The Tale of Two Techs: Yelp and Zynga

On a day like today, it isn’t rare for one to sit idly by observing the successes and failures of himself and the traders around them. The social media gods have chosen both a winner and a loser. The winner happens to be Yelp, for the time being, and the loser, much to my chagrin, is the gaming giant, Zynga. This game, stock picking, the game of choosing the winners and the losers, is far from the end. I will, as a proponent of Zynga, refrain from an admission of defeat and keep playing “the game.” However, we can sit, as more informed investors today, and see where exactly the divergence between Zynga and Yelp emerged.

This tale of two new tech babies can actually be broken down into a war of two tech giants. Yelp has the backing of Apple while Zynga has the backing of Facebook. Apple announced some time ago that Yelp would be an integral part of their next and best iPhone (and iPad, baby iPad, iTV?). Facebook, for the longest time, has derived many of its revenues from the social gamer Zynga. If you can’t see the ocean parting these two tech giants, let me inform you using the most basic terms. Yelp has sided with the one and only Apple, the tech giant of our generation. Apple has proven its merit to investors time and time again, even when it was thought to undermine your portfolio. Zynga has built their business around a company that has questionable profits and a questionable business model. In laymans terms: the investing public loves Apple and is yet to believe in Facebook.

Another disparity between these two up-and-coming tech companies happens to be extremely basic (while still playing a major role in the valuation of these names) is size. This may seem like a minute detail, but the size of these new tech darling say volumes about their trading. Simply put, Yelp trades with a takeout premium and Zynga does not. If you recall the small start up Instagram and their purchase price of around a billion, you now see the story emerge. Yelp trades at a range where a large corporation, say Apple, could come into tomorrow and buy them out for access to their valued reviews. If someone wished to buy Zynga, say Facebook, they would have a bit more of a challenge coughing up the $8 billion or so to pay for Zynga at premium cost.

The last and final point that the investing public seems to have fallen for Yelp once again is its use. Yelp serves a purpose, it’s the new word of mouth. Yelp allows users to say how they feel and give recommendations in the occasional form of insults. Zynga, in my opinion, serves a purpose as well, though the investing public believes that they can be replaced tomorrow. Yelp has proven it can stand on its own and the recent news out with Apple shows that they are the best-in-breed when it comes to reviews.

It is arguable that good companies trade well and bad companies trade poorly, blah blah. You might say “Zynga is down because it encompasses everything wrong in tech and Yelp trades up because it encompasses all the good in the world;” though you would be premising your argument on flawed logic. Both companies are of quality and will ultimately get their cake (preferably vanilla with chocolate icing) and eat it too. As anyone knows, companies do not always trade where they should, where they will, or where you want them to. I still am a long-time believer in Zynga (though I wish my money had been in Yelp) being that Yelp currently seems to be playing all the right cards.

I ain’t gonna lie, I bought Zynga way too early, but time heals all wounds.


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