Archive for the ‘ZNGA’ category


Zynga (ZNGA) Changes the Game

Download PDF

Two weeks ago I made the case for going long ZNGA. This view was contingent on a few things happening: ZNGA coming out with a hit title or announcing layoffs to streamline their cost structure. Surprisingly, the company’s announcement 4 trading days ago accomplished both in one fell swoop. While I was admittedly shocked the company choose to make a large acquisition given their disastrous M&A history (the NaturalMotion deal was $527MM; nearly $400MM of which was paid in cash), after a bit of digging I experienced a 180 degree shift in my opinion. There are a few reasons I think this acquisition is a game changer for the company:


Zynga (ZNGA)

Download PDF

Zynga (ZNGA)
Stock Price: $3.50
Diluted Shares: 804.1MM (diluted sharecount up 7% Y/Y – these guys have no problem handing themselves stock)
Diluted Market Cap: $2.8BN
Cash & Marketable Current Assets: $1.2BN
Long-Term Marketable Securities: $426MM
Debt: $0
Other Liabilities: $208MM
EV: $1.4BN

The image at the top of this post is a tad misleading. You see, Zynga is a battleground stock.

Bulls will say: this is just like Groupon before it gained 150%; the company has been left for dead, there are too many bears; new CEO Don Mattrick has 6 months under his belt now and he’s going to (a) do a big cost cut and (b) start to unveil a new line-up of games starting mid-year; don’t bet against Mark Pincus or this Board.

Bears will say: casual gaming is not a viable strategy in the long term; there’s no moat in this business; their best employees simply leave to start a competitor; they are too dependent on FB; the turnaround will fail; how can you trust an admitted scammer who wastes money on lavish parties and has a history of destroying shareholder value?

Intellectually, I side with the bears. But the truth is probably somewhere in-between.