It was not long ago when mobile gaming was thought of as a phenomenon somewhat unique to Asian countries. In particular, handheld gaming is especially popular in Japan. However, the United States is becoming more and more like Japan with each passing day. Hop on a local subway car, ride the train or ask your kids what their friends are doing while killing time on the bus, and you will find mobile gaming has become quite popular.
In fact, mobile gaming is taking off worldwide as many more top-notch games are made playable on phones and portable gaming consoles such as the Nintendo Switch. Though most people do not own a Switch console, the vast majority of people own smartphones. The rise of smartphone gaming is benefiting Zynga (ZNGA) and Glu Mobile (GLUU).
Let’s take a look at both stocks to determine which is better for your portfolio.
The Analysts are Bullish on ZNGA and GLUU
The analysts who have performed an in-depth analysis of these gaming companies agree the future looks fantastic for both, mainly because mobile is the fastest-growing gaming industry segment. Analysts have set an average price target of $12.31 for ZYNGA, meaning it has a potential 23% upside. Each of the nine analysts who cover the stock recommends it as a “Buy,” which is certainly a positive for the company. Analysts have set an average price target of $12.33 for GLUU, indicating the stock has a potential upside of 30%.
The POWR Ratings show GLUU has an “A” grade in the Trade Grade and Industry Rank components. GLUU also has a “B” grade in the Buy & Hold Grade component. Of the 15 stocks in the Entertainment – Toys & Video Games industry, GLUU is ranked ninth. ZNGA’s POWR Ratings are even better, highlighted by an “A” grade in the Industry Rank and Trade Grade components along with a “B” Buy & Hold Grade. ZNGA is ranked eighth in the same industry.
What About the Games?
Let’s cut to the chase. The quality of ZNGA and GLUU games will ultimately determine which of these stocks emerges as the winner. However, if you are like most investors, you don’t spend an abundance of time playing mobile games on your smartphone. Even if you are a non-gamer or only play games from time to time, you will have likely heard of one of ZNGA’s top titles, Words With Friends.
Other ZNGA titles include Empires & Puzzles, CSR Racing, Zynga Poker, and Merge Dragons. Add in the fact that ZNGA personnel is hard at work, creating a new studio to develop Star Wars games, and you have all the more reason to be bullish about the stock’s future.
GLUU’s games are not as popular as ZNGA’s, yet still have their merits. GLUU titles include Tap Sports Baseball, Covet Fashion, Diner Dash Adventures, Disney Sorcerer’s Arena, and Design Home. The alliance with Disney (DIS) certainly bodes well for GLUU. However, at this point, ZNGA has a slightly superior collection of games.
Which is the Better Value?
ZNGA currently has a forward P/E ratio of 26.42, indicating the stock might be slightly overvalued at its current trading price of around $10. It is particularly interesting to note ZNGA is less than 75 cents away from its 52-week high of $10.69, a price point that could be easily surpassed as the upcoming holiday season unfolds.
GLUU’s forward P/E ratio is slightly lower at 23.58. GLUU is $1.30 away from its 52-week high of $10.85. The stock is currently trading at more than double its 52-week low mark of $3.98.
Take a look at ZNGA’s one-year chart, and you will find it appears as though the stock has established a price floor at $7.90. The stock bounced back up to $10 after hitting this floor last month. GLUU appears to have established a price floor at $6.90. The stock dropped to this floor in November and popped right back to life, soaring slightly above $10 across the next month.
The better of these two mobile gaming stocks might end up being the one that makes the most prudent acquisitions moving forward. ZNGA’s purchase of Peak Games brings Toy Blast and Toon Blast games into the fold. Though the deal set ZNGA back nearly $2 billion, the move will likely boost the company’s mobile user base by over 60%.
GLUU CEO Nick Earl has stated the company has ample capital available for potential acquisitions. There is always a chance that DIS makes a move to acquire GLUU following the tandem’s successful collaboration on the Disney Sorcerer’s Arena, as noted above. However, it is much more likely that GLUU will acquire smaller gaming companies to expand its library of games.
In the end, investors could consider adding both ZNGA and GLUU to their portfolios. However, if you have to choose one of these two mobile gaming powerhouses, ZNGA appears to be the better choice, primarily because its games are more popular and have broader appeal than those offered by GLUU.
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ZNGA shares . Year-to-date, ZNGA has gained 62.25%, versus a 16.33% rise in the benchmark S&P 500 index during the same period.
About the Author: Patrick Ryan
Patrick Ryan has more than a dozen years of investing experience with a focus on information technology, consumer and entertainment sectors. In addition to working for StockNews, Patrick has also written for Wealth Authority and Fallon Wealth Management. More...
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