M. J. Capaldi's  Instablog

M. J. Capaldi
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Former Investment Banker uses Chalkin Money Flow, On Balance Volumes and Ultimate oscillator to uncover early stock gems that can give you parabolic growth. At the early stages stocks are often ignored by institutions and 80% of stock increases are missed by large investors and Pareto's law is... More
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Capgains.com
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  • Zynga's Pincus And Amazon's Bezos Unlikely Heroes At The Beginning. 0 comments
    Apr 3, 2012 3:32 PM | about stocks: ZNGA, AMZN, EA

    Jeff Bezos unwillingness to focus on early profits and his secular focus on market share shook many early investors from a tremendous growth story at Amazon. His willingness to look at a 5-7 year time horizon and invest capital heavily and aggressively at the early stages was uncanny.

    In the early days of Amazon he was quoted in a Forbes article stating, "It was not enough to be earth's biggest book store but our real goal is to be earth's biggest anything store" His admitting that it's OK to make mistakes in the beginning but it is not OK to be timid is a lasting lesson for internet entrepreneurs as there are millions trying to do what has been done and the barriers to entry almost nonexistent making it harder to keep market share and even more elusive is to grow repeatedly in different markets.

    Also Amazon has been "obsessed with customers" like Bezos has been known to say often. A great customer experience means never having to talk to one but inventing what they need to maximize their user experience has always been paramount at Amazon.

    Mark Pincus the CEO of Zynga has a mission statement that he wants to connect the world through games. A bold and untimid style has made him a success at his former stop support.com and has allowed Zynga to capture a more than 200 million user a day average for over a few years now. That is more than the number of US households with internet connections.

    An aggressive pair of purchases of two rapidly growing and widely followed game titles shows a willingness to take the risks and use the companies newfound capital to dominate. The first buy was "Words with Friends", a top online gaming title played by housewives, soccer moms, and the out of work. I kid!! A second acquisition finalized last week was "Draw Something" , owned by OMGPop and acquired for 180 million reportedly. Definitely two not so timid moves.

    A customer experience obsession exists at Zynga and is evidenced by so many games that start and are not adopted quickly and become trash before destroying the integrity of their platform. Pincus was quoted in an interview with the WSJ stating, "If a game doesn't work; I can it!".

    There are many competitors in the gaming space but two are making social media headway. (ERTS) Electronic Arts and Disney seem to be the largest and scariest. EA has all the great titles and is a fan fave but they rely heavily on hardware platforms and (NASDAQ:MSFT) Microsoft and others eat up some of their share. As does Facebook with Zynga and has a five year agreement hammered out to share 30%, however (NYSE:DIS) Disney has the younger set and with their ownership of content like Espn, Disney, ABC, and others a likelihood of paying out for content is highly unlikely. They are a definite juggernaut.

    However, I like Zynga winning out in the long run as the digital media convergence promise will power Disney more and that control of internet TV is likely where the lionshare of future capital will be deployed.

    Early value investment post IPO by Legg Mason's storied value investor William Miller the former manager of the Legg Mason value trust cemented him as a legend. Post IPO the firm controlled between 8-16 % of the outstanding shares and ignored the many analyst calls who were short sided and quarterly earnings focused. I'd like to think if Bill Miller who retired in 2010 were around he'd be loading up on Zynga.

    I always like to look at what mutual fund managers are holding my stocks and I am in great company right now as the Fidelity OTC fund a five star large cap growth fund owns 1.5%.

    In fairness and disclosure I own 7000 shares of Zynga purchased in the open market and trusts I manage own another 10,000 shares I bought all around $13 and I have no intention of selling but I likely will be buying more if any dips occur.

    Marc Capaldi

    Editor

    Capgains.com

    Capgains.com is a site that is not meant to replace financial advisement. Contact your financial adviser to determine your risk profile before investing and determine if the positions written about are suitable to your risk profile. If you do not have a financial adviser find one we are not meant to replace the advice of one. We are not responsible for any loss of principal as a result of following our picks. Our "calls" are meant to be a tracking and commentary of our own takes and picks based on our own reliance of what we believe to be material facts. Do your own due diligence. Any positions held will be disclosed to our readers and will be clearly disclosed as a long or short position. we can only add a position 48 hours after writing about it.

    Disclosure: I am long ZNGA.

    Additional disclosure: Capgains.com is a site that is not meant to replace financial advisement. Contact your financial adviser to determine your risk profile before investing and determine if the positions written about are suitable to your risk profile. If you do not have a financial adviser find one we are not meant to replace the advice of one. We are not responsible for any loss of principal as a result of following our picks. Our "calls" are meant to be a tracking and commentary of our own takes and picks based on our own reliance of what we believe to be material facts. Do your own due diligence. Any positions held will be disclosed to our readers and will be clearly disclosed as a long or short position. we can only add a position 48 hours after writing about it.

    Stocks: ZNGA, AMZN, EA
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