Gaming company Zynga (NASDAQ:ZNGA) started the year on a high, but lost its momentum in March. Zynga shares are down close to 25% in the last month, similar to what mobile gaming company Glu Mobile (NASDAQ:GLUU) has lost. So, investors now have a pretty solid opportunity in front of them to buy these two gaming stocks on the dip. Let's see why.
Why Zynga looks well positioned
Early in February, Zynga's stock price surged after a UBS analyst increased his rating on the stock, following the company's decision to purchase NaturalMotion.
Moreover, after CEO Don Mattrick announced the launch of pilot programs for Zynga's real-money poker game across various parts of the world by the end of this year, shares received another boost. As Zynga makes investments to grow and sustain its franchises, the stock should see solid growth in the future.
Driven by the company's strategic investments, Words With Friends and its Casino franchise are yielding impressive results. For example, in the previous quarter, bookings for Words With Friends grew 33% sequentially, which was the biggest in the game's five-year history. On the other hand, the Casino franchise achieved sequential booking growth for the first time in the last 18 months, indicating the fact that Zynga is indeed making the right moves.
Zynga has also introduced a new mobile slots game, and the company will continue to push more games on the mobile platform. Management expects 2014 to be a landmark year for its mobile growth, with new additions such as FarmVille, which it plans to introduce in the second quarter. With a rich history of more than 400 million people having played FarmVille on Facebook, Zynga is eager to take this success onto the mobile platform.
Zynga is also very confident about the racing game genre on mobiles. NaturalMotion has pioneered the racing experience on mobile devices with games such as CSR Racing and Clumsy Ninja.
CSR is among the top racing games on mobile in more than 20 countries. On the other hand, Clumsy Ninja achieved 10 million downloads in the first week of its launch and became the number one free game in the Apple App store.
Hence, the acquisition of NaturalMotion will help Zynga accelerate its growth in mobile gaming. Acquiring NaturalMotion will benefit Zynga in three ways. First, it will help it expand its creative pipeline; second, it will boost its growth in mobile, and third, it will bring next-generation technology and tools to Zynga.
Consequently, around 75% of all the games under development at Zynga can also be played on mobile. It anticipates its mobile bookings to surpass its web bookings going forward, and account for more than 50% of its bookings base.
Glu continues to roll
Glu Mobile is a big name in the mobile segment and the company has a rich franchise of games under its belt. Glu already had big names such as Contract Killer, Frontline Commando, Eternity Warriors, and Deer Hunter under its belt, and now the company has added RoboCop and Motocross Meltdown to its portfolio. Going forward, Glu is slated to launch the next iterations of the Contract Killer and Frontline Commando franchises.
Glu is focusing more on action games this year. The Entertainment Software Association, using NPD Group data for 2012, states that nearly 45% of revenue on consoles was derived from action and shooter titles. So, Glu is making the right move in this area as the number on mobiles is around 20 times lower. Going forward, it believes that the number of players of shooter games on mobile and consoles will converge, eventually leading to growth on the mobile platform.
In addition, Glu is diversifying, both in terms of the markets it operates in and the games that it launches.
It appears that Glu is moving in the right direction and investors should definitely think of capitalizing on its weak share-price performance lately. The same can be said about Zynga, with the company deploying a sound strategy that could lead to strong growth in the future. All in all, both companies look like solid investments that investors should buy on the pullback.
Mukesh Baghel has no position in any stocks mentioned, and neither does The Motley Fool. 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.