(This is an excerpt from an article I originally published on Seeking Alpha on April 19, 2012. Click here to read the entire piece.)
{snip}…selling in the stock is accelerating as Zynga wipes out all of its post-Facebook gains and retests its $10 IPO price. If Facebook is a $90B company, then Zynga’s 12% share of revenue should make it roughly an $11B company. This represents 50% upside from current levels, conveniently placing ZNGA right under its all-time intra-day high. This relative valuation is of course not gospel, but it serves as a good starting point for measuring Zynga’s upside potential from current levels.
The chart below points out many of the interesting features of Zynga’s chart since its IPO – a lot has happened in 5 short months!
Click image for larger view…
Source: FreeStockCharts.com
{snip}
This downtrend began with ZNGA’s announcement of an $180 acquisition of mobile gaming company OMGPop. {snip} The stock has been mostly downhill since then. A Bloomberg segment on April 17th talked about ZNGA’s desire to do similarly large acquisitions over the next few years. This news seemed to accelerate the selling. Now, the stock has extended its distance from the downtrend line and rests at its IPO price.
It looks to me like the selling is finally reaching a buyable crescendo. {snip}
The most immediate risk is that the market continues to react negatively to the prospect of Zynga spending significant portions of its $1.8B hoard in cash and investments to acquire growth. {snip}
Looking ahead over the next five weeks, earnings and expiring lockups deliver more company-specific risks before and immediately after the Facebook IPO:
{snip}
If these risk factors cause further weakness, I am targeting a retest of the lows around $8.00 as another buying point. Unless ZNGA’s earnings demonstrate a surprisingly material weakness, I anticipate maintaining the $15 upside target.
Be careful out there!
(This is an excerpt from an article I originally published on Seeking Alpha on April 19, 2012. Click here to read the entire piece.)
Full disclosure: long ZNGA shares and calls