamed 1.51 billion hours. All those hours of streaming represent advertising opportunities for Pandora.

But not everything is rosy for Pandora. Though the company saw a 9% year-over-year increase in total listeners last month, it was Pandora's slowest growth to date. The company is also facing stiff competition from Apple's iTunes Radio. iTunes entered the market just six months ago and now nabbed 8% of the Internet radio listeners last month, taking the No. 3 spot behind iHeart Radio and Pandora.

If the increased competition weren't enough on its own, the company recently forecasted lower fiscal first-quarter earnings than expected, and Pandora said diluted earnings per share would be a loss of $(0.16) and ($(0.14). So while Pandora may be doing relatively well now, investors should seriously consider how iTunes Radio could hurt the company, and keep in mind that Pandora needs an increase in listeners in order to continue wooing advertisers to its service.

Zynga: Up 43% year to date
Zynga's stock has been battered and beaten back since its IPO a few years ago, but in 2014 the stock is up more than 40% and up more than 50% over the past 12 months. Zynga's in the middle of a turnaround and investors are pleased with the company's focus on mobile games, cost-cutting, and new management.

Less than a year ago, Zynga's founder Mark Pincus turned over the CEO title to Don Mattrick -- a move that signaled a new Zynga was emerging. After being one of the most dominant gaming companies on Facebook, Zynga is trying to figure out how it can sustain itself apart from the social media juggernaut. The company is releasing and creating new versions of its most famous games like FarmVille 2, Zynga Poker, and Words with Friends, but it's also purchasing other companies with in-demand games. In January, the company bought NaturalMotion, maker of Clumsy Ninja for $527 million.

But just as with Pandora, there are a few things investors should be wary of. The most disconcerting for Zynga is that the company is so reliant on creating smash-hit games or at least purchasing them from other companies. The company makes the vast majority of its revenue from just a handful of successful games and typically gets just 2%, or less, of its users to make in-game purchases. So creating massively popular hits is a must. While the stock is doing well so far this year, investors shouldn't be naive about how hard it will be to keep its blockbusters coming.

Foolish thoughts
While both Pandora's and Zynga's stocks are doing well so far this year, I can't imagine Zynga being a great long-term play for investors. The ephemerality of mobile games and the necessity for creating continual huge hits make the company seem fragile. Even if Zynga has another few hits up its sleeve, it doesn't have much of an advantage over the competition and it's too easy for users to move on to another company's game.

As for Pandora, the company definitely has an advantage over the competition with its sizable number of active users. Even with increased competition from iTunes Radio, Pandora has already etched out a solid place in the music streaming space that'll be hard for the competition to overcome. Apple is notorious for taking over new markets, but Pandora should be able to old its own against the iMaker, at least for now.

1 stock for 2014
While Pandora and Zynga may not be a top stock for 2014, there's one investment The Motley Fool's chief investment officer believes could be a huge winner this year. You can find out which stock it is in the special free report "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.

Read/Post Comments (4) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 12, 2014, at 8:41 PM, z06forum wrote:

    This is one Article written by an Author who just does not get it.

    ZNGA is creating the worlds first company with scale the dominate the global Mobile gaming industry.

    The lack of vision of what is happening right before your eyes is amazing to me that it is not obvious to the Author and other investors.

    The existing evergreen core games, Farmville, WWF, Zynga poker are the initial core games and the logical move to bring them to mobile and continue to monetize.

    What is worth noting is what you cannot see about ZNGA. The whats coming portion of ZNGA. If you take a look at Don, where he has been and what he has seen in his career and now who is surrounding himself with and what his goals are,

    it is not to hard to see that he is building an empire that is about to begin striking the world of mobile with a furry never before seen in the industry. The quality of games and styles to come will be Market disruptive in my opinion. For those investors who realize the sheer numbers of mobile devices out there and fact that the gaming market on mobile is fragmented at best. Znga is building a solid foundation to create a dominant presence for many years to come. Good Luck!

  • Report this Comment On March 12, 2014, at 10:36 PM, TKDKID wrote:

    The comment from z06forum are much, much more useful and accurate than the authors post above or anything from "The Motley Fool" regarding Zynga. I don't know if the owners of this site were initial investors of Zynga and are still PO'd about where the share price is but they refuse to accept tne reality of the present Zynga Company. Not only with Don Mattrick and his band of brothers leading Zynga, but with people like John Doerr on tne Brd of Directors this success is not suprising , it's expected! You must realize tne IPO price was $10, so the move back to $10 if ZNGA's Q1 Q2 est are met will be FAST. Their is also no mention of RMG and how Zynga is positioned to announce entry into that market at any time now. I wish the Fool would just stop writing about Zynga Period, because at some point on it's way too double digits in the next 6 months, more of your readers will come to realize you are either not doing your "Due Dilegence" in reporting and your name FOOL is more accurate then sarcastic, or they will accuse you of out right LYING by omition to your readers...Either way, you all should be ashamed.

  • Report this Comment On March 12, 2014, at 11:03 PM, retiredR wrote:

    Good comments from Foolish Readers:

    I share their enthusiasm about Zynga. With Don Mattrick leading Zynga and the foresight going forward into mobile the sky is the limit. Share price should bust out soon and continue rising. Zynga even has the attention of the hedge funds buying positions in the company. I wished I had bought more shares than the small amount I purchased.

    I think Don Mattrick should make a bid to purchase XBOX from Microsoft that's really his baby!

    Long on Zynga

  • Report this Comment On March 13, 2014, at 3:00 PM, Savitz02 wrote:

    This dude doesn't even own a single stock, and his last name is Neiger ... I mean really it is!

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Chris Neiger

Chris has covered Tech and Telecom companies for The Motley Fool since 2012. Follow him on Twitter for the latest tech stock coverage.

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