|Written by GSCR Staff|
|Tuesday, 12 June 2012 09:40|
This top-tier game developer looks like a strong bottom fishing candidate today. We try to avoid bottom-fishing or even attempt bottom-fishing as it can be hazardous to your portfolio. Traders like to refer to it as stepping in front of a falling knife. Nonetheless, this situation seems pretty compelling, especially since sentiment is so overwhelmingly negative.
Zynga Corp. (NASDAQ – ZNGA - $4.97) hit a new 52-week low this morning, at $4.92, down over 10% for the day on heavy volume. Frankly, its association with Facebook (NASDAQ – FB) is killing the stock. In fact, it is down from $12.00, which was the price of its early April 2012 secondary offering when selling shareholders sold stock.
Cowen put out a note saying that game usage is slowing. Possible? Sure. Could prove to be a good call. We tend to think otherwise and believe that Zynga is doing fine. Revenue grew 32% to $321M in Q1, and the number of daily active users, monthly active users, mobile users, etc. increased sharply from the year earlier. It is hard to imagine but there are nearly 300 million monthly active users of its games, and 62 million daily active users. Non-GAAP income jumped year-over-year and was $0.06 per share.
Guidance is for $0.23-0.29 in non-GAAP EPS this year, which puts the P/E at around 20x, which is very reasonable. Moreover, Street estimates call for $0.37 in 2013, which is a 13x multiple. Even if numbers are reduced by 15%, the stock is still attractive. The Company has roughly a billion in cash and marketable securities, and the stock is trading a little more than 2x this year’s revenue. While it is possible the stock continues to break down below $5.00, we think that the risk/reward is in investor’s favor.
Get out your fishing rod and consider reeling some in, after it settles down.
This Market Monitor blog was prepared for informational purposes only. Goldman Small Cap Research, (a division of Two Triangle Consulting Group, LLC) produces research via two formats: Goldman Select Research, which typically highlights small cap companies, and Goldman Opportunity Research, which features micro cap companies in a sponsored research format. Thus, the Select product reflects the Firm’s internally generated stock ideas while the Opportunity product reflects sponsored research reports.
It is important to note that while we may track performance separately, we utilize the same coverage criteria in determining coverage of all stocks in both research formats. Please view the company’s individual disclosures for each engagement, which can be found in each company-specific report. All information contained in this blog, newsletter and in our reports were provided by the Companies or generated from our own due diligence. Our analysts are responsible only to the public, and are paid in advance to eliminate pecuniary interests, retain editorial control, and ensure independence. Analysts are compensated on a per report basis and not on the basis of his/her recommendations.
The information used and statements of fact made have been obtained from sources considered reliable but we neither guarantee nor represent the completeness or accuracy. Goldman Small Cap Research did not make an independent investigation or inquiry as to the accuracy of any information provided by the Company, or other firms. Goldman Small Cap Research relied solely upon information provided by the Company through its filings, press releases, presentations, and through its own internal due diligence for accuracy and completeness. Such information and the opinions expressed are subject to change without notice. A Goldman Small Cap Research blog, report, note, or newsletter is not intended as an offering, recommendation, or a solicitation of an offer to buy or sell the securities mentioned or discussed.
This blog does not take into account the investment objectives, financial situation, or particular needs of any particular person. This blog does not provide all information material to an investor’s decision about whether or not to make any investment. Any discussion of risks in this presentation is not a disclosure of all risks or a complete discussion of the risks mentioned. Neither Goldman Small Cap Research, nor its parent, is registered as a securities broker-dealer or an investment adviser with the FINRA or with any state securities regulatory authority.
ALL INFORMATION IN THIS BLOG, REPORT OR NEWSLETTER IS PROVIDED “AS IS” WITHOUT WARRANTIES, EXPRESSED OR IMPLIED, OR REPRESENTATIONS OF ANY KIND. TO THE FULLEST EXTENT PERMISSIBLE UNDER APPLICABLE LAW, TWO TRIANGLE CONSULTING GROUP, LLC WILL NOT BE LIABLE FOR THE QUALITY, ACCURACY, COMPLETENESS, RELIABILITY OR TIMELINESS OF THIS INFORMATION, OR FOR ANY DIRECT, INDIRECT, CONSEQUENTIAL, INCIDENTAL, SPECIAL OR PUNITIVE DAMAGES THAT MAY ARISE OUT OF THE USE OF THIS INFORMATION BY YOU OR ANYONE ELSE (INCLUDING, BUT NOT LIMITED TO, LOST PROFITS, LOSS OF OPPORTUNITIES, TRADING LOSSES, AND DAMAGES THAT MAY RESULT FROM ANY INACCURACY OR INCOMPLETENESS OF THIS INFORMATION). TO THE FULLEST EXTENT PERMITTED BY LAW, TWO TRIANGLE CONSULTING GROUP, LLC WILL NOT BE LIABLE TO YOU OR ANYONE ELSE UNDER ANY TORT, CONTRACT, NEGLIGENCE, STRICT LIABILITY, PRODUCTS LIABILITY, OR OTHER THEORY WITH RESPECT TO THIS PRESENTATION OF INFORMATION.
For more information, visit our Disclaimer: www.goldmanresearch.com