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Zynga: Cheaper Than Virtual Coins

When you unlock the fundamentals, Activision is at a different level. It's the giant of the group with a market cap of $13 billion, and it leads the pack with 22.8% in profit margins and a 32% return on equity.

Electronic Arts is next with a market cap of $4 billion. EA limps in with a profit margins of 1.8%, but a respectable return on equity of 14.66.

Zynga, with a market cap of $2 billion, is in between the big guys and Take Two, which has a market cap of only $703 million. However the market has rewarded Zynga with a price-to-sales ratio of 1.7, whereas EA and Take Two clock in at 0.9. Zynga's profit margin is -35.5% and its return on equity is -43.99%.

Take Two is most famous for its Grand Theft Auto franchise and having successfully fought off a takeover bid from EA in 2008. Take two's profit margins are dead at -13.2%, and it has an abysmal return on equity of -91.6%.

They all have a parasitic partner. Zynga is dependent upon Facebook, which has been pushing the older game titles to less prominent positions on its site. Zynga is attempting to reduce its dependence on Facebook, but really, where will it go?

The others are held hostage by the console makers. Nintendo's (NTDOY) Wii U is the only new console planned for this holiday season, and the last updated systems were not exactly "game-changers." Microsoft's (MSFT - Get Report) Xbox is wildly successful and it has outsold the Wii and Playstation. But the technology is six years old, and the company is in no rush to deliver a new product until 2013 at the earliest. Not helpful to the gamers.

However, if your quest is for performance, skip Zynga and look to old-school Activision. Activision has no debt and just increased its full year outlook. Its net income fell in the second quarter and its World of Warcraft users dropped, causing some selling in the stock.

But things are looking up for the holidays with Call of Duty: Black Ops II and Skylander Giants coming out, and the stock tends to move at the end of the year. In 2010, the stock rose 12% from August to December. It rose 11% over the same period in 2011.
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