in Mobile Gaming

Zynga IPO could boost gaming sector valuation – Buy G5 Entertainment!

Finally, finally, the IPO market is getting hot again with the most recent example being LinkedIn, which was priced at the higher end of its range and made a huge jump on its first trading day.

Next in line could be Zynga, a leading provider of social and mobile games such as Mafia Wars and FarmVille. Rumour has it that Goldman Sachs could be involved in the IPO and valuation could exceed USD 10bn (2010 revenues were USD 850m).

I expect this to highly increase the interest for gaming stocks in general as it will shift investors focus towards this fast growing segment. Shares of mobile gaming developer Glu Mobile have been rallying more than 20% over the recent trading sessions, despite the fact that the company is still making losses. However, its underlying demand is developing faster than previously expected and the company raised its Q2 revenue outlook to USD 16m – 17m, from previously USD 15m-16.5m (analyst consensus was looking for USD 15.8m).

Here in the Nordic region, my clear favourite is G5 Entertainment, a company that is already benefitting big time from the smartphone and tablet hype around the world. On top of that they have an efficient structure which allows them to develop new games at relatively low cost, leading to outstanding profitability. G5 Entertainment shares are currently trading at a 12m forward looking PER of 11.6x, but the company has already stated in their recent quarterly report that there is a high likelihood that they will increase their FY 2011 EPS guidance of SEK 1.90, implying an even more attractive valuation at current levels.

On June 7th, G5 Entertainment is hosting a press conference for investors and media which should give them some well deserved attention and I would not be surprised if we see increased activity in the stock around this date.

The future looks bright – I am long G5 Entertainment and I hope you are too!

For a more detailed take on the case please visit www.nordicinvestor.de

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