NN Securities

NN Securities
Contributor since: 2012
Let's carry this silly analogy for a bit:
1) who is the Wozniak here?
2) if Pincus really believed he could turn around the company, why not take it private? He has enough cash and could get enough leverage to take the company private and grow the hell out of it, if he could.
3) Who is in the position to kick Pincus out of Zynga (as is what happened with Jobs)?
4) Jobs genuinely attracted people with his vision (the so-called "reality distortion field"). Pincus already destroyed his relationship with the tech community at large. What makes you think Zynga can manage to attract people without throwing gobs of money (see OMGPOP for an example of what Zynga has to do to attract people)
It's good that you didn't get in, given that it's 2.17 now
Ouch! Given that it's 2.17 I hope you didn't buy in at 2.40
The plural of thesis is theses :)
In your opinion @biobat what is the future of social gaming? Is it here to stay?
"One thing I'm sure though is that shorting ZNGA at this price is suicidal."
This article was written when ZNGA was at 3. Now it's at 2.40.
I think, like you said, we are at a binary event. Either they succeed in something, in which case we would see a rally, or they falter, in which case either Zynga is taken private or it files for bankruptcy. I think we trade in a range short-term, and I have no color regarding their pipeline, so it made more sense for me to cover at 2.40.
I hope you are backing up the truck at 20% below a price point you deemed "very undervalued".
"What IF" type statements are the makings of a penny stock scam. Simple as that. There should be concrete reasons why an eventuality will play out, and based on the arguments presented there are other plays.
" And indeed, the market will view and valuate ZNGA very differently the moment ZNGA launches play-for-money Zynga Poker in the UK sometime in 2013."
The market is pricing in Zynga Poker in the UK. That's *known* to the market. That's not new information. The market is underweighting the profits due to a multitude of reasons, including but not limited to competition, survival as a business entity, and regulatory concerns.
"Considering the dearth of legal avenues for speculative capital to invest in online gambling ventures in the U.S., I would surmise that ZNGA would be an extremely attractive play for those risk-takers."
As I've stated here and earlier, the extremely attractive play for legalization of online gambling in the US is in the entities that currently have gaming licenses, such as LVS and MGM.
"All they have to do is turn on the cash register, and those same people will then play-for-money."
I *very highly* doubt it's that simple. You assume that the people playing for free will switch, and that's not obvious at all. The best part is that many of the people who make the claim DO NOT PLAY THEMSELVES, which makes the argument all the more fishy.
"Clearly you don't think they'll be able to, but if you don't even consider it an option then you're underestimating the risk in taking a short position."
If anything, the longs here have concluded that they will be able to turn the ship around. I remain skeptical, and as I've stated many times I don't think they are dead just yet. I've also since covered because the risk/reward of shorting at this point isn't pretty (but it's not the right time to go long).
"What if Zynga succeeds in "monetizing" its existing customer base of Zynga Poker players by turning them into "social gamblers"? "
IF they succeed then it's good. IF I win a 100M lottery I'll have money. The question isn't about IF and possibilities -- that's the making of "penny stock scams".
There's no evidence that participants in free poker will shift to paid poker
Not saying it will go bankrupt, but I'd look to Eastman Kodak (EK -> EKDKQ) or MF Global (MF -> MFGLQ) as examples of why " I can buy ZNGA at book" could be a really foolish statement
They tried (look for "Project Z" and "Zynga Live") but as they saw, Zynga doesn't benefit from the virtuous cycle of Facebook advertising that way.
DELL down 23%, AAPL up 7.75% ... I hope no one took your advice ...
I started shorting a very long time ago (above 10) but at these levels I have better uses for the money than to continue shorting. I unfortunately don't have an infinite cash balance so I have to choose which trades I want to pursue.
Also, are you familiar with the concept of profit taking? Sometimes it helps to take profits ...
At 2.40 I have better trades to put on rather than shorting zynga. Keeping in mind that some of us started shorting above 10, the percentage improvement relative to the original cost basis is much smaller. Seeing as how I don't have an infinite cash balance, there are better plays and I wouldn't short with fresh cash (which is definitely not to say I would buy here -- far from it)
"Okay, I give up, you're absolutely right, there's an 80% chance of bankruptcy and only a 5% chance that they'll ever have another hit game even though they've already had half a dozen."
Market is currently pricing in more pain ahead ...
Good to see Zynga "admitting" that OMGPOP was overpriced ...
This would have been a great opportunity to discuss real business challenges with CSCO.
Five years ago, most people would have used some set of cisco network hardware in their business, but now other vendors such as Juniper, Arista, Blade (now owned by IBM), Voltaire and Mellanox have stepped up and cornered important and growing segments of the market (including the 10g/40g standards) and it's not unreasonable to assume that cisco won't be the leader when the Interlaken 100g standard is adopted.
Interestingly enough, over the past few months many people in the tech scene really started to raise questions over the value of MAUs, not just for Facebook but also for every other site.
"There comes a point where price is low enough to outweigh the negative situations"
Do you think we are there now at 2.40?
AFAICT the bears aren't broke, and I imagine quite a few (like me) covered Thursday AH and Friday
"Long ZNGA... deal with it"
I hope you sold before the recent meltdown
"seeing things as they truly are"
I hope that last Thursday's announcement demonstrates that the bears are the ones who actually saw things as they truly are ...
Given what happened since these posts (in light of what happened Thursday night / Friday), it's actually somewhat funny to go back and look at the prognostications ...
"Where does Zynga fit in all this? Well I am betting that Zynga will eventually be one of those licensed companies that will be allowed to offer gambling services across the US. Yes there might be other companies out there also, but there is no one better positioned and with a bigger online gaming clientele than Zynga."
As I said a few months ago here http://seekingalpha.co... , I think that the big winner will be the existing entities which do have poker licenses, such as Las Vegas Sands (LVS) and MGM Resorts (MGM)
I think as a whole the "social" internet (facebook, zynga, linkedin, etc) allow people to live social lives viscerally through others. Farmville and other "social" games allow you to interact with other people in this sheltered environment. In real life you could be unemployed or grossly disfigured, but on the internet no one knows exactly who you are and what you look like. If you will, its a form of escapism, and the tasks at hand (tending to virtual crops or responding to others) gives people purpose (as hokey as it sounds)
I think the people who work for these companies try to understand how to cultivate a sense that the environment is a proper replacement for real-life human interaction. That somehow sending messages by Facebook is tantamount to a call or to an SMS. That somehow that list of friends on Facebook makes you popular. That somehow that list of contacts on Linkedin makes you an important businessperson. That somehow receiving or using digital goods constitutes real giving.
As a whole, I don't think they have any better insight than we do. Facebook actually hired sociologists to look into their massive user database and conduct studies: http://bit.ly/RBjA35
As for myself, I try to live life as much as possible. I try to use events like lunch, dinner, coffee breaks as occasions to meet with friends as much as possible. Those sites never really made much sense to me, and only recently I decided to revisit them (partly because of my interest in evaluating the companies). My real-life friends are like-minded: they eschew "social" internet and strongly favor real-life meetups.
"they are operating cash flow positive although you are correct if you add back in stock compensation it's negative."
I dont think either of us can answer the following question: what will be the key employee retention rate if they tried to scale back compensation? How much can they scale back, in light of their recent acquisitions?
"if they weren't plowing money back into game development they could generate positive cash flow even with stock comp"
I wonder, and maybe you could give more color, whether they are forced to spend a lot in order to keep people hooked (that the economic profits have been zapped from the social gaming space). Zynga's ascension, to a great extent, came from a virtuous cycle involving facebook ads (user revenue could be used to fund the ads to get the next few users) which doesn't quite exist anymore.
"They could manufacture [profits] if they really wanted to."
Like with Facebook, I seriously question that point. The barrier to entry is low enough for new games to gain traction if Zynga tries to monetize heavily.
But to your overall point, if they manage to streamline the business I would definitely cover.
No one disagreed that it could happen. The question is how well can ZNGA can take advantage of it. The only fact that we can look at is the current ratio of paying users (which is very small at the moment). I suspect the majority of gamers will stop playing rather than pay to play
"they're litterally priced like the business is worth nothing. "
They are still priced like the business still has value. Even under your numbers, they are still floating well above the tangible asset value.
"The title of your article is the bulls have no facts to support their case. Iptso factso you're arguing the business is worth nothing."
(p.s. its ipso facto)
I am arguing that there are real facts, that the bulls are ignoring the facts that go against their theses, and that the price can fall below the current price. That doesn't mean zero. I don't think I'd continue to short ZNGA if it dipped below $1, for example (apart from the logistical difficulties, the upside to continue shorting would be muted), but a person recommends to short it means that the future price will be below the current price.
"I'm giving you their past performance as facts to support the bull case that the business is worth something."
The past performance shows they are continuing to burn money, agreed? But that aside, investing isn't about past performance; its about future expectations. Citigroup was more than $300/sh a few years ago -- does that mean it's a screaming buy and will jump back tomorrow? Human Genome Sciences was bought by Glaxosmithkline for $14.25 per share, even though it was double that price nearly a year before the offer.
"I'm challenging you to prove what the title of your article is claiming that the bulls are wrong and the market is right that the business is worth nothing. "
In the gaming industry, as many others have pointed out, hits can come from anywhere. OMGPOP wasn't a particularly massive game development shop, and basically out of nowhere Draw Something came onto the scene and in less than six weeks had tens of millions of players. It's in that sense that I sincerely question the value of looking at their past hits. They don't have the brand value of other gaming firms like Activision Blizzard, and if you extrapolate the trend suggests greatly decreased numbers moving forward.
" I've made a lot of money betting that companies like LEN and CHS were not worth nothing when the market was saying they were worth nothing."
Congratulations! I am in the money at the moment shorting ZNGA, and I really hope you bought last week when it dipped below $2.75 (2.90 at the time of the comment now).
"There's money to be made when you know the market is irrational."
Very true, but it's important on both sides (both long and short case) to clearly distinguish between facts (like year over year growth or operating losses) and opinions (zynga free poker gamers will/won't migrate to the paid poker solution). Any skepticism I expressed at an opinion was done to emphasize the difference between facts and opinons.
Wedbush called for 200B Facebook valuation: http://bit.ly/N5TbcT
"people referring to cash were comparing it's tangible assets to it's market cap."
The balance sheet actually shows a figure of $1.52B for tangible assets ...