Trade Alert: Gaming a gamer
Good morning. Zynga reported a disastrous quarter last night and guided much lower. Here’s a sampling of the hatred it spawned today from one of the brokerage analyst notes in my in box this morning:
ZNGA: Facebook Changes Likley to Pressure into 2H12; Limited Visibility and Lack of Catalysts; Neutral Rating. Zynga’s 2Q results and outlook for 2012 were extremely disappointing across the board. 2Q bookings and EBITDA were 15% and 33% below our expectations, and the 2012 outlook for each was reduced by 19% and nearly 50% at the midpoints. Zynga faces a number of headwinds into the back half—some structural, some more execution-based. But the biggest factor impacting current performance appears to be the way Facebook is surfacing gaming content on its platform. Given what we believe could be multi-quarter impact from Facebook and lack of near-term operational catalysts, we’re downgrading Zynga shares to Neutral.
That note is from JPM and these guys were loving on Zynga big time heading into the call.
Here’s how I’m looking at Zynga right now.
ZNGA: $2.2 billion market cap $1.8 billion net cash
Paying $400MM for the entire operation. The question now is — Gonna get below cash or is this the low?
At $3 a share, you’re essentially buying a “call option” with no expiration date on the whole future of Zynga’s business. The company’s going to more than a billion dollars in sales this year, so you’re paying about a 1/3 sales ratio for this business now. Here’s some comparative price to sales ratios for you:
Company P/S Ratio
Apple 5
Microsoft 7
Amazon 2
Wal-Mart 1/2
Zynga 1/3
I’m going to take a flyer on some ZNGA common stock here at $3 a share this morning. I’ll not be making this a big position at all for now, it’ll be one of my smallest three positions or so. But I am going go ahead and pick up some common stock this morning and plan to hold it for at least a few months.
