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Forget Zynga, Buy These 3 Video Game Stocks Instead -Breaking

by Mike Robinson

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© Reuters. Avoid Zynga and Buy These Video Game Stocks instead

Video gaming has seen a dramatic increase in its users due to the COVID-19 outbreak. The introduction of innovative games should also keep driving the industry’s growth amid the reopening of the economy. But we don’t think Zynga (NASDAQ:) is fit enough financially to capitalize on the industry’s growth. Instead, investors can place their money on the shares of sound video gaming companies Activision Blizzard NASDAQ:, Electronic Arts eA (EA) and Playtika PLTK. Keep reading. Let’s pore over these names.San Francisco-based social game services provider Zynga Inc .’s (ZNGA) total revenue increased 40% year-over-year to $704.7 million in its third quarter (ended September 30, 2021). But, the company’s total cost and expense increased 14.7% over the year to $717million. The cash and cash equivalents of the company were $1.09 billion in the September 30th, 2021 period, as compared with $1.36 billion in the December 31st 2020 period. The 0.35% trailing-12 month CAPEX/Sales ratio, which is 90.8% below the industry’s average of 3.77%, are just two other indicators that indicate weak financials. Its trailing-12 month net income margin of negative is lower than the industry average of 5.73%.

The stock has declined 38.5% in price over the past six months to close yesterday’s trading session at $6.34. Furthermore, JPMorgan (NYSE:) analysts recently reduced ZNGA’s price target to $10 from $12. Also, in terms of forward EV/S ratio, the stock’s 2.59x is higher than the 2.43x industry average. Its forward P/S of 2.63x is 50% higher than that 1.75x industry standard. So, it may not be a wise bet to cash in on the industry’s growth.

The COVID-19-led remote lifestyle has led to a surge in video game demand. While easing restrictions this year have been shifting consumers’ focus to outdoor activities, the increasing availability of innovative online, mobile, and cloud gaming should keep driving the industry’s growth. Fortune Business Insights reports that global gaming will experience a 13.2% growth rate between 2021-2028. Therefore, we think investors seeking to benefit from the industry’s growth could instead bet on quality video game stocks Activision Blizzard, Inc. (ATVI), Electronic Arts Inc . (NASDAQ) and Playtika Holding Corp.

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