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Zynga
Mobile gaming isn’t going away, and that’s welcome news for one of its earliest players that has kicked growth to the next level lately. Zynga is a name that longtime casual gamers associate with FarmVille and Mafia Wars, but it’s an even bigger player now thanks to franchises including Zynga Poker, Words With Friends, Empires & Puzzles, and other popular app store diversions.
Revenue soared 63% in its latest quarter, fueled by an 80% surge in bookings from the user payments segment that makes up the lion’s share of its business. Ad revenue is a smaller part of its business than it was in the early days, and that’s a good thing in this climate, with marketers holding back on campaigns.
Sirius XM Holdings
Satellite radio may seem to be an odd low-priced stock recommendation in this stay-at-home era. Folks are spending more time at home, and with less time on the road, it may seem odd to keep paying for premium radio subscriptions used primarily by drivers on daily commutes.
The bullish thesis for Sirius XM here is that it has gotten better outside your dashboard. The acquisition of Pandora that closed last year and investing for a minority stake in Soundcloud earlier this year make it a larger player in the streaming market. History is also on the side of those long the stock. Sirius XM has delivered positive results for 11 consecutive years, but it’s trading 26% lower so far in 20202. Every winning streak comes to an end, but investors will be in for a hearty gain in the next nine months if the run continues for a 12th year.
Groupon
We go from a stock on a winning streak to one that keeps hitting new lows. The daily deals leader has rattled off 16 consecutive quarters of declining revenue. It’s now a penny stock waiting for a reverse stock split to maintain exchange compliance.
Groupon may be the riskiest name on this list, but it’s also profitable on an adjusted basis over the past year. Shifting out of low-margin markets has resulted in declining revenue but it’s a more focused business now. The recession coming out of this pandemic will sting all consumer-facing companies, but Groupon should hold up relatively better because its model relies on consumers looking for deals and local businesses hungry for leads.
Fitbit
Let’s shift from the riskiest name on this list to the one with the least upside — but also the name with the least downside. Fitbit is waiting at the altar to exchange vows with Alphabet‘s (NASDAQ: GOOG) (NASDAQ: GOOGL) Google. The $2.1 billion deal that will cash out Fitbit at $7.35 a share is expected to close later this year. Regulatory agencies may have reservations about tech giant Alphabet’s ownership of data health-savvy Fitbit, but there are bigger fish to fry these days, and Google seems to be playing nice with the government in the fight to tackle COVID-19.
There are two scenarios here. In one scenario, Google closes on its deal for Fitbit, ideally later this year. Fitbit shares enter the new trading week at $6.75, so 9% of upside in a few months. The stock would take a hit in the second scenario, with the deal falling apart, but there’s a big cushion below the patent-rich pioneer of wearable fitness. The stock has a $1.8 billion market cap right now, but it also has a net cash position of $426 million. Alphabet will also cut Fitbit a $250 million check as a termination fee if the deal falls through. Fitbit on its own will be challenged, but it will have a cash-rich balance sheet to see things through.
SmileDirectClub
The rookie class of 2019 spawned a ton of broken IPOs, and SmileDirectClub is one of its biggest losers. The teledentistry specialist offering clear dental aligners at a discount has plummeted 81% since going public public at $23. The direct seller was growing quickly, with revenue rising 53% in its latest quarter, but it had to close down its SmileShops last month following the COVID-19 crisis.
SmileDirectClub is also losing a lot of money, and it’s a natural target for the dentists and orthodontists it’s undercutting. Having established enemies may lead conspiracy theorists to wonder about the merits of reports with negative reviews, but let’s assume the gripes are legitimate. SmileDirectClub isn’t perfect, but when its SmileShops reopen after the pandemic, won’t folks pondering corrective dental work be drawn to its cost-effective approach? SmileDirectClub is the second riskiest name on this list, but it would have to pop fivefold just to get back to last year’s IPO price. It’s had a rocky start in just few months of public trading, but sometimes the art of investing in IPOs is getting in on the bottom of a broken IPO.
