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Zynga: Cheaper Than Virtual Coins

Editor's note: As part of our partnership with Nightly Business Report, TheStreet's Debra Borchardt will join NBR Monday (check local listings) to look at video game stocks as Zynga continues to lose the game.

NEW YORK ( TheStreet -- Expectation runs high for Zynga (ZNGA - Get Report), but if investors leave the virtual world and compare real numbers, Zynga loses. This newbie stock is a waste of investors' money.

The top game companies include Activision (ATVI - Get Report), Electronic Arts (EA) and Take Two (TTWO - Get Report). All three saw their shares hit highs before the financial crisis. Since then, Activision is the only stock to attempt an uptrend in its share price. EA and TTWO have both languished.

Zynga fans will point to its mobile/social gaming aspect and say that this is the wave of the future and a growing gaming segment. Zynga is a leader in the mobile and social media space with its popular Farmville and Words with Friends games, and it generates 12% of Facebook's (FB) revenue and was nearing $1 billion in revenue in just four years.

But Zynga is looking more like a flameout than a FarmVille. The gamer is being sued by new shareholders who allege the company committed securities fraud by making misleading statements when it went public. Zynga substantially cut its bookings and earnings outlook shortly after the stock began trading. Zynga is also getting sued by Electronic Arts, which says Zynga copied key elements of The Sims Social.

If investors want to make a bet on a digital game company, they don't have to look much further than the existing ones. Activision has seized on the popularity of mobile games and will be developing an Angry Birds game with Rovio Entertainment. The hope is to capitalize on the successful mobile game. EA is making its move into mobile with its Nucleus platform, which has 225 million registered members. That isn't too far behind Zynga's 292 million active users.

Even GameStop (GME - Get Report) has jumped into the mobile space. GameStop is taking pre-orders for the Google (GOOG) Nexus 7 tablet and offering a 30% trade bonus towards the pre-order. So Zynga really doesn't have a lock on the mobile gaming space that some think it has.

For some inexplicable reason, the market has rewarded Zynga with a forward price-to-earnings ratio of 19.87. Activision and EA are both at roughly 10, while Take Two is dragging in at 3.47.

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SYM TRADE IT LAST %CHG
ZNGA $2.52 0.00%
ATVI $23.94 0.00%
GME $40.71 0.00%
MSFT $47.87 0.00%
TTWO $25.08 0.00%

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