King (KING) vs. Zynga (ZNGA): Which is the Better Gaming Stock?
We have all heard of Candy Crush Saga which remains to be King Digital Entertainment PLC’s (KING) signature product. Another game that we have also heard about is FarmVille, arguably Zynga Inc’s (ZNGA) enduring franchise.
Thanks to these games, both ZNGA and KING have seen their golden days in the online gaming market, but which one has staying power from a stock perspective? Which of these rivals continues to dominate and outperform the gaming market, and which one will investors benefit more from? We will examine both companies and see how they are faring from an investor’s point of view and which might be better for portfolios now:
KING Information
KING is an interactive entertainment company. The company’s games include Candy Crush Saga, Pet Rescue Saga, Farm Heroes Saga, Papa Pear Saga, and Bubble Witch Saga. As of December 31, 2013, an average of 128 million DAUs played its games more than 1.2 billion times per day. The company makes casual games, which appeal to a wide and growing audience.
Users access the games for free anywhere and anytime they wish to, either on their mobile devices, through social networks or via its Website, king.com. The combination of wide game appeal, accessibility, and its multi-platform capabilities enables KING to attract a broad user base, foster viral growth, and create a compelling, fun and social experience. The company operates in developing and monetizing casual online and mobile games. As of December 31, 2013, the company had a massive network of 324 million monthly users.
ZNGA Information
ZNGA is the provider of social game services. The company develops, markets, and operates online social games as live services played over the internet and on social networking sites and mobile platforms. The company’s games are accessible on Facebook and other social networks, mobile platforms, and Zynga.com.
According to AppData, as of December 31, 2012, the company had five of the top ten games on Facebook (FB) based on DAUs (daily active users). The company’s players are also more engaged, with the company’s games being played by 63 million DAUs, worldwide as of December 31, 2012. According to comScore, in the month of December 2012, players spent more time playing Zynga’s mobile games than the next five mobile game developers combined.
KING Financials
KING’s stock hasn’t been doing too well lately, and the financials can tell us a lot in regards to which direction this company is going to take. KING may not have too much time left, and it may turn out to be just a one hit wonder if the company fails to innovate and develop its simple game engine. Simple game engines are great, but not for savvy social media players and savvy technology geeks, who may be able to replicate the game engine, decreasing KING’s potential to profit. Without further ado, here is some of KING’s key financial data, bearing in mind that net income, gross profit, and diluted net EPS are FY ended on 12/31/2013:
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We can see from these factors that KING is not doing too well financially, especially when compared to the internet/mobile gaming industry. KING had a negative diluted net EPS for last year, and even though the Diluted Net EPS for the last financial quarter (6/30/2014) had improved well, the company is still struggling to control a larger slice of the market. It does have a positive net income, but its forward PE ratio and perhaps most importantly for investors, its PEG ratio pales in comparison to the industry’s average.
It is also noteworthy that KING’s stock has tumbled ever since its most recent earnings conference call. For the current quarter (9/2014), analysts have continually revised and lowered their EPS estimates from $0.50/share 90 days ago to $0.40/share today. KING currently maintains 0.00% Earnings ESP, an average EPS surprise rate of -13.84%, and a +4.00% EPS Surprise last quarter.
ZNGA Financials
ZNGA has had its stock on the market for a longer period of time than KING, and historically, it has consistently surprised Zacks Consensus Estimates positively. ZNGA’s stock hasn’t been doing too well ever since it plummeted all the way from double digits per share level back in early 2012. ZNGA’s financials can tell us a lot in regards to which direction this company is going to take. Unfortunately, ZNGA has not been able to keep up with the fickle social media gamers, and it has not turned every game profitable.
ZNGA needs to change its attitude towards FarmVille. People are not going to try out FarmVille 2 if they already know what the game’s concept involves and anticipate no big changes. ZNGA should strive for consistency by pushing for new games with new ideas. Here is some of ZNGA’s key financial data, bearing in mind that net income, gross profit, and diluted net EPS are FY ended on 12/31/2013:
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ZNGA is not doing too well financially either, especially when compared to the broader gaming industry. The company maintained a negative net income, despite being smaller than KING. This is a red flag, however, that alone does not necessarily mean that ZNGA is a better investment than KING. For the current quarter (9/2014), analysts have continually revised and lowered their EPS estimates from -$0.02/share 90 days ago to -$0.05/share today. ZNGA currently maintains 0.00% Earnings ESP, an average EPS surprise rate of +37.14%, and a +33.33% EPS Surprise last quarter.
Conclusion
It is always up to the savvy investor to make his or her choice, however it is worth mentioning that both stocks do not currently maintain a Zacks Rank #1 (Strong Buy), nor a Zacks Rank #2 (Buy). In fact, ZNGA is a Zacks Rank #3 (Hold), while KING is a Zacks Rank #5 (Strong Sell). For position or swing traders, this means that there are definitely better entry points for both stocks in the near future, however for the long term investor; GLU Mobile Inc. (GLUU) may be a better investment.
GLUU is currently a Zacks Rank #3 (HOLD), however GLUU’s success has not relied on a single smash hit game. It is not to be underestimated, and it has proved different than ZNGA and KING. GLUU has been spending a lot on graphic intensive games, such as Deer Hunter and Dino Hunter, which while being simple games, cater to a large group of gamers who solely care about graphics. GLUU manages to turn in a profit on almost every game, and perhaps that, along with a diverse title lineup, is the key in this ever-changing industry.
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