Monday, November 12, 2012

$ZNGA is Trading Below Book, Around Cash, and Has a $200 Million Share Repurchase Program

At $2.12 (a market cap of $1.61 billion), as of September 30, 2012, social gaming company Zynga ($ZNGA) had $1.352 billion in cash and short term investments (actually their Q3 earnings release said they had $1.6 billion in cash, cash equivalents and marketable securities) and a book value of $1.854 billion (via ycharts). So ZNGA has a price/book ratio of 0.868 and a price/cash ratio of 1.19. In Zynga's Q3 earnings release they also announced a cost reduction plan and a $200 million share repurchase program. Wow.

Cost Reduction Plan

Yesterday Zynga announced a cost reduction plan expected to generate pre-tax savings in the fourth quarter in the range of $15 to $20 million, excluding an estimated $8 to $12 million pre-tax restructuring charge in the same period. As part of the plan, Zynga expects to complete a reduction in force of approximately 150 employees or approximately 5% of its current workforce, and implement additional cost reduction measures, including steps to rationalize its product pipeline, reduce marketing and technology expenditures and consolidate certain facilities.

Share Repurchase Program

Zynga today announced that its Board of Directors has authorized a share repurchase program. Under the program, Zynga is authorized to repurchase up to $200 million of its outstanding Class A common stock. The timing and amount of any share repurchases will be determined based on market conditions, share price and other factors.

Source: Zynga.


ZNGA Book Value  Chart


And the blog Insider Monkey noticed that a Zynga insider (a board member) bought a huge chunk of shares on the open market.

A trust held by Ellen Siminoff, formerly a Yahoo executive and CEO of search advertising company Efficient Frontier, along with her husband purchased 250,000 shares on October 31st at an average price of $2.22 per share.

The main problem with Zynga is that its games aren't making money. So, until they can break that trend (plug the leak), make a genius business decision or acquisition, get someone to buy them at a premium, or use this buyback to squeeze shorts to death, $ZNGA will probably be range bound in the near-to-intermediate term (see my previous post with a chart). The same thing is going on with $GRPN (Groupon). These are very distressed and volatile times for social media companies. Who here doesn't think Zynga and Groupon will turn around?


ZNGA Net Income Quarterly Chart

Disclosure: Not long ZNGA or GRPN

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