The Big Dogs Threaten to Make Zynga Stock a Tad Too Exciting

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Over the last several years, the gaming industry proved to doubters that it was a serious business, and one of the most viable subsegments in this category is mobile gaming. With advancements in smartphone technology, companies like Zynga (NASDAQ:ZNGA) have capitalized on the trend. Thus, to many bulls, the skyrocketing of Zynga stock in 2019 was no fluke.

The Big Dogs Threaten to Make Zynga Stock a Tad Too Exciting

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Although the year is young, the optimist’s thesis looks convincing. Since the beginning of January’s session, ZNGA stock has jumped over 8% as investors bet on the underlying company’s continued relevancy in 2020 and beyond. Plus, the sentiment burst came at the right time. Though it was a big winner overall last year, ZNGA lost ground in the second half of 2019.

Further, Zynga stock is getting positive coverage from influential sources. SunTrust analyst Matthew Thornton initiated coverage with a “buy” rating. He also set a target of $7.50, which is about 12% from the time of writing price. Citing strength in Zynga’s current gaming portfolio, Thornton also brought up its pipeline. This includes titles such as “FarmVille, Harry Potter, Star Wars, Game of Thrones, and others.”

It’s hard to argue with this thesis. Previously, I suggested that investors consider Glu Mobile (NASDAQ:GLUU) as a potential contrarian idea. While ZNGA stock rightfully enjoyed its tremendous rally, the gaming industry is extremely competitive. With much market risk baked in, GLUU seemed to offer better upside.

Presently, though, Zynga stock has registered a positive start to the year while GLUU is printing red ink. And the enormous popularity of Zynga’s games that drove the company to success in its third quarter of 2019 earnings report appears very much intact.

Can You Trust Zynga Stock in 2020?

There’s no question that ZNGA stock registered a tremendous performance in 2019. Shares of the mobile gaming specialist returned 57% for stakeholders. However, that also raises concerns that buyers this year will end up holding the bag.

Proponents of the company may point to the wide-ranging opportunities available in the space. According to market research firm Technavio, the mobile gaming industry worldwide will see growth of nearly $45 billion during the years 2020 through 2024.

Furthermore, as smartphone technologies rise in scope and magnitude, the platform facilitates new innovations. One of the most exciting developments is augmented reality or AR. With the ability to use real environments in gaming software, the possibilities are limited only to developers’ creativity. Critically for Zynga stock, the underlying company has already included AR-based content in its portfolio.

And I’d be remiss not to mention the 5G rollout. Thanks to higher data transfers, capacities and efficiencies, mobile gamers can enjoy far more intensive content. Obviously, that’s a huge catalyst for ZNGA stock.

However, not everything is promising for the mobile game developer. With consumer habits changing, more than a few high-level conversations have occurred at companies like Sony (NYSE:SNE) and Microsoft (NASDAQ:MSFT). These two gaming powerhouses have invested substantial resources into developing AR-based content. Eventually, that could pose a serious challenge to Zynga stock.

For one thing, Sony and Microsoft have more money to spend on AR. Zynga’s quarterly research and development expenditures number in the millions. On the other hand, the former two companies’ R&D expenditures are in the billions.

Second, Sony and Microsoft have the distinct advantage of rabid consumer support. In other words, wherever they go, their legions of fans will follow.

Be Tactical About ZNGA Stock

Clearly, Zynga is doing all the right things. Not only do they have desirable products (and more down the way) but they’ve invested in the technologies of tomorrow. Having proven so many doubters wrong, I don’t want to beg against the company.

Still, I’m reminded that markets often move in cycles. With Zynga stock having already made strong gains, I still have a contrarian eye on downtrodden names like GLUU. As you know, gaming trends can be very fickle. Plus, competition is heating up as gaming adopts new tech like AR.

That’s not to say that I would recommend against buying ZNGA stock. Rather, I would adopt a measured approach. A lot of good news has been baked into the share price, facilitating less upside potential.

As of this writing, Josh Enomoto is long SNE.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. Tweet him at @EnomotoMedia.


Article printed from InvestorPlace Media, https://investorplace.com/2020/01/big-dogs-zynga-stock-too-exciting/.

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