Ouch, Zynga that Hurts!
AnnaLisa is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Zynga (NASDAQ: ZNGA) longs, I feel your pain. This is not a case of schadenfraude in which I am gloating. I have owned a few dogs in my day it still pains me to admit I ever owned.
The recent Q2 earnings must have been devastating to you, bringing the share price down 41%. I think I might have blinked and it went under $3.00. CEO Marc Pincus endured a barrage of hostile analyst questions, but frankly it may be time for the FarmVillagers to take up virtual torches and virtual pitchforks. A little jab to let him know you’re tired of spending company money for one-hit wonders (i.e., OMGPOP), encourage him to find a cheaper headquarters (maybe in Wyoming) and either find a buyer, go private or stop wasting your time.
To have a negative EPS that is now more than half your share price is stunning. Institutions can’t buy the stock if it’s under $5.00. CEO Pincus sold a huge position at the top, near the 52-week high of $15.91, and for the CEO of a recent IPO to do that is distressing, to say the least. Groupon Inc (NASDAQ: GRPN) may have a more sustainable business model than Zynga, and that’s saying something, even when businesses claim the Groupon coupons don’t bring in any repeat business and there are thousands of Groupon-like websites. Then Pincus cut guidance from analysts’ expected 23 cents to as low as 4 cents.
Zynga is not a biotech that is burning cash to find a cure for cancer. Costs seem to be out of hand. Pincus said he hopes to roll out an online gambling platform. There have been rumors for some time about partnering with Wynn Resorts, but he said the logistics of licensing could be cumbersome and has hopes for some kind of deal in 2013. Until then, there is little left in Zynga to pick over. The average bookings per average daily user fell more than 10% year over year. Its tether to Facebook just isn’t helping it monetize the games. People can play them for free for the most part and if they can sucker enough Facebook friends with requests they never have to pay or click on an ad. As they say in the Gothic novels, had I but known.
Should you buy Glu Mobile Inc (NASDAQ: GLUU)? It is only losing 0.41 per share in earnings and reports on August 7. No, Glu Mobile is just treading at $5.00, too, and the whole online game sector is going to be hurting for a while after this disaster, debacle, catastrophe, what have you. Institutions won’t want to support this one either. The online gaming sector will become a ghost town of trapped retail holders and day traders trying to play the spread for a penny. Although the market for online games is reputed to be over $80 billion in five years, these names may have some very rough going; secondary offerings and shareholder lawsuits can’t be far behind.
What about Facebook?
Facebook, Inc (NASDAQ: FB) may figure out how to make money over time but to actually click on an ad and buy something isn’t working for them yet. Just saying your friends like this isn’t enough. How many of your Facebook friends do you actually know? Even if you do, does their liking something make you have to buy it? Amazon seems to have figured out how to do it...if you like this you’ll love that. Facebook brought down Zynga on its IPO and now Zynga’s returning the favor with Facebook trading around all-time lows. I’m not sure any social media name is immune save LinkedIn, which actually has a business utility.
It’s tempting to think that the hours people spend in the social vortex can make money, and maybe it can be done by a different company, but for right now that company ain’t Zynga. I wish I could soothe your fevered brow but this pain isn’t going away soon.
leglamp has no positions in the stocks mentioned above. The Motley Fool owns shares of Facebook. Motley Fool newsletter services recommend Facebook. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.