A sample to showcase equity analysis and report writing skills

1. ZYNGA’S GAME PLAN
Early in the first decade of the 21st century, social networking began redefining how people
across the world interacted with each other. The advent of smart phones and tablets has helped
this growth. Various new solutions and tools have also appeared that are helping prominent
social networking sites by bringing in traffic and engaging users to spend their time and money.
One prominent sector, that emerged was social gaming. One of the closely observed companies
which made it big was Zynga Inc. With their innovative games the company created a demand for
its services. But the stock price of Zynga Inc has fallen from $10 per share to $2.55 since December
2011. The company has large amount of cash $1.6 billion ($2.1 per share). The shareholders are left
to wonder the implications of this strategy and what it means for their investment?
GAMING FUTURE
Currently there are 77.9 million social network gamers in US (Casual gamers association) and their
numbers are increasing. As the conditions in emerging markets become better, the worldwide social
gaming market is forecasted to grow to $8.64 billion (Casual gamers association) with increase in
internet connectivity, increase in smart phones users and ease of payment options for online
purchasing.
TRENDS IN SOCIAL GAMING
The social gaming sector is very unpredictable. Innovative games like Farm Ville went viral due
to innovative tools of social interaction embedded in the game - which the world had never seen
before. At its peak, Zynga Inc generated about $1 million in revenue a day (Business Insider).
The popularity of the game went down once the users were familiar with the gameplay. To keep
their revenue growing game developers need to invent new games with such innovative tools
regularly. The revenues are largely dependent on chances of one or more social games going
viral with the users. Clearly Zynga Inc needs another ‘Farm Ville’.
ZYNGA’S STRATEGY
Given the potential of a trend setting games, the contribution of New and other games (26.53%
to the stock price) with respect to Texas Hold’em Poker(19.96% to the stock price), indicates
that the company is unable to develop a game which has potential to generate high profits.
Zynga Inc is strengthening their established competency in Texas Hold’em Poker by entering
the real money gambling market in Nevada. Many investors believe that this will boost the
prospects of the firm.
Zynga Inc, with its proven all round competency in development, marketing and operation is an
acquisition target for cash rich Apple, Google etc. – seeking to have in house gaming platform.
In spite of acquiring 14 small gaming firms during 2010-2011, the organisation has focussed on
accumulating cash ($1.6 billion). Combining the increase in the number of game developers
because of open source development methodology together with Zynga’s inability to develop
another trend setting game, we can say that the company might be seeking to recognize and buy
games which have the potential to go viral.
CONCLUSION
Put it all together – the cash, the Real money gaming potential, the possibility of acquisition,
their current strategy – and it becomes clear that Zynga’s stocks are bound to earn profits in
future.