Help me out here, guys, because I'm running out of reasons not to buy ZNGA. I realize the company is basically a train wreck and has a plethora of problems, but at $3 a share the company is basically trading for cash (or slightly over that). They reported still having $1.6 billion in cash and liquid assets in their last 10-Q, and they just announced an 18% reduction in their workforce which is going to save another $80 million. The stock is down 70% from its IPO price.
Something is just telling me that this is ripe for a 50% pop to the upside on any good news, and the company is positioning themselves to make a big push into mobile. I think their games suck (for the most part - their Facebook Hold 'Em app is pretty good) and only retards would pay to buy stuff for their Farm or Pet Shop or whatever the hell else, but there's no shortage of idiots out there and the stock is trading at less than two times sales.
So maybe I need you guys to talk me off the ledge, because I never thought I'd live to say this but ZNGA is kinda looking like a buy to me here. I hate how dependent they are on Facebook, because Facebook has a habit of pulling the rug out from under those who manage to monetize the platform better than they themselves do. But the company appears to be making headway in the mobile space and revenues have remained pretty steady in the meantime.
The company cut a bunch of games late last year and I'm trying to decide whether it was a good move to drop some dead weight or whether it was a bad move to alienate all those loyal fans.
And maybe the social gaming space is just a non-starter. It doesn't seem like anyone is getting any traction in the space, and single player apps appear to be where the money is at from a development standpoint.
So let's hear it: is it worth taking a flyer on ZNGA at $3 a share (or less), or would I be better off buying some more digital corn for my FarmVille sharecroppers to harvest? This thing has to go up from here, right?
Tempted as well, though a gaming company can crash pretty easily... Plus side CEO has everything to lose if it goes south...so he should be trying to do whatever to right the company. Want to hear opinions from blackhat , whitehat, and westcoast rain maker
This. Read the recent THQ bankruptcy filing. Development costs eat through cash reserves, even for the majors missing a product cycle on a blockbuster would be bad, for everyone else it is catastrophic. Dependence on casual gaming makes them even more vulnerable, as its all moving to mobile, which is arguably the more social platform.
In the pay poker space, there are well-established competitors with big names, endorsements and ad budgets, meaning Zynga's foray into gambling will likely be expensive.
Question is do you feel safe investing in a company that generates a significant portion of its revenue from digital farming?
I guess I'd have to check my digital farmers almanac and see if we are due for any droughts?
Just saw that this is BH's MOST hated company of all time....wonder if its cheap enoughf for even him to buy
From a CNN Money article:
That just screams Hail Mary pass to me. Excuse me while I buy some calls.
Cash per share is only $1.60, only about 55% of the current trading value. I see plenty of downside risk.
I think buying calls would be a better play.
I don't understand the business enough, but IMHO the fact that it's trading near cash doesn't give any comfort given its product development stage. An environment of democratized content creation, combined with fad-driven products, and an extremely opaque and unpredictable portfolio rollout process is somewhat explosive, and doesn't lead me to think that ZNGA will generate cash in a consistent fashion anytime soon. Thus, if its cash flow probability distribution is similar to a VC fund's, there is still a lot of crap to go on before I pay public tech equities discount rates for this.
That being said, buying deep OTM calls near 10-Q days seems like a good idea if you like a good gamble. You pay a hell of a vol premium, but in quiet M&A / corporate action times such as the current, the bulk of new tradable information comes from results.
The fact that the surfer acknowledges the possibility that good waves may never come doesn't make him dumber for saving his stamina and waiting for the big one.
fundamentals: last 3 qt eps is decreasing from -80%, sales +3%, 0%, -18%. Institutional sponsorship is decreasing, more funds leaving the stock. U/D Vol ratio is 0.8, no accumulation. If smart funds arnt buying it why should you? ROE is 3% at best and est. for 13/14 are down by -0.05
technical: no constructive chart pattern, stock living below its 50/200 sma, relative strength is only 10% better than all other stocks trading in the NASDAQ. Industry group is average at best. The real question is why buy ZNGA when you can literally buy thousands of other stocks that have much better growth in terms of eps, sales, roe, and have strong institutional backing/accumulation? Sure you could see a nice pop in the stock , but is it worth the risk?
I'm in, great idea
well according to yahoo finance their market capitalizaiton is $2.27 billion and their cash on hand is $1.27 billion with current assets at $1.4 billion. On paper they are operating at a loss with gross profit shrinking ever quarter that i see available. This is a smelly turd, but it's pretty cheap. I don't see this thing turn around unless there is significant improvement in their core business or if a cash rich company like google, apple, or facebook were to buy it. stay away newbs, this isn't for the faint of heart.
Good call on the MWW covered call
Hey, Uncle Eddie, just a note. When you buy a company that's basically priced at cash, you're still making the bet that they're not going to go out and waste that cash right away.
I hear Draw Something is available.
On a side note: it's nice to see you posting again :)
This company is the gaming equivalent of ENE.
They predict future revenue from "future game #1". LOL, what a scam.
ZNGA is building or has already built a online gambling platform for PCs and smartphones.
They are slowly wining over political support for internet gambling.
Once they launch their gambling games, the sky's the limit.
Except for the fact that little is proprietary. You don't think the Casino holding cos are going to pour cash into online gaming? Any start-up can come along and steal market share on a whim.
Not sure how old you are, but back in my undergrad days, online poker was huge. However, the "hot" name cycled around. First it was one site, then Pokerstars, then LV Casino or something, then another, then another.
Those "platforms" popped up monthly. This isn't difficult.
The state gaming commissions will be the ones who decide which platforms are legal, and that is why Zynga will have some exclusivity along with whatever the larger casinos put together.
According to the financials, I'd stay away. Most beginner investors may look at this and say "OMG Zynga is only $3, yay ill buy 100 shares. Im gonna be rich!!!" and then think the company can easy transform and execute perfectly into another line of business such as online gambling, which has red tape all over it and casinos and poker sites are investing millions to create their own platforms.
Like a moth to the flame for most....danger, danger... If you don't see how risky this stock is, look elsewhere. sry, just don't want to see folks lose money
i would sell my house, my kidney, my wife and children to buy the shit out of ZNGA, it's gonna pop big time
It's not priced at cash. I'll rip this company a new asshole after work.
Hey, thanks man!
Dick.
lol
Seems like a screaming buy to me... 75% of market cap is in cash and real estate, throwing off cash every year (obviously doesn't matter if noone plays their games anymore) but would love to hear the bear case from you
I always just saw Zynga as a proxy for people who wanted to get exposure to Facebook before it IPO'd. When people were still learning about FB, all they saw were the rapidly expanding user base and it was a bit like the tech boom of the 90s. Eyeballs/users = future sales growth. The idea of monetizing that customer was sort of on the backburner because of its newness.
I would stay away from this turd, if you need a digital addiction, I still recommend WoW (they just need something you can do on your phone to help grind your character).
Seems like a screaming buy to me... 75% of market cap is in cash and real estate, throwing off cash every year (obviously doesn't matter if noone plays their games anymore) but would love to hear the bear case from you
Sorry for the double post
Throwing off cash historically. Doesn't mean shit for the future.
As long as they're relevant (which you can track here for example - http://appdata.com/devs/10-zynga) they will generate cash. Yes they're losing share to other developers but people definitely still play their games.
To start, ZNGA trades at $2.89 - and has cash at around $1.60 per share. This implies a downside risk (assuming it falls to cash value) of around 45%. Management has pledged (whatever that means) in terms of funding their R&D expenditure to not touch the cash pile. That's probably why they're guiding to 0-10% adjusted EBITDA margins.
They're attempting to make the transition to mobile, and it's not easy. But it's not as though any other players who have (relatively) comparably user numbers are doing a great job moving to mobile either - mobile's just a difficult space for everyone right now. There's no one in my opinion that is executing much better in the mobile social/freemium space than ZNGA is at the moment, though that's not to say that ZNGA is doing it well either. However it seems to me that if they do execute the transition well, they're not in trouble in terms of earnings because the margins for mobile and desktop seem to be relatively the same. Mobile monetizes 50% as well as desktop does, but the costs for mobile are half of those of desktop.
If margins will remain the same, then I'm guessing the key issue is for them to grow the top-line if you want to see movement in the stock. The issue with mobile gaming is that it's really franchise driven - your deriving profits not from individual games themselves but from purchases/add-on's/follow up games to the first game. These game franchises reach saturation points where you cannot increase top line from the same franchise at a relavent rate. What is key then is the ability to develop new game franchises, something that is pretty difficult. (Case in point Rovio hasn't been able to move past Angry Birds). ZNGA has three key franchises that are doing well in their transition to mobile - Farmville, Poker, and Words with Friends. Farmville/Poker are their originals, Words with Friends was acquired.
ZNGA has not demonstrated their ability to come up with a new franchise. Pincus has greatly ramped up R&D spend in order to develop one (600 mm), but so far we have nothing to show for that R&D spend. Next 18 months are key. If ZNGA is able to produce a new hit in that time, that's testament of the management ability to deliver new franchises, and the stock will pop significantly. R&D expenditure will probably come down from 600 mm to 400 mm (roughly 100 mm to maintain new content for each franchise) and revenue will also grow. If it doesn't, then it's pretty likely that it'll move back down to cash value in my opinion. In my opinion, Pincus hasn't demonstrated that he can develop a new franchise like that.
You get a call option on real money gaming, but that's all it is. I don't think it's wise to invest in ZNGA based on any kind of analysis that attempts to value real money gaming.
If ZNGA wanted to it could simply harvest it's franchises and deliver returns back to shareholders but that'll never happen because Pincus is a founder CEO and he has all of his worth tied up in the company.
If any of you want exposure to mobile games that aren't as reliant on the franchise model I would recommend taking a look into Gameloft - still freemium business model but less franchise dependent. Founder is the brother of the person who heads up Ubisoft.
This is my analysis, could all be wrong - I'll wait for BlackHat to speak.
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