Is Zynga A Good Stock to Buy Right Now?

Is Zynga A Good Stock to Buy Right Now?Zynga (NASDAQ:ZNGA) announced its second quarter results yesterday and disappointed the market. Revenue and earnings both came in well under expectations, but worse news came when the company issued its guidance for the rest of the year; previous forecasts of about 26 cents per share of earnings were revised down to an average of about 6 cents. The stock opened today around $3, down from its $10 IPO price late last year and a high of over $14 in early March. $180 million of Draw Something has turned out to be a massive money loser rather than cash cow for the company, and recently released games have not matched the popularity of the older games in Zynga’s repertoire, meaning that growth is not going as well as investors had previously hoped. The poor business conditions were not entirely Zynga’s doing.  Facebook (NASDAQ:FB), which is responsible for the overwhelming majority of Zynga’s business, has apparently been reworking its system to broadcast more information about friends’ activities on newer games as opposed to older games. Since this is, essentially, advertising and Zynga has developed many of the older games on Facebook’s platform, Zynga’s games are losing publicity and users.

There is still hope that the company can recover. The social gaming business is highly hit-driven; just as Zynga gained off of a good run of popular games, and has cooled lately as its offerings have lost their luster, in the next few months games Zynga has not even released yet could bring it large increases in revenue. Zynga has also drawn attention for its work on developing gambling games, using real money- a potential company-saver but something that would obviously be illegal in the U.S. While Zynga could certainly launch any gambling programming outside the United States and still potentially make it big business, the biggest gains would almost certainly have to come from pushing for changes to government regulations domestically.

As things stand now, however, the stock is down dramatically from its IPO price and has hurt investors small and large accordingly. As of the end of March, Partner Fund Management, which is managed by Christopher James, reported owning 4.2 million shares of ZNGA on its 13F filing, and valued those securities at $55.6 million. If Partner did not sell any of its shares, the losses on this position come out to about 3/4 of that value- over $40 million. Assuming that Partner charges its LPs a 20% performance fee, the standard in the hedge fund industry, James and his partners would then have missed out on $8 million in potential income from gains on other investments. Of course Partner may have sold some of its shares before now; it may also have added to its position as the stock price fell, at least initially (find out how Partner’s other stock picks have done).

Another pair of hedge fund managers who could be offsetting profits elsewhere with Zynga losses is Seymour Kaufman and Michael Stark of Crosslink Capital. Crosslink reported 2.1 million shares, half as many as Partner did, and therefore has lost $20 million of its investors’ money assuming that it has not changed the number of shares in its portfolio (again, the number could have increased or decreased since the beginning of April). The potential decrease in carried interest due to this investment is half of Partner’s- $4 million- and to make matters worse, Crosslink reported that its largest 13F holding was Pandora Media (NYSE:P), which is down about 5% over the same period (see other stocks in Crosslink’s portfolio).

Next month 13F filings for the quarter ended June 30th will be released. Insider Monkey will review these filings to see if the funds mentioned here reduced their positions in time, and if any other hedge funds may have taken million-dollar losses on Zynga’s disappointing performance. We wouldn’t recommend the stock at this moment, given the huge uncertainty and recent poor performance.

blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

10 Covers of Popular Songs that are Better than the Originals

Must See TV: The 9 Most Anticipated Shows of 2015

The 15 Biggest Box Office Bombs of All Time

10 Things The World Can’t Stand About Americans

Picture Perfect: The 6 Smartphones with the Best Cameras

The 10 Best Countries To Work In the World

A Profitable Day At The Track: 5 Tips For Betting On Horses

Tearing You Apart: 6 Bad Habits That Ruin Relationships

Learning on the Job: The 6 Biggest Mistakes Parents Make

Shopaholics Rejoice: The 12 Biggest Malls in the World

Fright Night: 10 Horror Movies Based on True Stories

Mach Mania: The 10 Fastest Jets in the World

Military Heavyweights: The 10 Countries with the Most Tanks

All In: The 7 Richest Poker Players in the World

Abracadabra: The 10 Best Magicians in the World

The 10 Richest Asian Countries in the World in 2014

Eyes in the Sky: 10 Things You Need to Know About Drones

Rising Stars: The 6 Best Silicon Valley Startups

Military Muscle: The 5 Most Advanced Armies in South America

All that Glitters: The 7 Most Luxurious Jewelry Brands in the World

5 Things You Didn’t Know About ISIS but Should

Empowering Your Money: The 5 Best Energy Stocks to Invest In

The 11 Best Android Apps You Can’t Get on iOS

The 10 Most Important International Conflicts in 2014

Mood Enhancers: The 20 Most Uplifting Songs of all Time

Lover Beware: The 8 Countries that Cheat the Most

Breath of Fresh Air: The 25 Countries with the Best Air Quality on the Planet

Singles Beware: The 8 Worst Mistakes Made on First Dates

Healthy and Happy: The 10 Countries with Lowest Healthcare Costs

The 6 Best Company Team Building Activities to Build Workplace Camaraderie

Ships Ahoy: The 10 Busiest Shipping Ports in the World

10 Productivity Tips to Save You Time and Help You Do More With Less

Grab a Bite: The Most Popular Fast Food Restaurants in America

Friday Night Thirst: The 10 Most Popular Cocktails in the World

The 6 Greatest Unsolved Mysteries We May Never Figure Out

7 Useless Products You Never Should’ve Bought

The 5 Reasons Why You’re Single and Miserable

The 7 Most Addictive Foods in the World We Can’t Stop Eating (Even Though We Should)

5 Amazing Places You Can Swim with Dolphins

The Top 7 Most Livable Countries In The World

The 10 Most Expensive Baseball Cards Ever Pulled From A Pack

The 5 Easiest Second Languages to Learn for English Speakers

Silver Spoon: The 6 Richest Families in the World

The 20 Countries with the Largest Prison Populations in the World

The Top 10 Richest Actors in the World

The 10 Best Airline Stocks to Invest In Before They Fly Too High

Burger Kings: The 10 Most Expensive Burgers in the World

The 10 Most Ethnically Diverse Countries in the World

The 10 Most Exclusive Credit Cards in the World

The 10 Most Expensive Cruise Ships in the World

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!