Joseph Poma's  Instablog

At the close of trading today Zynga (ZNGA) will announce the results of its fourth Quarter. Current estimates stand for the company to report a loss of 3 cents per share on revenues of $212.11 million. Recently analysts have given conflicting statements with BofA/Merrill giving the tech company a two notch upgrade and Credit Suisse downgrading the stock to underperform. To help determine which of these analysts is making the right move, I've considered the site's web analytics and the results were surprising.

Over the recent 3 months, Zynga's website has seen significant improvements in the time users spend on the site, up 28% to 4:58 minutes, and pageviews/user, up 5.6% to 3.01 pages. These are significant changes given that one year ago the site managed to only capture it's audiences attention for approximately 2 minutes and the number of pages viewed per user stood at approximately 2.4 pages. The 28% increase in time on site could be a result of successfully delivering video advertisements to users.

It is important to note also that Facebook (FB) has also seen users spend 8% more time on its site (28:09 minutes) over the past three months. While this increase in time may be a direct result of Facebook's own initiatives, gains may could also be attributed possibly to users spending more time on "high-engagement" titles. During its Q3 conference call, Mark Pincus, Zynga's Chairman and CEO, announced that Zynga would pursue a mobile gaming lineup that would include more "high-engagement" titles. Mobile bookings accounted for 20% of its bookings at the time and with the increasing migration to mobile devices that number is likely to increase this quarter.

A wild card factor in the earnings call today will be the development of the company's own advertising platform. The company, though deriving a significant portion of revenues from the sale of virtual goods, has sought initiatives to grow advertising revenues to bolster its top and bottom lines. Advertising generated $41 million in revenues for the company in it's second quarter, a 170% increase year over year. It is likely that analysts will keep a hawk's eye out for the status of this project as it is a crucial step in the company's efforts to generate greater advertising revenue.

One last statistic cites that the Zynga website has experienced fewer users "bouncing", viewing one page and then leaving, from the site. During the last three months the site's bounce % decreased 9% to 40.4%, this being approximately 20% lower year over year from when the site's bounce percentage was in the low 50% range.

If search and website analytics can offer any insight for the upcoming earnings report, it may be that the picture is not as bleak as Credit Suisse's downgrade claims it to be.

Disclosure: I am long ZNGA, FB. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I am long both Zynga and Facebook using call options with January 2014 and 2015 expiry.

It started as an online book store, moved into music, videos and games, took on apparel, entered into the electronics field, started streaming movies and shows, and now has a tablet. With the deviation from the online retailers original purpose, has the company lost its identity? I think not. The company has been able to transform the publics perception of the company from a book store to an all purpose retailer. Whether it's vitamins, DVD's, TV's, a box of granola or a pair of shoes, it can be found on Amazon.com. 

The company has done well in expanding the product offering while maintaining the largest online retail customer base. With all this success it is no wonder that the company felt compelled to take their success to the next level and compete with the Apple iPad with its launch of the Kindle Fire. With a surprisingly low price tag, the Kindle Fire has real potential to steal market share from Apple, a potential that was never quite reached by Research in Motion's PlayBook or by HP's TouchPad. The tablet has a stunning display, an app store that already has popular titles available, and great streaming content through the companies Amazon Prime service. With a $199 price tag on the tablet, I expect the Kindle Fire to make a huge impact this holiday season. What does concern me is the impact the low cost tablet will have on overall margins. This however I believe will be offset by the company's sale of apps, books, and streaming content.

If the rollout of the Kindle Fire was not enough to make some ground breaking news, the company has also worked on expanding its streaming content library to take a bite out of Netflix. Amazon Prime offers customers streaming content right to their laptop, PC, TV or newly purchased Kindle Fire. This all offered at a single low annual fee of $79, making Amazon's streaming service cheaper than Netflix's. Along with the streaming content, Amazon Prime also offers customers free 2 day shipping and discounted next day shipping. With the holiday season coming along, I greatly expect to see Amazon take advantage of their new position in the tablet and streaming content markets.

This holiday, if your looking for great deals you can certainly find them at Amazon.com. If you don't feel like waiting till Christmas though, buying AMZN should certainly result in an early Christmas present. Unfortunately the stock trades at $239/share which means if your looking to be long the stock, the best route may be through the use of Calls expiring in April.


Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Additional disclosure: At the moment liquidity prevents me from going long AMZN, however once cash is freed up I would like to go long the 250 April Calls.

CNBC, Forbes, Twitter, Google. What do these four news sources have in common? On all four sites you can find writers and columnists declaring that a sell off of IBM stock is inevitable after their earnings release after the close of trading today. The stock has run up 20% since reaching a low back on August 19th, 29% for the year and many analysts and market experts are declaring that IBM will see a sell off even if earnings are strong. At this point, in my own opinion, market commentators have built so much fear into the stock that I don't see how there is anyway that the stock could trade higher. A mountain of vocal naysayers have built up so much resistance against any potential earnings surprise, that to go long the stock would be comparable to stepping in front of a train heading full speed.

With all this negative momentum, the best way to trade the earnings announcement and the week ahead in my opinion would be through the use of put options. One such trade strategy is the Long Vertical Put Spread. Details follow:

Long 190 Oct Put/ Short 185 Oct Put
Net Debit: 2.05 (Using Bid for Short and Ask for Long)
Potential Maximum Gain: 2.95 
Breakeven Point: 187.95

(Options pricing information obtained from TDAmeritrade)

I only recommend using the 185 strike and not the 180 strike because I honestly don't see a sell off being so severe that it would cause a 5% drop in the stock price overnight. I certainly see a 2% move down as viable and even likely in the event that IBM announces a quarter inline with analysts estimates. I also feel as though the company will give more cautious guidance for FY 2012 due to the economy not improving as quickly as most had hoped. 






Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in IBM over the next 72 hours.

Additional disclosure: I am considering going long IBM, but only if there is a sell off after earnings that pushes the stock price below 185/share.