Why I’m Digging This Cheap Tech Stock
Tech stocks can get very, very expensive.
If you want to own shares of a fast-growing company in a hot tech field, prepare to pay a hefty premium.
How much do you have to pay?
Well, nowadays, there are even stocks trading at over $1,000 apiece! Look up the share price of Amazon.com, Inc. (NASDAQ:AMZN) and Alphabet Inc (NASDAQ:GOOG) to see what I mean.
To buy just a few dozen shares of either of those two companies, you’ll need to put up tens of thousands of dollars.
For the average Joe, that’s way too much money to spend on one stock. Last time I checked, the median American household had just $11,700 in savings. (Source: “Here’s how much money Americans have in savings at every income level,” CNBC, September 27, 2018.)
That’s why I’m constantly on the lookout for bargains. There’s no denying that the tech sector is filled with opportunities. If an investor can get in on a fast-growing company before its stock gets expensive, they will likely lock in big returns when more people realize the company’s potential.
With that in mind, I want to talk to you about Zynga Inc (NASDAQ:ZNGA).
ZNGA is not just any tech stock, it’s a company coming from one of the fastest growing areas in tech: mobile gaming.
Founded in 2007, Zynga has created some of the most popular games for users of mobile devices. These include Zynga Poker, Words With Friends, and FarmVille. Around the world, over a billion people have played the company’s games across multiple platforms including “iOS,” “Android,” “Facebook,” and “Zynga.com.”
The little games that people play on their smartphones may not seem like much, but over the years, the mobile gaming industry has grown tremendously. And Zynga has managed to capitalize on that boom.
Last year, the company generated over $900.0 million in revenue. (Source: “Q4 2018 Zynga Quarterly Earnings Letter,” Zynga Inc, February 6, 2019.)
And yet, at the time of this writing, ZNGA stock traded at just $4.74 apiece!
Mind you, this is not some micro-cap penny stock with a shaky underlying business. This is an established player in a booming tech industry.
For investors looking to make a buck from the tech boom but don’t want to risk too much money upfront, things don’t get much better than this.
And if you are wondering whether a stock trading for less than $5.00 per share can truly be worth considering, a look at its financials should provide some reassurance.
Zynga reported its 2018 Q4 earnings on February 6, 2019. In the fourth quarter, the company earned $249.0 million of revenue, representing a seven-percent increase year-over-year.
What’s more impressive though, is bookings—a non-generally accepted accounting principles (GAAP) metric that the company defines as the total amount of revenue from the sale of virtual goods that would have been recognized in a period if they recognized all revenue immediately at the time of sale.
In the December quarter, Zynga’s total bookings surged 19% year-over-year to $267.0 million.
As I mentioned, the company is capitalizing on the growing mobile gaming industry. For the quarter, Zynga achieved its best performance in both mobile revenue and bookings—$228.0 million and $248.0 million, respectively.
Notably, the company has drastically improved its cash flow profile. In the fourth quarter of 2018, Zynga generated $90.0 million in operating cash flow, representing a whopping 241% increase year-over-year.
And the best could be yet to come.
For 2019, management expects Zynga to generate almost $1.4 billion in bookings, which would mark another 39% increase from 2018. Because part of those bookings will be recognized as deferred revenue, management’s actual revenue projection for 2019 is almost $1.2 billion. (Source: Ibid.)
Still, that would be 27% higher than Zynga’s top-line number in 2018.
Zynga Inc Stock Chart
Chart courtesy of StockCharts.com
However you look at it, Zynga is a mobile gaming company firing on all cylinders.
Judging by the recent share price performance, market participants seem to have already started warming up to ZNGA stock. Investors looking to get a piece of the action may want to act quickly.