Is Zynga a buy?
Zynga is a multinational company in the video game sector whose market niche is focused on web social games. Founded in 2007, in its beginning it had a great boom thanks to its alliance with Facebook, where users of the platform had access to the games.
Many of these games were truly iconic, surely you will have played some of them or at least the name will ring a bell. Among the best known are FarmVille, CityVille, Mafia Wars, and CastleVille, having a large number of users on Facebook.
Currently, Zynga has its own web platform where it offers its games separately from Facebook, although some of them are still present in the social network. In them we can find that the company states that it has offices in Canada, United Kingdom and India, in addition to the United States.
Likewise, they also state that currently more than one billion people have played their games both on their website and on Facebook or any mobile platform. This is of vital importance when we analyze its business model.
According to the platform, its most popular games are FarmVille, Zynga Poker, Words with Friends and CSR (a car game). Although these are quite old, it also has more up-to-date titles such as a game based on Harry Potter and another on Games of Thrones.
Zynga's business model
Their way of generating money is very simple, they create an addictive game and publish it for free, but with some limitations that only disappear if the user pays.
An example of this are the games in which, if the user loses, he must wait a certain time to play again. But if the user pays a small sum of money, he does not have to wait this time, but can continue playing immediately.
In addition, there is the income from real money gambling games in which he usually earns a commission. Although in this case Zynga is as if it were a casino and therefore applies the rule “the house always wins”.
Zynga as an investment
Its share price is quite low and the stock has some peculiarities.
The first and most salient is that its stock market performance the last 5 years has far outperformed the growth of the SP500 and the NASDAQ Composite Index.
The second is that, in the same period of time, although the company has had a constant growth with little volatility, the accumulated return is more than 500% and still has the possibility of continuing to grow.
And obviously, this has put Zynga in the eye of investors looking for companies with good long-term returns in the market.
What types of assets can you trade?
What are ETFs?
Exchange-Traded Funds or ETFs are a kind of passively managed fund, similar to index funds. They can be described as a merge between stocks and mutual funds. They can be traded like regular stocks, but include a wide diversity of assets and have lower fees.
Forex or currency trading allows obtaining profits by exchanging one currency for another.
If you decide to trade euros and dollars, for instance, you speculate how many dollars it will take to buy a euro, with the expectation that the euro will rise compared to the dollar. Therefore, if you bought each euro for 1.15 USD and you sell them back when their price is 1.20 USD, you'll be keeping that margin.
You may be thinking by now that this form of trading requires investing considerable amounts, and you're right, since variations are usually minimal, and often you will need to use high leverage (which is an important risk). Our recommendation for those who are new in the world of trading is not to start with Forex, but with a safer and simpler market.
Most currencies are available on this broker. Still, consider that this market functions through contract for differences, which means the underlying asset won't be yours.
How do Contracts for Difference function?
It is possible that you have seen the acronym CFD now and then if you already registered on this broker. We will come back to it, but first, you should know that cryptocurrency operations on this broker are only CFDs when you short sell or leverage higher than x2 (although the platform does not even allow this option).
For the record, and if you want to try at some point day trading cryptocurrency or other advanced practices, later on we will also refer to terms like going short and leverage.
this broker allows you not only to bet “in the black”, but through CFDs you can also bet “in negative”. For instance, you believe that the Zynga will fall, so perhaps you think that the best thing to do is refrain from getting in until it does. Nevertheless, if it really falls, it might mean extra money for you.
You can do that by “going short”. More or less, it functions like this:
- You ask for a loan of, let's say, 100 units of Zynga, which total price at the moment is $ 5,000 (obviously, these numbers aren't real)
- You make $ 5,000 by offering them at their price in the market
- As you guessed, it devaluates, and the unit of Zynga now costs $ 30 instead of $ 50
- You purchase all 100 units again, but at the current price, $ 3,000
- Now you return the 100 units to whom made the loan
- The rest is yours, so, you will have made $ 2000
It is far more simple than it may seem. Just bear in mind that by trading in Zynga on this broker, you can make a profit when you anticipate downs.
How to use leverage when trading Zynga
Have you heard about “leverage”? We'll put it simply: trading allows you to invest even more than you can have in a given time. That is, if you get in with $ 100 and you put them with x2 leverage, the amount of your investment will be $ 200.
What you should know about leverage
Assuming that, for instance, you are certain that Zynga price is going up, and that you have $ 1,000 for “going long”, you should know that you have the option of investing more and making more money.
You could consider requesting a loan at your bank or other financial company, but it is a process that takes time, and when you receive the money, Zynga might be already at a much higher price, so you wouldn't be able to invest the way you planned.
Thanks to leverage, you can get that amount of money just by clicking your mouse. It's like a loan, but much easier and quicker, and with the advantage that you will be getting it directly from the broker. It is very simple, before investing you will see the different options as in the image below:
With other assets, you can use more leverage. Why? Because leverage is most common in short-term operations or day trading, and cryptocurrencies tend to be a medium or long-term investment. But let's explain how leverage works with the previous example.
You start with $ 1,000 and decide to use leverage x2, which means you would really invest $ 2,000 (the extra $ 1,000 to reach $ 2,000 are “borrowed” from the broker).
A few days pass and turns out that you were right: Zynga price has risen by 20% and the value of your investment is now $ 2,400. But you don't want to take too much risk, so it's time to sell back.
You will have to give back the $ 1,000 of leverage and you will have made $ 400 (since the other $ 1,000 was your initial investment).
In conclusion, by investing $ 1000 you can make a profit of 40% (in the case you earn $ 400). That is pretty decent.
But watch out: if all goes as you intended and the asset increases, you will make money. However, if the price falls, you will also lose more money in the blink of an eye.
For instance: if instead of increasing by 20%, the price falls by 10%, you do not lose $ 10, but $ 20, because of the leverage. For that reason, when using leverage it is essential to know other two terms: Take Profit and Stop Loss.
Take Profit is the automatic sell order that is above the entry price: you buy Zynga shares at $ 100 and you ask your broker to close your operation as soon as the price goes up to $ 120. It is very helpful to avoid being blinded by enthusiasm: a 20% profit is usually very good, but once you see the price has risen, you might want to gain a bit more and decide to wait, but this could be a mistake. So, Take Profit helps you reduce risks when trading.
Stop Loss is even more necessary, especially if you trade with leverage, because a reduced loss with leverage can have a significant impact on your wallet. For that reason, it is essential to establish a Stop Loss more tight than that suggested by the broker.