Days after reporting better than expected earnings shares of Zynga (ZNGA) got an unexpected boost to an intraday high on Monday of $3.75 on higher than normal volume.
After briefly touching resistance at it's 200 day Moving Average of $3.76, a wave of abusive short selling ensued and didn't see a real pause until Zynga's shares began registering regSHO violations for fails to deliver on shares trades of 10,000 or greater; and after a 11% retracement from it's 200 day Moving Average.
According to data from FINRA's daily regSHO reporting requirements nearly 60 Million additional shares were sold short from February 8th through February 12.
Zynga's share enjoyed a small upswing early in Wednesday's trading after regSHO violations appeared from FINRA at the close of Tuesday's trading session.
In addition to the unusually high short volume there was very unusual options activity in the Feb and Mar 16 $3.50 Puts which would suggest that the "bear raid" from Monday's high of $3.75 was engineered in an attempt to depress Zynga's shares to cover the already sizable short position of 13.1 Million Shares that caught trader's off guard after the better than expected earnings report.
With a number of possible catalyst events in the online gambling industry over the next few years, as well as a turn to profitability after a somewhat tragic IPO a year ago, such a panic by short sellers would suggest that Zynga is turning a corner in revamping for the mobile market as well as preparing for market position in online gambling.
- With an era of truly mobile internet emerging with growth trends predicted to exceed 1.5 Billion by 2014, according to Infonetics Research, handheld gambling could prove to be a substantial source of revenue for the company over the next few years.
- AT&T alone saw a recent increase in total data traffic over two years 18 Fold in the US alone. With more and more social media networks and gamers looking to capitalize on mobile internet and revenue streams from handheld devices, logic dictates that handheld and online gambling will move to the forefront sooner than later.With Legislation already under consideration this also bodes well for Zynga's shareholders in the event of an approval as outlined in their recent filing with the NGC. Though it is suspected that a decision could take anywhere from 12-18 months, should an approval or conditional approval be announced, shares would most certainly move higher.
- Zynga recently announced a partnership with Paramount and Time Warner for a number of different projects that are opening up more sources of revenue and customers as well as securing key partnerships and advertising revenue streams while promoting already existing games.
- The Facebook Relationship. Good gone bad, or maybe not. It is hard to say whether Facebook will come back and buy Zynga outright, but given the direction the company is now taking and the refocusing of management to morph the company into a sustainable business with multiple revenue streams, it may become an attractive target for others that have yet to capitalize on the mobile movement, however Facebook is still the most likely suitor.
- Zynga recently reported better than expected revenues and EPS while issuing guidance lower than expectations moving forward. This is a keen move as they have already shown that their change management is taking hold and better to under promise while implementing key partnerships and new market strategies. Management has left themselves room to wriggle if there is a delay.
- This is by far my favorite. Given the recent increase in abusive naked short selling of nearly 60 Million shares in 3 trading sessions, the big shorts were caught off guard and had to throw all in to prevent being open to break points on options plays after a nearly 100% run from it's 52 week low. Though Zynga's price is still far from it's IPO issuance, that is a huge short position in regSHO that will soon be getting forced buyin notices from their compliance departments once T3 expires in the next few trading sessions.
The short position will have to cover and with a recent disclosure of a number of Key Financial heavy hitters updating their regulator filings; a long position at these levels shows little downside risk and wouldn't do the short position any favors as they struggle to find shares for hypothecation.
- Marc Andreessen rarely makes a bad bet! No pun intended. With a stake in Zynga and a board seat on Facebook, don't be surprised if the break-up is reconciled and they move towards marriage.
Data Source: Daily regSHO files, FINRA.