Playing Games with Stock Market ‘Common Sense’

With all the ‘sky-is-falling’ doom and gloom from the media and politicians over the shut-down and looming default let’s end the week on a fun note.

Back in early February we highlighted Zynga, Inc. (NASDAQ – ZNGA - $3.67) as a great tech play and the stock is up nearly 36% since. The Company provides it’s online social games under the FarmVille, CityVille, FarmVille 2, ChefVille, CastleVille, Zynga Poker, Words With Friends, Scramble With Friends, Draw Something, Bubble Safari, Mafia Wars, Ayakashi, Horn, and Respawnables names that are available on Facebook (NASDAQ – FB) and other social networks.

We think it may be time to buy more ZNGA or at least hang on to the shares you have. Here are three lines of thought.

First, our 4Q13 formula checks out for the stock, almost. The technical analysis is very bullish for DMA all the way out to the 50-day duration. The 2014 EPS forecast is still in the red but closing in on 0 for 2014. However, the shares are trading at an astronomical volume averaging over 23 million shares per trading session over the last three months and a 24% rise in share price over the last month, which is a definite sign of accumulation.

Second, there is more and more buzz about the Twitter IPO, and ZNGA might be a great side play at cheap price. There was a great article in Market Watch last night worth reading.

http://www.marketwatch.com/story/twitter-unwraps-ipo-details-2013-10-03

Finally, and this is the ‘common sense’ part of the article. Late in the day yesterday, the Company announced it is seeking to raise an additional $1 billion through another IPO. In normal or old times this was definitely an indication or proxy that would signal a decrease in share price, simply a supply and demand dynamic. This is 2013 and we have seen share prices actually increase when this occurs. The logical explanation can be that the Street feels that the capital will help future growth, revenue, and earnings.

Look for a nice bump up to $4.50 by Thanksgiving.

Have a great weekend!

Disclosure: Goldman Small Cap Research analysts are neither long nor short these shares but may elect to purchase the stock within the next 48 hours.

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