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Electronic Arts and Activision look good as Zynga drops

By Chris Lau for Kapitall.

Zynga ( ZNGA ) shareholders cannot get a break. Since reporting quarterly results that were better than consensus, the stock continued its descent, closing down roughly 41% from a 52 week high. The results pale in comparison to those of "traditional" game makers, which includes Electronic Arts ( EA ) and Activision ( ATVI ). With Zynga wiping out all of its gains in the last few months, it might be time for investors to look elsewhere.

Zynga hired Alex Garden, an Xbox Live executive from Microsoft ( MSFT ), to lead Zynga Studios last month. For Q2, the firm expects a loss of up to $0.08 per share. Analysts expected the loss would be no more than a penny. For the year, Zynga expects to make just $0.01 per share on bookings of $770-$810 million.

EA Attractive

Electronic Arts exceeded expectations earlier this month when it reported fourth quarter earnings of $0.48 per share on revenue of $914 million. The firm expects revenue for fiscal year 2015 will be $4.1 billion ($1.85 per share). EA has a forward P/E of 19.

The game maker timed the launch of FIFA World Cup 14 so that the game will benefit from this summer's World Cup. NHL 15 and Madden NFL 15 will contribute to the company's line-up of sports titles.

EA's new Titanfall series was an incredible success, too, with 925,000 units sold through during the last quarter. Overall, EA expects non-GAAP gross margins will improve to 68.5 percent this year.

Not to be outdone, Activision also beat expectations when it reported first quarter results last week. The firm also raised its revenue and earnings guidance. Activision expects revenue will be $4.675 billion while earnings will be $1.27 per share. Shares trade at a forward P/E of 16.4.

Mobile gaming waning

It is hard for investors to predict the profitability for mobile game titles. Zynga is still finding the best balance between growth in mobile games and linking the interactions on social media. EA and Activision are still selling game titles profitably. Mobile apps from EA are an additional source of revenue. Investors looking for exposure to mobile gaming should add EA to their watch list.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

Kapitall Wire is a division of New Kapitall Holdings, LLC. Kapitall Generation, LLC is a wholly owned subsidiary of New Kapitall Holdings, LLC. Kapitall Wire offers free investing ideas, intended for educational information purposes only. It should not be construed as an offer to buy or sell securities, or any other product or service provided by New Kapitall Holdings, LLC, and its affiliate companies.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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