Event: Online social gaming company Zynga (ZNGA) zapped shareholders yesterday by saying yesterday its bookings for the year would be lower than expected. Zynga also said it would incur a huge write-down on its acquisition of OMGPop. A number of analysts slashed price estimates after the news. Shares of Zynga dropped 20% in trading on Friday. The stock is down more than 70% since its IPO in December, 2011.
Analysis: Zynga is a cautionary tale for those considering investing in a fad. While Zynga has an impressive number of customers, those users can leave as quickly as they came. Competition for gaming on Facebook (FB) is increasing. In addition more and more users are going mobile. That trend takes away from the PC-based gaming platforms that Zynga relies upon. The recent collapse in share price may be enticing to those investors interested in bottom-feeding. Keep in mind, a low stock price does not equate to a low valuation. Zynga is still worth a billion dollars. Excluding items, the company is looking at a break-even or loss of a penny per share for the quarter. That is in line with current expectations. Revenues in the quarter are set to come in at $300 million to $305 million. The expectation was for sales of $286.4 million. On that basis, perhaps the market is overreacting a bit to the news. I expect a rebound of at least 5% next week.
Action: Consider buying shares outright at these prices for a quick 5% pop. I would look to build a position beginning early Friday afternoon.
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