Zynga Is A Better Play Than The Facebook IPO

| About: Zynga (ZNGA)

When I first heard the news about the Facebook (FB) IPO, I was really excited. This could be the next Google (GOOG), I thought to myself. For those of you who don't remember that IPO, Google was trading around $100 in the first week and I can still remember all of the articles I read on how it was overvalued and could never sustain such a huge share price. It continued to rise to over $700 per share. I hate to admit that I am here writing that same article, seven years later about Facebook.

Facebook is set for its initial offering in a couple weeks, and I am afraid that the $100 Billion dollar valuation is huge for an IPO of a company that does not do a good job of monetizing its popularity very well. There is a lot of potential with access into 800-million-plus people's home computers, but my fear is that Facebook is too speculative and trend based. Do you remember MySpace? At one time it was the most popular social networking site, until Facebook came along. In a moment, a new networking site may emerge that replaces Facebook as the new popular site for networking and photo sharing and Facebook finds itself with no way to sell its advertising.

I have a better play on the Facebook IPO in Zynga (ZNGA), a social game developer. Zynga's games include Farmville, CityVille, Mafia Wars, poker, Words With Friends, and many more. According to the LA Times, in Facebook's S-1 filing for the IPO, Facebook announced that 12% ($444 million) of its revenue came directly from Zynga. Does this mean that Zynga depends on Facebook or vice versa? I propose that this relationship leans in Zynga's favor.

Zynga has many different places where it is developing revenue. Facebook is the most popular place to play Zynga's games, but Zynga also gets revenue from being available on the iPhone, Droid and other smartphone devices. Especially with the growth of smartphone usage, if Zynga is able to continually improve in the area of monetizing mobile games, it will be poised well to grow this revenue stream beyond the reach of Facebook.

Zynga has also been investing in and developing a gaming platform separate from Facebook. The more people that recognize the superiority of its games and move to the Zynga platform, the more revenue it will gain by avoiding the 30% cut Facebook takes on virtual goods sold.

There has been some concern about the sustainability of Zynga due to the most recent quarter's loss and the amount of money it is putting into the development and upkeep of games. That does not concern me. This is a very well run company that has revenue of $400,000 per employee. With AppData showing that Zynga is dominating the Facebook app developer leaderboard, there should be plenty of revenue coming for this game developer. Instead of getting in on the Facebook IPO, give Zynga a try.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.