Shares of online gaming company Zynga Inc (ZNGA) are trading lower Tuesday despite a major rally in the broader market indices.
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Facebook Continues Lower
The biggest factor behind the sell-off in ZNGA Tuesday is the continued weakness in shares of Facebook (FB). The weakness in FB continues to drive much of the social media sector lower including ZNGA. However, with ZNGA shares now at an all-time low, it is difficult to say that selling ZNGA based on weakness in FB makes sense. Rather, investors should look at ZNGA as more than just a Facebook derivative trade.
Cash Per Share
ZNGA has just over $1 billion or $1.44 per share. Considering that ZNGA is trading just above $6, the cash relative to equity is very high. At this point, ZNGA's cash per share could be used in a variety of ways to boost the stock. If the company is truly confident in its future prospects, a large share buyback might make sense.
Short Interest
Short interest in ZNGA currently stands at 56.6 million shares or 35.8% of the float. If any positive news comes out on ZNGA, the stock could make a major move higher as shorts are forced to cover.
My Take
I believe ZNGA is a compelling speculation right now as it has been sold aggressively because of what is going on with FB. While the fate of ZNGA is partially tied to Facebook, I am not convinced that the weakness in FB is all about the business itself. Rather, the pricing along with the issuance size are causing problems for FB.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
