Sunday, July 29, 2012

Zynga Inc (NASDAQ:ZNGA) Posted Fifth Straight Weekly Losses, What to do next?

Weekly Losses posted by ZNGA in The Past 5 weeks

Shares of Zynga Inc(NASDAQ:ZNGA) continued to slid for the fifth straight week and it was the worst weekly performance by the stock since its stock market debut in December. During the week, the stock eroded about 36% or $1.56 billion in market capitalization – that’s huge from any point of view. Well, the poor numbers by the company should be blamed for such erosion as the company posted disappointing second quarter earnings and trimmed its full year earnings target on back of delay in their game launch as well as sudden change in users’ preference.

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The stock made its debut with an IPO price of $10. Initially the company got impressive response from the wall street and the stock gained about 60% in first 2 ½ months, reaching its life time high of $15.91 by early March. However, the stock started losing once investors started realizing that the company has been facing slowdown in users growth. The stock rapidly corrected almost 50% from its peak by mid May.

On May 18, the company’s only revenue provider Facebook Inc(NASDAQ:FB) listed on the stock market, which become another reason for the stock to fall further as Facebook’s filing revealed that the company has been experiencing difficulties in generating ad revenue.

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The stock fell another 40% from $8.30 to $5 by mid June followed by a small recovery of about 20%. Then the stock went into consolidation phase for the next month.  Last Wednesday, the stock slumped about 37.50% as the company failed to impress its investors and the stock made an all time low of $2.97. The stock has lost over 80% from its peak and about 69% from its IPO price of $10.

Conclusion & Trading Strategy For Buy Hungry Investors

Although technically, the stock looks oversold but any short term recovery could pull the stock further lower as selling is quite expected on any bounce back. Investors need to trade cautiously on the stock. However, if anyone is desperate to make a buy call in the stock, he/she needs to hedge the buy position by buying a put option. In that way loss would be pre-determined and if any bounce back happens, one can make better income. Put option with a strike price of $3 is trading at 19 cents with an expiry date of August 12. If one buys it, then the breakeven point would be $3.28 and maximum loss would be 28 cents or 7% at current market price. 

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